UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22559
First Trust Exchange-Traded Fund IV
(Exact name of registrant as specified in charter)
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: (630) 765-8000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2020
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 20549-1090. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Report to Stockholders.
The registrant’s annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows:
FIRST TRUST
First Trust Exchange-Traded Fund IV
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First Trust North American
Energy Infrastructure Fund (EMLP)
First Trust EIP Carbon Impact
ETF (ECLN)
Annual Report
For the Year Ended
October 31, 2020
Energy Income Partners, LLC
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TABLE OF CONTENTS
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FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2020
Shareholder Letter........................................................... 1
Fund Performance Overview
First Trust North American Energy Infrastructure Fund (EMLP).............. 2
First Trust EIP Carbon Impact ETF (ECLN).................................. 4
Notes to Fund Performance Overview........................................... 6
Portfolio Commentary......................................................... 7
Understanding Your Fund Expenses............................................. 10
Portfolio of Investments
First Trust North American Energy Infrastructure Fund (EMLP).............. 11
First Trust EIP Carbon Impact ETF (ECLN).................................. 13
Statements of Assets and Liabilities......................................... 15
Statements of Operations..................................................... 16
Statements of Changes in Net Assets.......................................... 17
Financial Highlights......................................................... 18
Notes to Financial Statements................................................ 19
Report of Independent Registered Public Accounting Firm...................... 26
Additional Information....................................................... 27
Board of Trustees and Officers............................................... 34
Privacy Policy............................................................... 36
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Energy Income Partners, LLC ("EIP" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (each such series is referred to as a "Fund" and collectively, as
the "Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and/or Sub-Advisor and their respective representatives
only as of the date hereof. We undertake no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund's shares may therefore be less than what you paid
for them. Accordingly, you can lose money investing in a Fund. See "Risk
Considerations" in the Additional Information section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
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.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund and presents data and analysis that provide
insight into each Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Funds, you may obtain an understanding of how the market environment affected
each Fund's performance. The statistical information that follows may help you
understand each Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor and/or Sub-Advisor are just that: informed opinions. They should not be
considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. The material risks of
investing in each Fund are spelled out in the prospectus, the statement of
additional information, and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2020
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
North American Energy Infrastructure Fund and the First Trust EIP Carbon Impact
ETF (the "Funds"), which contains detailed information about the Funds for the
twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that
my message this year should touch on the tone of the markets and the investing
climate rather than belabor all the news and events that brought us to this
juncture. We all know how tumultuous our lives have become over the past eight
or so months. The phrase "shelter-at-home" says it all. I would rather talk
about why I believe investors should be optimistic about where we could be
headed.
Having said that, allow me to at least acknowledge the two elephants in the
room: the coronavirus ("COVID-19") and the election. In the first 12 days of
November, we learned the following: that we likely have a new president-elect
(Joe Biden), though it may not be official for some time because it is being
contested by President Donald Trump and some of his loyal backers in the
Republican Party citing voter fraud in certain states; that we still do not know
which political party will have control of the Senate due to a couple of
run-offs in Georgia to be held on January 5, 2021; and, that it looks as though
we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either
the end of 2020 or the start of 2021, though that too is not yet official. It
could be a game-changer in the COVID-19 battle. And, we may gain access to
additional vaccines as well. The key to getting the economy back to running on
all cylinders is to fully reopen, and a vaccine is "what the doctor ordered."
With respect to the tone of the markets and investment climate, to say that I am
encouraged about what has transpired in 2020 would be an understatement. Despite
the extraordinary challenges so far this year, the S&P 500(R) Index posted a
total return of 2.77% over the first 10 months of 2020, this despite plunging
33.8% into bear market territory from February 19, 2020 through March 23, 2020,
according to Bloomberg. As impressive as that feat is, the future looks even
brighter. While Bloomberg's consensus earnings growth rate estimate for the S&P
500(R) Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022
estimates were 21.74% and 16.95%, respectively. That is a strong take on the
prospects for a rebound in Corporate America over the next 24 months. One of the
tailwinds that is providing a good deal of support to the economy and markets is
the decision by the Federal Reserve (the "Fed") to keep interest rates
artificially low for as long as need be to meet both its employment and
inflation targets. By keeping rates lower for longer, the Fed is essentially
inviting investors to assume more risk to generate higher returns. Brian
Wesbury, Chief Economist at First Trust, believes that the Fed could need until
2024 to accomplish its goals. That is a lot of runway for investors to
reposition their portfolios, if needed, and a very generous, and perhaps
unprecedented, amount of guidance from the Fed, in our opinion. Those investors
with cash on the sidelines earning next to nothing have options if they choose
to act.
We are encouraged about the prospects for the economy and the markets, but
investors should be prepared to weather some volatility until the COVID-19
pandemic is better contained. As always, we encourage investors to stay the
course!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the
Funds again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (6/20/12) 5 Years Ended Inception (6/20/12)
10/31/20 10/31/20 to 10/31/20 10/31/20 to 10/31/20
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV -16.69% 1.06% 3.64% 5.42% 34.87%
Market Price -16.76% 1.02% 3.63% 5.18% 34.78%
INDEX PERFORMANCE
Blended Benchmark(1) -18.29% 0.74% 2.70% 3.76% 24.93%
S&P 500(R) Index 9.71% 11.71% 13.41% 73.97% 186.45%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Fund Performance Overview on page 6.)
-----------------------------
(1) The Blended Benchmark consists of the following two indices: 50% of the
PHLX Utility Sector Index which is a market capitalization weighted index
composed of geographically diverse public U.S. utility stocks; and 50% of
the Alerian MLP Total Return Index which is a float-adjusted,
capitalization-weighted composite of the 50 most prominent energy Master
Limited Partnerships (MLPs). Indices are unmanaged and an investor cannot
invest directly in an index. All index returns assume that distributions
are reinvested when they are received. The Blended Benchmark returns are
calculated by using the monthly return of the two indices during each
period shown above. At the beginning of each month the two indices are
rebalanced to a 50-50 ratio to account for divergence from that ratio that
occurred during the course of each month. The monthly returns are then
compounded for each period shown above, giving the performance for the
Blended Benchmark for each period shown above.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Electric Power & Transmission 47.15%
Natural Gas Transmission 28.64
Petroleum Product Transmission 16.79
Crude Oil Transmission 4.12
Other 3.30
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Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
Enterprise Products Partners, L.P. 7.74%
NextEra Energy Partners, L.P. 7.67
TC Energy Corp. 7.48
Magellan Midstream Partners, L.P. 6.98
Public Service Enterprise Group, Inc. 5.74
TC PipeLines, L.P. 5.43
Sempra Energy 4.63
NextEra Energy, Inc. 4.53
Williams (The) Cos., Inc. 2.77
Alliant Energy Corp. 2.77
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Total 55.74%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 20, 2012 - OCTOBER 31, 2020
First Trust North American Blended S&P 500(R)
Energy Infrastructure Fund Benchmark Index
<S> <C> <C> <C>
6/20/12 $10,000 $10,000 $10,000
10/31/12 10,690 10,582 10,495
4/30/13 12,379 12,241 12,008
10/31/13 12,138 12,064 13,347
4/30/14 13,341 13,381 14,463
10/31/14 14,861 14,383 15,652
4/30/15 15,005 13,803 16,341
10/31/15 12,793 12,040 16,467
4/30/16 13,004 12,531 16,538
10/31/16 14,330 13,087 17,209
4/30/17 14,896 14,126 19,501
10/31/17 14,768 13,897 21,276
4/30/18 13,914 13,586 22,089
10/31/18 14,171 14,142 22,840
4/30/19 15,869 15,241 25,068
10/31/19 16,188 15,288 26,111
4/30/20 13,590 12,513 25,286
10/31/20 13,487 12,493 28,645
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (8/19/19) Inception (8/19/19)
10/31/20 to 10/31/20 to 10/31/20
<S> <C> <C> <C>
FUND PERFORMANCE
NAV 5.69% 7.36% 8.90%
Market Price 5.64% 7.37% 8.90%
INDEX PERFORMANCE
PHLX Utility Sector Index 2.69% 6.39% 7.71%
S&P 500(R) Index 9.71% 11.83% 14.36%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Fund Performance Overview on page 6.)
Page 4
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST EIP CARBON IMPACT ETF (ECLN) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Electric Power & Transmission 73.22%
Natural Gas Transmission 20.55
Petroleum Product Transmission 1.25
Other 4.98
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
NextEra Energy Partners, L.P. 8.94%
NextEra Energy, Inc. 6.69
Sempra Energy 5.82
Alliant Energy Corp. 5.42
Xcel Energy, Inc. 5.19
TC PipeLines, L.P. 5.12
Public Service Enterprise Group, Inc. 4.26
CMS Energy Corp. 4.04
WEC Energy Group, Inc. 3.94
American Water Works Co., Inc. 3.92
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Total 53.34%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 19, 2019 - OCTOBER 31, 2020
First Trust EIP PHLX Utility S&P 500(R)
Carbon Impact ETF Sector Index Index
<S> <C> <C> <C>
8/19/19 $10,000 $10,000 $10,000
10/31/19 10,304 10,489 10,424
4/30/20 9,818 9,586 10,095
10/31/20 10,890 10,771 11,436
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 5
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NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
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Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the periods
indicated.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of each Fund did
not trade in the secondary market until after the Fund's inception, for the
period from inception to the first day of secondary market trading in shares of
the Fund, the NAV of each Fund is used as a proxy for the secondary market
trading price to calculate market returns. NAV and market returns assume that
all distributions have been reinvested in each Fund at NAV and Market Price,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. 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. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 6
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PORTFOLIO COMMENTARY
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FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
ADVISOR
First Trust Advisors, L.P. ("First Trust") is the investment advisor to the
First Trust North American Energy Infrastructure Fund ("EMLP") and the First
Trust EIP Carbon Impact ETF ("ECLN") (each a "Fund"). First Trust is responsible
for the ongoing monitoring of each Fund's investment portfolio, managing each
Fund's business affairs and providing certain administrative services necessary
for the management of each Fund.
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP"), located in Westport, CT, was founded in
2003 to provide professional asset management services in publicly traded
energy-related infrastructure companies with above average dividend payout
ratios operating pipelines and related storage and handling facilities, electric
power transmission and distribution as well as long contracted or regulated
power generation from renewables and other sources. The corporate structure of
the portfolio companies include C-corporations, partnerships and energy
infrastructure real estate investment trusts. EIP mainly focuses on investments
in assets that receive steady fee-based or regulated income from their corporate
and individual customers. EIP manages or supervises approximately $3.7 billion
of assets as of October 31, 2020. EIP advises two privately offered partnerships
for U.S. high net worth individuals and an open-end mutual fund. EIP also
manages separately managed accounts and provides its model portfolio to unified
managed accounts. Finally, EIP serves as a sub-advisor to four closed-end
management investment companies, two actively managed exchange-traded funds, a
sleeve of an actively managed exchange-traded fund and a sleeve of a series of
variable insurance trust. EIP is a registered investment advisor with the
Securities and Exchange Commission.
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE -- CO-PORTFOLIO MANAGER, FOUNDER, CEO AND PRINCIPAL OF ENERGY
INCOME PARTNERS, LLC
EVA PAO -- CO-PORTFOLIO MANAGER AND PRINCIPAL OF ENERGY INCOME PARTNERS, LLC
JOHN TYSSELAND -- CO-PORTFOLIO MANAGER AND PRINCIPAL OF
ENERGY INCOME PARTNERS, LLC
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund.
COMMENTARY
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND
The Fund's investment objective is to seek total return. The Fund pursues its
investment objective by investing, under normal market conditions, at least 80%
of its net assets (including investment borrowings) in equity securities of
companies deemed by EIP to be engaged in the energy infrastructure sector. These
companies principally include publicly traded master limited partnerships and
limited liability companies taxed as partnerships ("MLPs"), MLP affiliates,
pipeline companies, utilities, and other companies that derive the majority of
their revenues from operating or providing services in support of infrastructure
assets such as pipelines, power transmission and petroleum and natural gas
storage in the petroleum, natural gas and power generation industries
(collectively, "Energy Infrastructure Companies"). The Fund will invest
principally in Energy Infrastructure Companies. Under normal market conditions,
the Fund will invest at least 80% of its net assets (including investment
borrowings) in equity securities of companies headquartered or incorporated in
the United States and Canada. There can be no assurance that the Fund's
investment objective will be achieved. The Fund may not be appropriate for all
investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index (the "MLP Index") and the PHLX
Utility Sector Index (the "UTY Index"), the total return for energy-related MLPs
and utilities for the 12-month period ended October 31, 2020 was -42.52% and
2.69%, respectively. These figures are according to data collected from Alerian
Capital Management and Bloomberg. As measured by the S&P 500(R) Index (the
"Index"), the broader equity market over the same period returned 9.71%.
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis for the 12-month period ended October 31,
2020, the Fund provided a total return of -16.69%, including the reinvestment of
dividends. This compares, according to collected data, to a total return of
-18.29%(1) for the compounded average of the two indices (the "Blended
Benchmark") (-42.52% for the MLP Index and 2.69% for the UTY Index), and 9.71%
for the S&P 500(R) Index.
-----------------------------
(1) The total return is the monthly rebalanced return for the MLP Index and
UTY Index.
Page 7
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
The Fund declared quarterly distributions during the fiscal year as follows:
$0.2595 per share in December 2019; $0.2584 per share in March 2020; $0.2813 per
share in June 2020; and $0.2168 per share in September 2020.
The Fund's NAV total return of -16.69% outperformed the -18.29% average return
of the Blended Benchmark. The Fund's outperformance was driven by overweight
positions in utilities and pipeline C-Corporations ("C-Corps ") that were not as
affected by volatile oil prices. The Fund also benefited from its lower overall
MLP exposure compared to the Blended Benchmark that has a 50% weight of MLPs
that underperformed during the period. EIP has sought to consistently run a more
conservative portfolio compared to the Blended Benchmark. This conservatism is
reflected in holding a more diversified set of higher quality companies that
themselves have more conservative balance sheets, more stable cash flows and
lower dividend payout ratios. This more conservative approach to investing in
North American energy infrastructure was the primary driver to the Fund's
outperformance in a volatile market.
MARKET AND FUND OUTLOOK
The first calendar quarter of 2020 was dominated by the dramatic price declines
in the crude oil market due to Saudi and Russian production decisions coupled
with the demand shock related to the coronavirus ("COVID-19") pandemic. These
weak market conditions drove a -21% decline in the Alerian MLP Index between
January 1 and February 28 of 2020, then panic took hold in March driving another
-59% decline by March 18. (Source: Bloomberg) Our analysis indicates that forced
selling by levered closed-end MLP funds was approximately $4.3 billion and
outflows from open-end funds were approximately $0.9 billion in a four-week
period. This is nearly $1 billion more than the selling that occurred over a
9-month period in 2015-2016 due to outflows and de-leveraging when oil prices
corrected from over $100 per barrel, but on assets that were nearly three times
as large as today.
Despite a second quarter rally off the lows of the first quarter, stock price
performance of the Alerian MLP Index and the energy companies in the S&P 500(R)
Index turned negative again in the third quarter of 2020 as near-term
fundamentals for crude oil remained uncertain. At the end of the third quarter
of 2020 the price of crude oil was still down -34% year-to-date and drilling
activity remained near the all-time lows set in August of 2020. Crude oil
production was trending lower in most basins by the end of the third quarter
despite rebounding in the second quarter as shut-in production was brought back
online. Second quarter announcements by oil and gas producers to cut spending
and lay off staff was followed by several third quarter merger announcements.
Slowing investment and negative sentiment in upstream energy, driven by
COVID-related declines in demand, have given rise to a narrative that all
conventional energy businesses are in decline; this is simply wrong, in our
opinion. It is true that coal will likely continue to decline, we believe. In
our view, crude oil and refined products demand will be slow to fully recover
from the pandemic and their long-term growth is threatened by electrification of
large parts of the transportation system, but these businesses represent the
minority of our portfolio. And, the companies exposed to these businesses are
trading at dividend yields and valuations that make their expected rates of
return the highest in our portfolio.
On the other hand, in EIP's opinion, the outlook for electricity and natural
gas, which is the majority of the portfolio, remains strong and is increasingly
aligned with public sentiment and environmental policy. Cheaper sources of
cleaner electricity continue to substitute for coal which is likely to continue
to decline as an energy source, in our view, and to which we have no portfolio
earnings exposure. EIP believes electric and natural gas utilities are
experiencing attractive rates of earnings growth as they invest capital to
incorporate cheaper, cleaner, safer, and more reliable sources of energy. In our
view, the network utilities can increase the value of these new technologies by
integrating them into an intelligent system of shared resources much the way
information networks like cloud computing and the new retail intermediaries like
Amazon and eBay are doing for those parts of the economy. We believe the
transition to a shared resource network favors their incumbency and existing
rights of way, which provides energy cheaper to customers than disconnecting
from these networks by "cutting the cord".
EIP is optimistic about the technological breakthroughs in energy and invests in
companies like renewable developers and network utilities that benefit from the
lower cost and higher performance of renewables, batteries, and other new
grid-related innovations. But EIP is not a venture capitalist; companies in the
Fund's portfolio must have a track record of profitability and a willingness to
share some portion of that profitability through dividends. While the names in
the portfolio change over time, the strategy and the sources of earnings
stability and growth remain the same: investing in monopoly infrastructure that
provides the low-cost way of shipping the lowest cost form of energy.
Page 8
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
FIRST TRUST EIP CARBON IMPACT ETF
The First Trust EIP Carbon Impact ETF's (the "Fund") inception date was August
19, 2019. The Fund's investment objective is to seek to achieve a competitive
risk-adjusted total return balanced between dividends and capital appreciation.
The Fund pursues its investment objective by investing, under normal market
conditions, at least 80% of its net assets (including investment borrowings) in
equity securities of companies identified by EIP as having or seeking to have a
positive carbon impact. EIP defines positive carbon impact companies as
companies that reduce, have a publicly available plan to reduce, or enable the
reduction of carbon and other greenhouse gas ("GHG") emissions from the
production, transportation, conversion, storage and use of energy. The Fund's
investments will be concentrated in the industries constituting the energy
infrastructure sector. These companies principally include: utilities; natural
gas pipeline companies; manufacturers, contracted developers and/or owners of
renewable energy; and other companies that derive the majority of their earnings
from manufacturing, operating or providing services in support of infrastructure
assets and/or infrastructure activities such as renewable energy equipment,
energy storage, carbon capture and sequestration, fugitive methane abatement and
energy transmission and distribution equipment. The Fund will generally not
invest in companies comprising the following industries: coal production, oil
exploration and production, or crude oil storage, transportation and delivery.
The Fund's portfolio will be principally composed of equity securities,
including common stock, depositary receipts, and units issued by master limited
partnerships ("MLPs"). Such securities may be issued by small, mid and large
capitalization companies operating in developed market countries.
MARKET RECAP
As measured by the S&P 500(R) Index (the "Index") and the PHLX Utility Sector
Index (the "UTY Index"), the total return for energy-related MLPs and utilities
for the 12-month period ended October 31, 2020 was 9.71% and 2.69%,
respectively. These figures are according to data collected from Bloomberg.
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis for the 12-month period ended October 31,
2020, the Fund provided a total return of 5.69%, including the reinvestment of
dividends. The Fund's NAV total return of 5.69% underperformed the Index by 402
basis points ("bps") and outperformed the UTY Index by 300 bps. The Fund
declared quarterly distributions during the fiscal year as follows: $0.15 per
share in December 2019; $0.0599 per share in March 2020; $0.1142 per share in
June 2020; and $0.1224 per share in September 2020.
Outperformance of the Fund relative to the UTY was partially driven by stronger
earnings expectations relative to the UTY. EIP believes that rapidly evolving
state and federal energy policies and regulations, paired with technological
innovation, continue to drive the transition to an energy system that is safer,
cleaner and more reliable. EIP also believes investors in regulated utilities,
renewable developers and other energy infrastructure companies have an
opportunity to participate in these dramatic changes. EIP is optimistic that
companies involved in activities aimed at reducing carbon and other Greenhouse
Gas (GHG) emissions have good growth potential.
MARKET AND FUND OUTLOOK
In EIP's opinion, the outlook for electricity and natural gas, which is the
majority of the portfolio, remains strong and is increasingly aligned with
public sentiment and environmental policy. Cheaper sources of cleaner
electricity continue to substitute for coal which is likely to continue to
decline as an energy source, in our view, and to which we have no portfolio
earnings exposure. EIP believes electric and natural gas utilities are
experiencing attractive rates of earnings growth as they invest capital to
incorporate cheaper, cleaner, safer, and more reliable sources of energy. In our
view, the network utilities can increase the value of these new technologies by
integrating them into an intelligent system of shared resources much the way
information networks like cloud computing and the new retail intermediaries like
Amazon and eBay are doing for those parts of the economy. We believe the
transition to a shared resource network favors their incumbency and existing
rights of way, which provides energy cheaper to customers than disconnecting
from these networks by "cutting the cord".
EIP is optimistic about the technological breakthroughs in energy and invests in
companies like renewable developers and network utilities that benefit from the
lower cost and higher performance of renewables, batteries, and other new
grid-related innovations. But EIP is not a venture capitalist; companies in the
Fund's portfolio must have a track record of profitability and a willingness to
share some portion of that profitability through dividends. While the names in
the portfolio change over time, the strategy and the sources of earnings
stability and growth remain the same: investing in monopoly infrastructure that
provides the low-cost way of shipping the lowest cost form of energy.
Page 9
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2020 (UNAUDITED)
As a shareholder of First Trust North American Energy Infrastructure Fund or
First Trust EIP Carbon Impact ETF (each a "Fund" and collectively, the "Funds"),
you incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service (12b-1) fees, if any, and
other Fund expenses. This Example is intended to help you understand your
ongoing costs of investing in the Funds and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2020.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2020 OCTOBER 31, 2020 PERIOD PERIOD (a)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST NORTH AMERICAN ENERGY
INFRASTRUCTURE FUND (EMLP)
Actual $1,000.00 $ 992.40 0.95% $4.76
Hypothetical (5% return before expenses) $1,000.00 $1,020.36 0.95% $4.82
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
Actual $1,000.00 $1,109.30 0.95% $5.04
Hypothetical (5% return before expenses) $1,000.00 $1,020.36 0.95% $4.82
</TABLE>
(a) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2020
through October 31, 2020), multiplied by 184/366 (to reflect the six-month
period).
Page 10
<PAGE>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 65.6%
CONSTRUCTION & ENGINEERING
-- 2.2%
586,973 Quanta Services, Inc. $ 36,644,724
--------------
ELECTRIC UTILITIES -- 22.8%
829,665 Alliant Energy Corp. 45,863,881
446,778 American Electric Power Co.,
Inc. 40,178,746
107,153 Duke Energy Corp. 9,869,863
218,270 Emera, Inc. (CAD) 8,707,536
312,068 Eversource Energy 27,234,174
435,875 Exelon Corp. 17,387,054
499,080 Fortis, Inc. (CAD) 19,715,215
504,176 IDACORP, Inc. 44,231,360
1,026,998 NextEra Energy, Inc. 75,186,524
37,700 Orsted A/S, ADR 1,996,969
1,248,650 PPL Corp. 34,337,875
493,716 Southern (The) Co. 28,363,984
466,428 Xcel Energy, Inc. 32,663,953
--------------
385,737,134
--------------
GAS UTILITIES -- 6.2%
2,323,792 AltaGas Ltd. (CAD) 29,459,466
429,078 Atmos Energy Corp. 39,333,580
10,795 Chesapeake Utilities Corp. 1,049,382
773,456 New Jersey Resources Corp. 22,569,446
178,795 ONE Gas, Inc. 12,344,007
--------------
104,755,881
--------------
MULTI-UTILITIES -- 18.7%
578,625 ATCO Ltd., Class I (CAD) 16,108,385
668,976 Canadian Utilities Ltd.,
Class A (CAD) 15,636,053
456,782 CMS Energy Corp. 28,928,004
369,265 Dominion Energy, Inc. 29,666,750
302,536 DTE Energy Co. 37,338,993
1,637,059 Public Service Enterprise Group,
Inc. 95,194,981
611,836 Sempra Energy 76,699,761
164,164 WEC Energy Group, Inc. 16,506,690
--------------
316,079,617
--------------
OIL, GAS & CONSUMABLE FUELS
-- 15.3%
791,898 Enbridge, Inc. 21,824,709
1,231,346 Equitrans Midstream Corp. 8,939,572
1,497,246 Keyera Corp. (CAD) 21,251,161
2,593,746 Kinder Morgan, Inc. 30,865,578
173,018 ONEOK, Inc. 5,017,522
3,144,533 TC Energy Corp. 124,083,272
2,395,496 Williams (The) Cos., Inc. 45,969,568
--------------
257,951,382
--------------
WATER UTILITIES -- 0.4%
43,879 American Water Works Co., Inc. 6,604,228
--------------
TOTAL COMMON STOCKS -- 65.6% 1,107,772,966
(Cost $1,042,722,260) --------------
SHARES/
UNITS DESCRIPTION VALUE
------------------------------------------------------------
MASTER LIMITED PARTNERSHIPS
-- 32.6%
CHEMICALS -- 0.7%
634,917 Westlake Chemical Partners, L.P. $ 11,504,696
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 7.5%
2,024,671 NextEra Energy Partners,
L.P. (a) 127,149,339
--------------
OIL, GAS & CONSUMABLE FUELS
-- 24.4%
36,948 BP Midstream Partners, L.P. 358,396
352,036 Cheniere Energy Partners, L.P. 12,690,898
324,801 Energy Transfer, L.P. 1,672,725
7,748,796 Enterprise Products Partners,
L.P. 128,397,550
1,441,905 Holly Energy Partners, L.P. 16,524,231
3,258,463 Magellan Midstream Partners,
L.P. 115,805,775
676,483 Phillips 66 Partners, L.P. 15,877,056
2,727,939 Plains GP Holdings, L.P.,
Class A (a) 17,431,530
1,458,587 Shell Midstream Partners, L.P. 12,762,636
3,201,009 TC PipeLines, L.P. 90,108,404
--------------
411,629,201
--------------
TOTAL MASTER LIMITED
PARTNERSHIPS -- 32.6% 550,283,236
(Cost $650,203,045) --------------
MONEY MARKET FUNDS -- 1.4%
22,781,093 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 0.01% (b) 22,781,093
(Cost $22,781,093) --------------
TOTAL INVESTMENTS -- 99.6% 1,680,837,295
(Cost $1,715,706,398) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.4% 7,059,347
--------------
NET ASSETS -- 100.0% $1,687,896,642
==============
(a) This security is taxed as a "C" corporation for federal income tax
purposes.
(b) Rate shown reflects yield as of October 31, 2020.
(c) Aggregate cost for federal income tax purposes is $1,727,589,444. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$192,989,372 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$239,741,521. The net unrealized depreciation was $46,752,149.
ADR - American Depositary Receipt
Currency Abbreviations:
CAD - Canadian Dollar
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
LEVEL 1 SIGNIFICANT SIGNIFICANT
QUOTED OBSERVABLE UNOBSERVABLE
PRICES INPUTS INPUTS
------------------------------------------
Common Stocks* $1,107,772,966 $ -- $ --
Master Limited
Partnerships* 550,283,236 -- --
Money Market Funds 22,781,093 -- --
------------------------------------------
Total Investments $1,680,837,295 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 72.9%
CONSTRUCTION & ENGINEERING
-- 0.9%
320 Quanta Services, Inc. $ 19,978
--------------
ELECTRIC UTILITIES -- 33.7%
1,857 Alliant Energy Corp. 102,655
527 American Electric Power Co.,
Inc. 47,393
164 Edison International 9,191
223 Emera, Inc. (CAD) 8,896
2,880 Enel S.p.A., ADR 22,838
654 Eversource Energy 57,075
1,644 Fortis, Inc. (CAD) 64,943
906 Iberdrola S.A., ADR 42,944
554 IDACORP, Inc. 48,602
1,732 NextEra Energy, Inc. 126,800
256 Orsted A/S (DKK) (a) (b) 40,631
1,838 PPL Corp. 50,545
1,405 Xcel Energy, Inc. 98,392
--------------
720,905
--------------
GAS UTILITIES -- 9.0%
2,200 AltaGas Ltd. (CAD) 27,890
515 Atmos Energy Corp. 47,210
465 Chesapeake Utilities Corp. 45,203
1,181 New Jersey Resources Corp. 34,461
553 ONE Gas, Inc. 38,179
--------------
192,943
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 4.6%
203 Brookfield Renewable Corp.,
Class A (CAD) 13,564
350 Clearway Energy, Inc., Class A 9,173
2,802 EDP Renovaveis S.A. (EUR) (c) 53,268
700 Northland Power, Inc. (CAD) 22,640
--------------
98,645
--------------
MULTI-UTILITIES -- 19.3%
1,208 CMS Energy Corp. 76,503
470 Dominion Energy, Inc. 37,760
170 DTE Energy Co. 20,981
190 National Grid PLC, ADR 11,296
1,389 Public Service Enterprise Group,
Inc. 80,770
879 Sempra Energy 110,191
742 WEC Energy Group, Inc. 74,608
--------------
412,109
--------------
OIL, GAS & CONSUMABLE FUELS
-- 1.9%
504 Cheniere Energy, Inc. (d) 24,127
896 Williams (The) Cos., Inc. 17,194
--------------
41,321
--------------
WATER UTILITIES -- 3.5%
494 American Water Works Co., Inc. 74,352
--------------
TOTAL COMMON STOCKS -- 72.9% 1,560,253
(Cost $1,466,773) --------------
SHARES/
UNITS DESCRIPTION VALUE
------------------------------------------------------------
MASTER LIMITED PARTNERSHIPS
-- 15.6%
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS
-- 10.0%
815 Brookfield Renewable Partners,
L.P. (CAD) $ 44,166
2,697 NextEra Energy Partners,
L.P. (e) 169,372
--------------
213,538
--------------
OIL, GAS & CONSUMABLE FUELS
-- 5.6%
655 Cheniere Energy Partners, L.P. 23,613
3,444 TC PipeLines, L.P. 96,949
--------------
120,562
--------------
TOTAL MASTER LIMITED
PARTNERSHIPS -- 15.6% 334,100
(Cost $277,948) --------------
MONEY MARKET FUNDS -- 12.3%
262,732 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 0.01% (f) 262,732
(Cost $262,732) --------------
TOTAL INVESTMENTS -- 100.8% 2,157,085
(Cost $2,007,453) (g)
NET OTHER ASSETS AND
LIABILITIES -- (0.8)% (17,482)
--------------
NET ASSETS -- 100.0% $ 2,139,603
==============
(a) 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. As
such, it does not require the additional disclosure required of restricted
securities.
(b) This security may be resold to qualified foreign investors and foreign
institutional buyers under Regulation S of the 1933 Act.
(c) This security is fair valued by the Advisor's Pricing Committee in
accordance with procedures adopted by the Trust's Board of Trustees, and
in accordance with provisions of the Investment Company Act of 1940, as
amended. At October 31, 2020, securities noted as such are valued at
$53,268 or 2.5% 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 ("NYSE") 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.
(d) Non-income producing security.
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
(e) This security is taxed as a "C" corporation for federal income tax
purposes.
(f) Rate shown reflects yield as of October 31, 2020.
(g) Aggregate cost for federal income tax purposes is $2,007,974. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$220,595 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$71,484. The net unrealized appreciation was $149,111.
ADR - American Depositary Receipt
Currency Abbreviations:
CAD - Canadian Dollar
DKK - Danish Krone
EUR - Euro
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
-------------------------------------------------
Common Stocks:
Independent
Power and
Renewable
Electricity
Producers $ 98,645 $ 45,377 $ 53,268 $ --
Other
Industries* 1,461,608 1,461,608 -- --
Master Limited
Partnerships* 334,100 334,100 -- --
Money Market
Funds 262,732 262,732 -- --
-------------------------------------------------
Total
Investments $2,157,085 $2,103,817 $ 53,268 $ --
=================================================
* See Portfolio of Investments for industry breakout.
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 2020
<TABLE>
<CAPTION>
FIRST TRUST NORTH FIRST TRUST
AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
--------------------- ---------------------
ASSETS:
<S> <C> <C>
Investments, at value.................................................. $ 1,680,837,295 $ 2,157,085
Receivables:
Investment securities sold.......................................... 13,693,701 10,325
Dividends........................................................... 8,692,212 3,204
Reclaims............................................................ -- 41
----------------- -----------------
Total Assets..................................................... 1,703,223,208 2,170,655
----------------- -----------------
LIABILITIES:
Due to custodian....................................................... -- 3
Payables:
Capital shares redeemed............................................. 13,909,149 --
Investment securities purchased..................................... -- 29,312
Investment advisory fees............................................ 1,417,417 1,737
----------------- -----------------
Total Liabilities................................................ 15,326,566 31,052
----------------- -----------------
NET ASSETS............................................................. $ 1,687,896,642 $ 2,139,603
================= =================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 2,179,132,791 $ 1,997,105
Par value.............................................................. 857,550 1,000
Accumulated distributable earnings (loss).............................. (492,093,699) 141,498
----------------- -----------------
NET ASSETS............................................................. $ 1,687,896,642 $ 2,139,603
================= =================
NET ASSET VALUE, per share............................................. $ 19.68 $ 21.40
================= =================
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share).............................. 85,755,000 100,002
================= =================
Investments, at cost................................................... $ 1,715,706,398 $ 2,007,453
================= =================
Foreign currency, at cost (proceeds)................................... $ -- $ (3)
================= =================
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
FIRST TRUST NORTH FIRST TRUST
AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
--------------------- ---------------------
INVESTMENT INCOME:
<S> <C> <C>
Dividends.............................................................. $ 48,318,775 $ 50,637
Foreign withholding tax................................................ (3,388,074) (1,511)
----------------- -----------------
Total investment income............................................. 44,930,701 49,126
----------------- -----------------
EXPENSES:
Investment advisory fees............................................... 20,532,156 19,462
----------------- -----------------
Total expenses...................................................... 20,532,156 19,462
----------------- -----------------
NET INVESTMENT INCOME (LOSS)........................................... 24,398,545 29,664
----------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... (254,865,222) (7,866)
In-kind redemptions................................................. 79,610,234 --
Foreign currency transactions....................................... (201,348) (334)
----------------- -----------------
Net realized gain (loss)............................................... (175,456,336) (8,200)
----------------- -----------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... (338,516,614) 92,447
Foreign currency translation........................................ (2,139) --
----------------- -----------------
Net change in unrealized appreciation (depreciation)................... (338,518,753) 92,447
----------------- -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (513,975,089) 84,247
----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (489,576,544) $ 113,911
================= =================
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FIRST TRUST FIRST TRUST
NORTH AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
-------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
10/31/2020 10/31/2019 10/31/2020 10/31/2019 (a)
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............................. $ 24,398,545 $ 36,342,647 $ 29,664 $ 4,870
Net realized gain (loss)................................. (175,456,336) (51,786,622) (8,200) (1,680)
Net change in unrealized appreciation (depreciation)..... (338,518,753) 317,830,513 92,447 57,185
-------------- -------------- -------------- ---------------
Net increase (decrease) in net assets resulting
from operations....................................... (489,576,544) 302,386,538 113,911 60,375
-------------- -------------- -------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................... (68,217,610) (28,709,335) (32,791) --
Return of capital........................................ (31,788,050) (67,709,012) (11,860) --
-------------- -------------- -------------- ---------------
Total distributions to shareholders...................... (100,005,660) (96,418,347) (44,651) --
-------------- -------------- -------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................ 234,222,012 392,227,615 -- 2,009,968
Cost of shares redeemed.................................. (522,103,189) (150,641,145) -- --
-------------- -------------- -------------- ---------------
Net increase (decrease) in net assets resulting
from shareholder transactions......................... (287,881,177) 241,586,470 -- 2,009,968
-------------- -------------- -------------- ---------------
Total increase (decrease) in net assets.................. (877,463,381) 447,554,661 69,260 2,070,343
NET ASSETS:
Beginning of period...................................... 2,565,360,023 2,117,805,362 2,070,343 --
-------------- -------------- -------------- ---------------
End of period............................................ $1,687,896,642 $2,565,360,023 $ 2,139,603 $ 2,070,343
============== ============== ============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................. 103,305,000 93,555,000 100,002 --
Shares sold.............................................. 9,650,000 16,250,000 -- 100,002
Shares redeemed.......................................... (27,200,000) (6,500,000) -- --
-------------- -------------- -------------- ---------------
Shares outstanding, end of period........................ 85,755,000 103,305,000 100,002 100,002
============== ============== ============== ===============
</TABLE>
(a) Inception date is August 19, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2020 2019 2018 2017 2016
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.83 $ 22.64 $ 24.55 $ 24.76 $ 23.03
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.20 0.36 0.35 0.44 0.30
Net realized and unrealized gain (loss) (4.33) 2.81 (1.33) 0.32 2.37
---------- ---------- ---------- ---------- ----------
Total from investment operations (4.13) 3.17 (0.98) 0.76 2.67
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.70) (0.29) (0.45) (0.48) (0.30)
Return of capital (0.32) (0.69) (0.48) (0.49) (0.64)
---------- ---------- ---------- ---------- ----------
Total distributions (1.02) (0.98) (0.93) (0.97) (0.94)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 19.68 $ 24.83 $ 22.64 $ 24.55 $ 24.76
========== ========== ========== ========== ==========
TOTAL RETURN (a) (16.69)% 14.22% (4.03)% 3.06% 12.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,687,897 $2,565,360 $2,117,805 $1,910,977 $1,379,029
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income (loss) to
average net assets 1.13% 1.52% 1.40% 1.59% 1.44%
Portfolio turnover rate (b) 46% 33% 35% 24% 40%
</TABLE>
<TABLE>
<CAPTION>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
YEAR ENDED PERIOD ENDED
10/31/2020 10/31/2019 (c)
------------ --------------
<S> <C> <C>
Net asset value, beginning of period $ 20.70 $ 20.09
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.30 0.05
Net realized and unrealized gain (loss) 0.85 0.56
---------- ----------
Total from investment operations 1.15 0.61
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.33) --
Return of capital (0.12) --
---------- ----------
Total distributions (0.45) --
---------- ----------
Net asset value, end of period $ 21.40 $ 20.70
========== ==========
TOTAL RETURN (a) 5.69% 3.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,140 $ 2,070
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.95% 0.95% (d)
Ratio of net investment income (loss) to
average net assets 1.45% 1.18% (d)
Portfolio turnover rate (b) 23% 3%
</TABLE>
(a) 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.
(b) 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.
(c) Inception date is August 19, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(d) Annualized.
Page 18 See Notes to Financial Statements
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the two funds listed below. The shares of each fund are listed and traded
on the NYSE Arca, Inc. ("NYSE Arca").
First Trust North American Energy Infrastructure Fund - (NYSE Arca ticker
"EMLP")
First Trust EIP Carbon Impact ETF - (NYSE Arca ticker "ECLN")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Each Fund's Creation Units are generally issued and redeemed
in-kind for securities in which the Fund invests and, in certain circumstances,
for cash, and only to and from broker-dealers and large institutional investors
that have entered into participation agreements. Except when aggregated in
Creation Units, each Fund's shares are not redeemable securities.
Each Fund is an actively managed exchange-traded fund. EMLP's investment
objective is to seek total return. EMLP will invest, under normal market
conditions, at least 80% of its net assets (including investment borrowings) in
equity securities of companies deemed by Energy Income Partners, LLC ("EIP" or
the "Sub-Advisor") to be engaged in the energy infrastructure sector, which
principally include publicly-traded master limited partnerships and limited
liability companies taxed as partnerships ("MLPs"), MLP affiliates, pipeline
companies, utilities, and other companies that derive the majority of their
revenues from operating or providing services in support of infrastructure
assets such as pipelines, power transmission and petroleum and natural gas
storage in the petroleum, natural gas and power generation industries
(collectively, "Energy Infrastructure Companies"). In addition, under normal
market conditions, the Fund will invest at least 80% of its net assets
(including investment borrowings) in equity securities of companies
headquartered or incorporated in the United States and Canada. ECLN's investment
objective is to seek to achieve a competitive risk-adjusted total return
balanced between dividends and capital appreciation. ECLN will invest, under
normal market conditions, at least 80% of its net assets (including investment
borrowings) in equity securities of companies identified by EIP as having or
seeking to have a positive carbon impact, defined as companies that reduce, have
a publicly available plan to reduce, or enable the reduction of carbon and other
greenhouse gas emissions from the production, transportation, conversion,
storage and use of energy. ECLN's investments will be concentrated in the
industries constituting the energy infrastructure sector, which principally
include utilities, natural gas pipeline companies, manufacturers, contracted
developers and/or owners of renewable energy, and other companies that derive
the majority of their earnings from manufacturing, operating or providing
services in support of infrastructure assets and/or infrastructure activities
such as renewable energy equipment, energy storage, carbon capture and
sequestration, fugitive methane abatement and energy transmission and
distribution equipment.
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.
A. PORTFOLIO VALUATION
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.
Page 19
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020
Each Fund's investments are valued daily at market value or, in the absence of
the market value with respect to any portfolio securities, at fair value. Market
value prices represent 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 adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. 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, MLPs and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq Stock Market LLC ("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 principal market for such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, 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 type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund or exchange-traded fund trading of similar
securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
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 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.
Page 20
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020
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:
o 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.
o 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.
o 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, 2020, 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, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in MLPs generally are comprised
of return of capital and investment income. A 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.
C. FOREIGN CURRENCY
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 is 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.
D. DIVIDENDS AND DISTRIBUTION 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 gains earned by each Fund, if any, are distributed
at least annually.
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 significantly modified 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.
Page 21
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020
The tax character of distributions paid by each Fund during the fiscal year
ended October 31, 2020 was as follows:
<TABLE>
<CAPTION>
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
--------------- ------------- -----------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ 68,217,610 $ -- $ 31,788,050
First Trust EIP Carbon Impact ETF 32,791 -- 11,860
</TABLE>
The tax character of distributions paid by each Fund during the fiscal period
ended October 31, 2019 was as follows:
<TABLE>
<CAPTION>
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
--------------- ------------- -----------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ 28,709,335 $ -- $ 67,709,012
First Trust EIP Carbon Impact ETF -- -- --
</TABLE>
As of October 31, 2020, the components of distributable earnings on a tax basis
for each Fund were as follows:
<TABLE>
<CAPTION>
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
--------------- ------------- -----------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ -- $(445,337,693) $ (46,756,006)
First Trust EIP Carbon Impact ETF -- (7,613) 149,111
</TABLE>
E. INCOME 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.
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, 2020, EMLP
and ECLN had non-expiring capital loss carryforwards available for federal
income tax purposes of $445,337,693 and $7,613, respectively.
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. For EMLP, the taxable years ended
2017, 2018, 2019, and 2020 remain open to federal and state audit. For ECLN, the
taxable years ended 2019 and 2020 remain open to federal and state audit. As of
October 31, 2020, 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.
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, 2020, the Funds had
no net late year ordinary 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
Page 22
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020
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, 2020, the adjustments for each Fund were as follows:
<TABLE>
<CAPTION>
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
--------------- -------------- ---------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ 35,885,365 $ (63,976,159) $ 28,090,794
First Trust EIP Carbon Impact ETF (752) 755 (3)
</TABLE>
F. EXPENSES
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.
The Trust, on behalf of the Funds, and First Trust have retained EIP, an
affiliate of First Trust, to serve as the Funds' investment sub-advisor. In this
capacity, EIP is responsible for the selection and ongoing monitoring of the
securities in each Fund's investment portfolio. Pursuant to the Investment
Management Agreement between the Trust and the Advisor, First Trust will
supervise EIP and its management of the investment of each Fund's assets and
will pay EIP for its services as the Funds' sub-advisor. First Trust will also
be responsible for each Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, 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.
Each Fund has agreed to pay First Trust an annual unitary management fee equal
to 0.95% of its average daily net assets. EIP receives a sub-advisory fee for
EMLP from First Trust equal to 45% of any remaining monthly investment
management fee paid to First Trust after the Fund's average Fund expenses
accrued during the most recent twelve months are subtracted from the investment
management fee in a given month. EIP receives a sub-advisory fee for ECLN from
First Trust equal to an annual rate of 0.475% of the Fund's average daily net
assets less one-half of the Fund's expenses, for which EIP is responsible.
First Trust Capital Partners, LLC ("FTCP"), an affiliate of First Trust, owns,
through a wholly-owned subsidiary, a 15% ownership interest in each of EIP and
EIP Partners, LLC, an affiliate of EIP.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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 defined-outcome fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee 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 Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
Page 23
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020
4. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended October 31, 2020, the cost of purchases and proceeds
from sales of investments for each Fund, excluding short-term investments and
in-kind transactions, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
<S> <C> <C>
First Trust North American Energy Infrastructure Fund $ 1,014,057,658 $ 957,364,373
First Trust EIP Carbon Impact ETF 413,081 519,031
</TABLE>
For the fiscal year ended October 31, 2020, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
<S> <C> <C>
First Trust North American Energy Infrastructure Fund $ 227,072,427 $ 507,038,198
First Trust EIP Carbon Impact ETF -- --
</TABLE>
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). In order to purchase Creation Units of each Fund, an
Authorized Participant must deposit (i) a designated portfolio of equity
securities determined by First Trust (the "Deposit Securities") and generally
make or receive a cash payment referred to as the "Cash Component," which is an
amount equal to the difference between the NAV of the Fund Shares (per Creation
Unit Aggregation) and the market value of the Deposit Securities, and/or (ii)
cash in lieu of all or a portion of the Deposit Securities. If the Cash
Component is a positive number (i.e., the NAV per Creation Unit Aggregation
exceeds the Deposit Amount), the Authorized Participant will deliver the Cash
Component. If the Cash Component is a negative number (i.e., the NAV per
Creation Unit Aggregation is less than the Deposit Amount), the Authorized
Participant will receive the Cash Component. Authorized Participants purchasing
Creation Units must pay to BNYM, as transfer agent, a creation transaction fee
(the "Creation Transaction Fee") regardless of the number of Creation Units
purchased in the transaction. The Creation Transaction Fee may increase or
decrease with changes in each Fund's portfolio. The price for each Creation Unit
will equal the daily NAV per share times the number of shares in a Creation Unit
plus the fees described above and, if applicable, any operational processing and
brokerage costs, transfer fees or stamp taxes. When a Fund permits an Authorized
Participant to substitute cash or a different security in lieu of depositing one
or more of the requisite Deposit Securities, the Authorized Participant may also
be assessed an amount to cover the cost of purchasing the Deposit Securities
and/or disposing of the substituted securities, including operational processing
and brokerage costs, transfer fees, stamp taxes, and part or all of the spread
between the expected bid and offer side of the market related to such Deposit
Securities and/or substitute securities.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may increase or decrease with changes in each Fund's
portfolio. Each Fund reserves the right to effect redemptions in cash. An
Authorized Participant may request cash redemption in lieu of securities;
however, a Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
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 March 31, 2022 for EMLP,
and August 14, 2021 for ECLN.
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020
7. INDEMNIFICATION
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.
8. 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.
Page 25
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--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statements of assets and liabilities of First
Trust North American Energy Infrastructure Fund and First Trust EIP Carbon
Impact ETF (the "Funds"), each a series of the First Trust Exchange-Traded Fund
IV, including the portfolios of investments, as of October 31, 2020, the related
statements of operations for the year then ended, the statements of changes in
net assets and the financial highlights for the periods indicated in the table
below, 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, 2020, and the results of their
operations for the year then ended, and the changes in their net assets and the
financial highlights for the periods listed in the table below in conformity
with accounting principles generally accepted in the United States of America.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL FUNDS INCLUDED STATEMENTS OF CHANGES FINANCIAL
IN THE TRUST IN NET ASSETS HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Trust North American Energy For the years ended October 31, 2020 and For the years ended October 31, 2020,
Infrastructure Fund 2019 2019, 2018, 2017 and 2016
------------------------------------------------------------------------------------------------------------------------------
First Trust EIP Carbon Impact ETF For the year ended October 31, 2020 and for the period from August 19, 2019
(commencement of operations) through October 31, 2019.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BASIS FOR OPINION
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, 2020, 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 18, 2020
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
each Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
Each Fund files portfolio holdings information for each month in a fiscal
quarter within 60 days after the end of the relevant fiscal quarter on Form
N-PORT. Portfolio holdings information for the third month of each fiscal
quarter will be publicly available on the SEC's website at www.sec.gov. Each
Fund's complete schedule of portfolio holdings for the second and fourth
quarters of each fiscal year is included in the semi-annual and annual reports
to shareholders, respectively, and is filed with the SEC on Form N-CSR. The
semi-annual and annual report for each Fund is available to investors within 60
days after the period to which it relates. Each Fund's Forms N-PORT and Forms
N-CSR are available on the SEC's website listed above.
FEDERAL TAX INFORMATION
For the taxable year ended October 31, 2020, the following percentages of income
dividend paid by the Funds qualify for the dividends received deduction
available to corporations:
<TABLE>
<CAPTION>
Dividends Received Deduction
----------------------------
<S> <C>
First Trust North American Energy Infrastructure Fund 37.32%
First Trust EIP Carbon Impact ETF 100.00%
</TABLE>
For the taxable year ended October 31, 2020, the following percentages of income
dividend paid by the Funds are hereby designated as qualified dividend income:
<TABLE>
<CAPTION>
Qualified Dividend Income
----------------------------
<S> <C>
First Trust North American Energy Infrastructure Fund 68.47%
First Trust EIP Carbon Impact ETF 100.00%
</TABLE>
A portion of each of the Funds' 2020 ordinary dividends (including short-term
capital gains) paid to its shareholders during the fiscal year ended October 31,
2020, may be eligible for the Qualified Business Income Deduction (QBI) under
Internal Revenue Code Section 199A for the aggregate dividends each Fund
received from the underlying Real Estate Investment Trusts (REITs) these Funds
invest in.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
Page 27
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom's
Financial Conduct Authority announced that LIBOR will cease to be available for
use after 2021. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the fund or on certain
instruments in which the fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. Any such effects of the transition
away from LIBOR, as well as other unforeseen effects, could result in losses to
the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19 pandemic may last
for an extended period of time and will continue to impact the economy for the
foreseeable future.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AND SUB-ADVISORY AGREEMENTS
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND
The Board of Trustees of First Trust Exchange-Traded Fund IV (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 North American Energy
Infrastructure Fund (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 Energy
Income Partners, LLC (the "Sub-Advisor"). The Board approved the continuation of
the Agreements for a one-year period ending June 30, 2021 at a meeting held on
June 8, 2020. 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 reasonable business judgment.
Page 29
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
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 May 11, 2020 and June 8, 2020, 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 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 rate
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 fall-out 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 May 11, 2020, 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 May 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 8, 2020 meeting, as well as at the meeting held that day. The Board
considered supplemental information provided by the Advisor and the Sub-Advisor
on the operations of the Advisor and the Sub-Advisor, respectively, and the
performance of the Fund since the onset of the COVID-19 pandemic. 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 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 May 11, 2020 meeting, described
to the Board the scope of its ongoing investment in additional infrastructure
and personnel 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 June 8, 2020 meeting, the
Board also received a presentation from representatives of the Sub-Advisor
discussing 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.
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
The Board considered the unitary fee rate 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 advisory 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 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, at the May 11, 2020
meeting, 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 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 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, 2019 to the performance of the funds in the Performance
Universe and to that of a blended benchmark index. Based on the information
provided, the Board noted that the Fund outperformed the Performance Universe
median for the one-, three- and five-year periods ended December 31, 2019. The
Board also noted that the Fund outperformed the blended benchmark index for the
one- and five-year periods ended December 31, 2019 but underperformed the
blended benchmark for the three-year period ended December 31, 2019.
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 and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. 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, 2019 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 fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board noted that FTCP has an ownership
interest in the Sub-Advisor and considered potential fall-out benefits to the
Advisor from such ownership interest. The Board also considered that the Advisor
had identified as a fall-out 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. The Board concluded that the character and
amount of potential fall-out benefits to the Advisor were not unreasonable.
The Board considered that the Sub-Advisor's investment services expenses are
primarily fixed in nature, and that the Sub-Advisor has made recent investments
in personnel and infrastructure and anticipates that its expenses will continue
to rise due to additions to personnel and system upgrades. The Board did not
review the profitability of the Sub-Advisor with respect to the Fund. The Board
noted that the Advisor pays the Sub-Advisor from the unitary fee and its
understanding that the Fund's sub-advisory fee rate was the product of an arm's
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
length negotiation. The Board concluded that the profitability analysis for the
Advisor was more relevant. The Board considered fall-out benefits that may be
realized by the Sub-Advisor from its relationship with the Fund, including
soft-dollar arrangements, and considered a summary of such arrangements. The
Board also considered the potential fall-out benefits to the Sub-Advisor from
the ownership interest of FTCP in the Sub-Advisor. The Board concluded that the
character and amount of potential fall-out 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
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 Exchanged-Traded Fund IV 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, 2019, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Funds is $957,969. This
figure is comprised of $59,477 paid (or to be paid) in fixed compensation and
$898,492 paid (or to be paid) in variable compensation. There were a total of 15
beneficiaries of the remuneration described above. Those amounts include
$559,433 paid (or to be paid) to senior management of First Trust Advisors L.P.
and $398,536 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.
Page 32
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
LIQUIDITY RISK MANAGEMENT PROGRAM
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Funds and each other fund in the First Trust Fund
Complex, other than the closed-end funds, have adopted and implemented a
liquidity risk management program (the "Program") reasonably designed to assess
and manage the funds' liquidity risk, i.e., the risk that a fund could not meet
requests to redeem shares issued by the fund without significant dilution of
remaining investors' interests in the fund. The Board of Trustees of the First
Trust Funds has appointed First Trust Advisors, L.P. (the "Advisor") as the
person designated to administer the Program, and in this capacity the Advisor
performs its duties primarily through the activities and efforts of the First
Trust Liquidity Committee (the "Liquidity Committee").
Pursuant to the Program, the Liquidity Committee classifies the liquidity of
each fund's portfolio investments into one of the four liquidity categories
specified by Rule 22e-4: highly liquid investments, moderately liquid
investments, less liquid investments and illiquid investments. The Liquidity
Committee determines certain of the inputs for this classification process,
including reasonably anticipated trade sizes and significant investor dilution
thresholds. The Liquidity Committee also determines and periodically reviews a
highly liquid investment minimum for certain funds, monitors the funds' holdings
of assets classified as illiquid investments to seek to ensure they do not
exceed 15% of a fund's net assets and establishes policies and procedures
regarding redemptions in kind.
At the May 11, 2020 meeting of the Board of Trustees, as required by Rule 22e-4
and the Program, the Advisor provided the Board with a written report prepared
by the Advisor that addressed the operation of the Program during the period
from June 1, 2019 (the initial compliance date for certain requirements of Rule
22e-4) through the Liquidity Committee's annual meeting held on March 20, 2020
and assessed the Program's adequacy and effectiveness of implementation during
this period, including the operation of the highly liquid investment minimum for
each fund that is required under the Program to have one, and any material
changes to the Program. Note that because the Funds primarily hold assets that
are highly liquid investments, the Funds have not adopted any highly liquid
investment minimums.
As stated in the written report, during the review period, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor
concluded that each fund's investment strategy is appropriate for an open-end
fund; that the Program operated effectively in all material respects during the
review period; and that the Program is reasonably designed to assess and manage
the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
Page 33
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 189 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 189 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 189 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 189 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 189 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 34
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 35
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2020 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 36
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Energy Income Partners, LLC
10 Wright Street
Westport, CT 06880
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Senior Loan Fund (FTSL)
Annual Report
For the Year Ended
October 31, 2020
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2020
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 18
Statement of Operations...................................................... 19
Statements of Changes in Net Assets.......................................... 20
Financial Highlights......................................................... 21
Notes to Financial Statements................................................ 22
Report of Independent Registered Public Accounting Firm...................... 29
Additional Information....................................................... 30
Board of Trustees and Officers............................................... 36
Privacy Policy............................................................... 38
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Senior Loan Fund; hereinafter referred to as the
"Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that 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 investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2020
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Senior Loan Fund (the "Fund"), which contains detailed information about the
Fund for the twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that
my message this year should touch on the tone of the markets and the investing
climate rather than belabor all the news and events that brought us to this
juncture. We all know how tumultuous our lives have become over the past eight
or so months. The phrase "shelter-at-home" says it all. I would rather talk
about why I believe investors should be optimistic about where we could be
headed.
Having said that, allow me to at least acknowledge the two elephants in the
room: the coronavirus ("COVID-19") and the election. In the first 12 days of
November, we learned the following: that we likely have a new president-elect
(Joe Biden), though it may not be official for some time because it is being
contested by President Donald Trump and some of his loyal backers in the
Republican Party citing voter fraud in certain states; that we still do not know
which political party will have control of the Senate due to a couple of
run-offs in Georgia to be held on January 5, 2021; and, that it looks as though
we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either
the end of 2020 or the start of 2021, though that too is not yet official. It
could be a game-changer in the COVID-19 battle. And, we may gain access to
additional vaccines as well. The key to getting the economy back to running on
all cylinders is to fully reopen, and a vaccine is "what the doctor ordered."
With respect to the tone of the markets and investment climate, to say that I am
encouraged about what has transpired in 2020 would be an understatement. Despite
the extraordinary challenges so far this year, the S&P 500(R) Index posted a
total return of 2.77% over the first 10 months of 2020, this despite plunging
33.8% into bear market territory from February 19, 2020 through March 23, 2020,
according to Bloomberg. As impressive as that feat is, the future looks even
brighter. While Bloomberg's consensus earnings growth rate estimate for the S&P
500(R) Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022
estimates were 21.74% and 16.95%, respectively. That is a strong take on the
prospects for a rebound in Corporate America over the next 24 months. One of the
tailwinds that is providing a good deal of support to the economy and markets is
the decision by the Federal Reserve (the "Fed") to keep interest rates
artificially low for as long as need be to meet both its employment and
inflation targets. By keeping rates lower for longer, the Fed is essentially
inviting investors to assume more risk to generate higher returns. Brian
Wesbury, Chief Economist at First Trust, believes that the Fed could need until
2024 to accomplish its goals. That is a lot of runway for investors to
reposition their portfolios, if needed, and a very generous, and perhaps
unprecedented, amount of guidance from the Fed, in our opinion. Those investors
with cash on the sidelines earning next to nothing have options if they choose
to act.
We are encouraged about the prospects for the economy and the markets, but
investors should be prepared to weather some volatility until the COVID-19
pandemic is better contained. As always, we encourage investors to stay the
course!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
The First Trust Senior Loan Fund's (the "Fund") primary investment objective is
to provide high current income. The Fund's secondary investment objective is the
preservation of capital. Under normal market conditions, the Fund seeks to
outperform each of the S&P/LSTA U.S. Leveraged Loan 100 Index and the Markit
iBoxx USD Liquid Leveraged Loan Index by investing at least 80% of its net
assets (including investment borrowings) in first lien senior floating rate bank
loans ("Senior Loans"). The S&P/LSTA U.S. Leveraged Loan 100 Index (the "Primary
Index") is a market value-weighted index designed to measure the performance of
the largest segment of the U.S. syndicated leveraged loan market. The Primary
Index consists of 100 loan facilities drawn from a larger benchmark, the
S&P/LSTA Leveraged Loan Index. The Markit iBoxx USD Liquid Leveraged Loan Index
(the "Secondary Index") selects the 100 most liquid Senior Loans in the market.
The Fund does not seek to track either the Primary or Secondary Index, but
rather seeks to outperform each of the Indices. It is anticipated that the Fund,
in accordance with its principal investment strategy, will invest approximately
50% to 75% of its net assets in Senior Loans that are eligible for inclusion in
and meet the liquidity thresholds of the Primary and/or the Secondary Indices at
the time of investment.
A Senior Loan is an advance or commitment of funds made by one or more banks or
similar financial institutions to one or more corporations, partnerships or
other business entities and typically pays interest at a floating or adjusting
rate that is determined periodically at a designated premium above a base
lending rate, most commonly the London Interbank Offered Rate ("LIBOR").
The Fund invests primarily in Senior Loans that are below investment grade
quality at the time of investment. Securities rated below investment grade,
commonly referred to as "junk" or "high-yield" securities, include securities
that are rated Ba1/BB+/BB+ or below by Moody's Investors Service, Inc., Fitch,
Inc., or Standard & Poor's Ratings Group, respectively. The Fund invests in
Senior Loans made predominantly to businesses operating in North America, but
may also invest in Senior Loans made to businesses operating outside of North
America. The Senior Loans included in the Fund's portfolio often maintain a
duration of less than 90 days; however, the inclusion of LIBOR floors on certain
Senior Loans or other factors may cause interest rate duration to be longer than
90 days. The Fund may also invest up to 20% of its net assets in (1) non-Senior
Loan debt securities, which may be fixed-rate or floating-rate income-producing
securities (including, without limitation, U.S. government debt securities and
corporate debt securities which may include convertible bonds), (2) warrants,
U.S. and non U.S. equity and equity-like positions and interests and other
securities issued by or with respect to a borrower or its affiliates, and/or (3)
securities of other investment companies.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (5/1/13) 5 Years Ended Inception (5/1/13)
10/31/20 10/31/20 to 10/31/20 10/31/20 to 10/31/20
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 0.90% 3.03% 2.76% 16.08% 22.66%
Market Price 0.95% 2.93% 2.73% 15.52% 22.43%
INDEX PERFORMANCE
Markit iBoxx USD Liquid Leveraged
Loan Index -0.90% 2.79% 2.23% 14.75% 17.97%
S&P/LSTA U.S. Leveraged Loan 100 Index 1.52% 4.06% 3.05% 22.01% 25.29%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the period
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of the Fund did
not trade in the secondary market until after the Fund's inception, for the
period from inception to the first day of secondary market trading in shares of
the Fund, the NAV of the Fund is used as a proxy for the secondary market
trading price to calculate market returns. NAV and market returns assume that
all distributions have been reinvested in the Fund at NAV and Market Price,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. 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. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
INDUSTRY CLASSIFICATION SECURITIES(1)
-------------------------------------------------------
Software 19.5%
Health Care Providers & Services 16.9
Insurance 10.8
Pharmaceuticals 9.9
Hotels, Restaurants & Leisure 8.5
Media 7.2
Diversified Telecommunication Services 4.4
Health Care Technology 3.2
Diversified Financial Services 3.2
Diversified Consumer Services 3.0
Entertainment 2.5
Containers & Packaging 1.8
Auto Components 1.5
Professional Services 1.5
Aerospace & Defense 1.3
Electric Utilities 1.3
Commercial Services & Supplies 1.0
Communications Equipment 0.4
Technology Hardware, Storage &
Peripherals 0.4
Household Durables 0.4
Food & Staples Retailing 0.3
Oil, Gas & Consumable Fuels 0.3
Machinery 0.2
Food Products 0.2
Wireless Telecommunication Services 0.2
IT Services 0.1
Real Estate Management & Development 0.0*
Airlines 0.0*
Trading Companies & Distributors 0.0*
Life Sciences Tools & Services 0.0*
--------
Total 100.0%
========
* Amount is less than 0.1%.
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
ASSET CLASSIFICATION SECURITIES(1)
-------------------------------------------------------
Senior Floating-Rate Loan Interests 91.8%
Corporate Bonds and Notes 7.6
Foreign Corporate Bonds and Notes 0.4
Common Stocks 0.2
Rights 0.0*
--------
Total 100.0%
========
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
CREDIT QUALITY (S&P RATINGS)(2) DEBT SECURITIES(1)
-------------------------------------------------------
BBB- 0.1%
BB+ 0.1
BB 5.4
BB- 9.3
B+ 27.1
B 35.2
B- 15.3
CCC+ 1.5
CCC 2.2
CCC- 1.0
D 2.4
NR 0.4
--------
Total 100.0%
========
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
TOP 10 ISSUERS SECURITIES(1)
-------------------------------------------------------
Alliant Holdings I LLC 3.3%
HUB International Ltd. 3.2
Asurion LLC 2.9
Bausch Health Cos., Inc. (Valeant) 2.9
AmWINS Group, Inc. 2.5
CHG Healthcare Services, Inc. 2.3
Caesars Resort Collection LLC 2.3
Micro Focus International
(MA Financeco LLC) 2.2
Multiplan, Inc. (MPH) 2.2
Refinitiv US Holdings, Inc. 2.0
--------
Total 25.8%
========
(1) Percentages are based on long-term positions. Money market funds are
excluded.
(2) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. 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 except for
those debt obligations that are privately rated. 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. 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.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 1, 2013 - OCTOBER 31, 2020
First Trust Senior Markit iBoxx USD Liquid S&P/LSTA U.S. Leveraged
Loan Fund Leveraged Loan Index Loan 100 Index
<S> <C> <C> <C>
5/1/13 $10,000 $10,000 $10,000
10/31/13 10,092 10,103 10,122
4/30/14 10,275 10,323 10,338
10/31/14 10,385 10,389 10,434
4/30/15 10,637 10,594 10,589
10/31/15 10,567 10,280 10,268
4/30/16 10,763 10,484 10,527
10/31/16 11,034 10,826 10,968
4/30/17 11,247 11,026 11,260
10/31/17 11,414 11,161 11,452
4/30/18 11,592 11,404 11,708
10/31/18 11,760 11,602 11,929
4/30/19 12,044 11,877 12,262
10/31/19 12,156 11,905 12,339
4/30/20 11,619 11,122 11,765
10/31/20 12,266 11,797 12,529
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
ADVISOR
The First Trust Advisors L.P. ("First Trust") Leveraged Finance Team is
comprised of 16 experienced investment professionals specializing in below
investment grade securities. The team is comprised of portfolio management,
research, trading and operations personnel. As of October 31, 2020, the First
Trust Leveraged Finance Team managed or supervised approximately $5.43 billion
in senior secured bank loans and high-yield bonds. These assets are managed
across various strategies, including three closed-end funds, an open-end fund,
three exchange-traded funds, and a series of unit investment trusts on behalf of
retail and institutional clients.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA - MANAGING DIRECTOR OF FIXED INCOME, SENIOR PORTFOLIO
MANAGER
JEFFREY SCOTT, CFA - SENIOR VICE PRESIDENT, DEPUTY CREDIT OFFICER AND PORTFOLIO
MANAGER
ORLANDO PURPURA, CFA, CMT - SENIOR VICE PRESIDENT, CHIEF CREDIT OFFICER
AND PORTFOLIO MANAGER
COMMENTARY
The First Trust Senior Loan Fund (the "Fund") is an actively managed
exchanged-traded fund ("ETF"). The Fund's primary investment objective is to
provide high current income, with a secondary objective of preservation of
capital.
MARKET RECAP
As we ended 2019, the Federal Reserve (the "Fed") had cut interest rates for the
last time in October 2019 and in December indicated that no action would be
likely in 2020 given the persistently low inflation environment. In January
2020, the United States and China signed "Phase One" of a trade agreement, and
U.S. economic data remained strong. The combination of a patient Fed, improving
U.S.- China trade relations, and a robust domestic economy propelled the S&P
500(R) Index to new highs in late February 2020. Shortly after, as the
coronavirus ("COVID-19") pandemic gripped the world's attention, the financial
market implications from the onset of the resulting global economic shutdown
became clear. Equities experienced their most rapid sell-off since the global
financial crisis in 2008. By March 23, 2020 the S&P 500(R) Index was down nearly
34% from its all-time high set on February 19, 2020. Policy makers then took
unprecedented steps to stabilize the markets. Central Banks around the world cut
interest rates and governments announced aggressive monetary stimulus packages.
Domestically, the CARES Act was passed and signed into law on March 27. The bill
included a historic $2 trillion stimulus package aimed at sending financial aid
to struggling U.S. citizens and businesses affected by COVID-19. The Fed also
cut the target Fed Funds rate by 150 basis points ("bps") during the month of
March. As fears subsided, and optimism that the combination of a re-opening of
the U.S. economy and aggressive fiscal and monetary stimulus would result in a
quicker than expected recovery, markets surpassed pre-pandemic levels before a
resurgence in COVID-19 infections tempered investor optimism at the end of the
12-month period ended October 31, 2020.
Senior Loan Market
Senior loan spreads over 3-month London Interbank Offered Rate ("LIBOR")
increased 70 bps during the 12-month period ended October 31, 2020, to L+585
bps. This is above the long-term average spread of L+518 (December 1997 -
October 2020). Retail senior loan funds have experienced 25 consecutive monthly
outflows with demand impacted by the dramatic decrease of the 3-month LIBOR rate
during the same period.
Single-B rated senior loans outperformed both higher and lower quality senior
loans during the same period, returning 3.13% while BB rated issues returned
-0.60%. Single Bs also outperformed CCC rated issues which returned -1.41%
during the same period. The average price of senior loans in the market
decreased from $95.42 in the beginning of the period to $93.17 at the end of the
period.
Default Rates
During the 12-month period ended October 31, 2020, default rates increased
within the S&P/LSTA Leveraged Loan Index. The senior loan market default rate
ended the period at 4.11% compared to the 1.43% rate at the beginning of the
period. The default rate in the senior loan market is above the long-term
average default rate of 2.90%. Looking forward, we anticipate senior loan market
default rates to remain above the long-term averages through 2021 but anticipate
a decline in the default rate as the economy recovers and the introduction of a
vaccine brings a recovery to the industries most impacted by COVID-19.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
FUND PERFORMANCE
The Fund returned 0.90% on a net asset value ("NAV") basis and 0.95% on a market
price basis over the 12-month period ended October 31, 2020. The S&P/LSTA U.S.
Leveraged Loan 100 Index ("the Index") returned 1.52% over the same period.
The Fund held 149 individual positions diversified across 29 industries at the
end of the reporting period. Software (19.51%), Health Care Providers & Services
(16.92%), and Insurance (10.84%) were the Fund's top three industry exposures at
the end of the period. By comparison, the Fund held 194 individual positions
across 33 industries as of October 31, 2019. The Fund modestly decreased its
allocation to high-yield bonds from 8.89% to 8.03% throughout the period, an 86
bps decrease. The Fund's duration remained low throughout the period and
modestly increased from 0.39 years at the beginning of the period to 0.43 years
at the end of the period.
During the last twelve months ("LTM") the Fund's performance significantly
benefited from its overweight position and asset selection in the healthcare
industry. Within the healthcare industry, the Fund's overweight position in a
healthcare cost management solutions company and a healthcare services company
both outperformed the broader healthcare industry. The healthcare industry is
expected to benefit from a divided government, which we believe will result in
no major healthcare legislation or significant changes to the regulatory
environment. Moreover, we anticipate a continued recovery to healthcare volumes,
which are based on billable patient encounters, as the economy continues to
recover from COVID-19. In addition, the Fund benefited from not having an
allocation to the oil & gas industry. The oil & gas industry was one of the
worst performing industries in the Index during the period. The average weight
of the industry in the Index during the LTM period was 2.80%. The underweight
allocation during a period of declining energy prices was significantly
accretive to relative returns. The Fund's overweight position in the
pharmaceutical industry and asset selection in the electronics/electrical
(technology) industry were also notable contributors to the Fund's performance
during the LTM period. Primarily driving the Fund's pharmaceutical industry
contribution was the Fund's overweight position in several pharmaceutical
companies that significantly outperformed the broader pharmaceutical industry
during the LTM period. Finally, primarily driving the Fund's
electronics/electrical (technology) industry outperformance was the Fund's
overweight position in a software services company that outperformed the broader
electronics/electrical (technology) industry during the LTM period. The Fund's
underweight position in a travel technology company that had a large negative
return during the LTM period due to the pandemic's ramifications on the travel
industry also contributed to the Fund's outperformance during the LTM period.
Modestly offsetting these contributors were the Fund's holdings within the
leisure, chemicals & plastics, and building & development industries, due to
asset selection. The primary driver of the leisure industry underperformance was
the Fund's overweight exposure to movie theaters. Movie theaters continue to
face headwinds as new movie releases have been pushed further out on the
calendar as the industry awaits a COVID-19 vaccine.
The Fund's most recent monthly distribution of $0.127 per share is $0.043 per
share lower than the distribution paid in October 2019. Over the LTM period,
3-month LIBOR dropped 168 bps from 1.90% to 0.22% at the end of October 2020,
and distributions followed suit. At the end of the period, the effective yield
based on the distributions for the trailing twelve months was 3.71% based on
NAV.
The Fund experienced two defaults during the LTM period. This compared to 53
defaults within the S&P/LSTA Leveraged Loan Index during the LTM period. Since
inception, the Fund has experienced nine defaults, which compares to 139 within
the broad S&P/LSTA Leveraged Loan Index during the same period. The Fund's LTM
default rate was 1.63% at October 31, 2020. The S&P/LSTA Leveraged Loan Index
default rate was 4.11%.
MARKET AND FUND OUTLOOK
We believe senior loans are supported by spreads that remain in line with the
long-term average, opportunistic pockets of value across ratings and industries,
a low interest rate environment and an improving U.S. economy. Moreover, while
the default rate has increased during the period, we believe individual credits
that came into the 2020 recession with too much leverage, and sectors most
impacted by COVID-19, will face a higher likelihood of default including, but
not limited to energy, travel, leisure and retail, in no particular order.
However, generally, businesses that haven't been impacted by COVID-19 continue
to perform well, in our opinion.
We remain confident that improving economic conditions, unprecedented support
from the Fed, and the potential for additional stimulus will provide a backdrop
for continued recovery in senior loans, in our view. As we evaluate new
investment opportunities, decisions will continue to be rooted in our rigorous
bottom-up credit analysis and our focus will remain on identifying the
opportunities that we believe offer the best risk and reward balance.
Page 6
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2020 (UNAUDITED)
As a shareholder of First Trust Senior Loan Fund (the "Fund"), you incur two
types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service (12b-1) fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Fund and to compare these costs with the ongoing costs
of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2020.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2020 OCTOBER 31, 2020 PERIOD (a) PERIOD (a) (b)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST SENIOR LOAN FUND (FTSL)
Actual $1,000.00 $1,055.70 0.85% $4.39
Hypothetical (5% return before expenses) $1,000.00 $1,020.86 0.85% $4.32
</TABLE>
(a) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2020
through October 31, 2020), multiplied by 184/366 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS -- 88.6%
AEROSPACE & DEFENSE -- 1.3%
$ 2,693,286 Spirit Aerosystems, Inc., Term Loan B, 1 Mo. LIBOR + 5.25%,
0.75% Floor.................................................. 6.00% 01/30/25 $ 2,686,552
2,878,250 Transdigm, Inc., Tranche E Refinancing TL, 1 Mo. LIBOR +
2.25%, 0.00% Floor........................................... 2.40% 05/30/25 2,703,569
11,390,705 Transdigm, Inc., Tranche G Refinancing Term Loan, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 2.40% 08/22/24 10,697,125
---------------
16,087,246
---------------
AIRLINES -- 0.0%
516,482 Delta Air Lines, Inc., Term Loan B, 3 Mo. LIBOR + 3.75%,
1.00% Floor.................................................. 4.75% 09/16/27 514,008
---------------
APPLICATION SOFTWARE -- 14.1%
4,649,290 CCC Information Services, Inc. (Cypress), Term Loan B, 1 Mo.
LIBOR + 3.00%, 1.00% Floor................................... 4.00% 04/26/24 4,594,103
9,014,115 Epicor Software Corp., Term Loan B, 1 Mo. LIBOR + 4.25%,
1.00% Floor.................................................. 5.25% 07/30/27 8,971,298
11,469,429 Greeneden U.S. Holdings II LLC (Genesys Telecommunications
Laboratories, Inc.), Initial Dollar Term Loan, 1 Mo. LIBOR +
4.00%, 0.75% Floor........................................... 4.75% 11/30/27 11,275,939
24,285,257 Hyland Software, Inc., 2018 Refinancing Term Loan, 1 Mo.
LIBOR + 3.50%, 0.75% Floor................................... 4.25% 07/01/24 23,903,736
9,181,234 Internet Brands, Inc. (WebMD/MH Sub I LLC), 2020 June New
Term Loan, 1 Mo. LIBOR + 3.75%, 1.00% Floor.................. 4.75% 09/15/24 9,014,870
11,063,040 Internet Brands, Inc. (WebMD/MH Sub I LLC), Initial Term
Loan, 1 Mo. LIBOR + 3.50%, 0.00% Floor....................... 3.65% 09/13/24 10,681,033
12,997,518 LogMeIn, Inc. (Logan), Term Loan B, 1 Mo. LIBOR + 4.75%,
0.00% Floor.................................................. 4.89% 08/31/27 12,583,287
22,607,260 McAfee LLC, Term Loan B, 1 Mo. LIBOR + 3.75%, 0.00%
Floor........................................................ 3.89% 09/30/24 22,355,867
3,187,522 Micro Focus International (MA Financeco LLC), Miami Escrow
Term Loan B3, 1 Mo. LIBOR + 2.50%, 0.00% Floor............... 2.65% 06/21/24 2,996,270
21,525,638 Micro Focus International (MA Financeco LLC), Seattle Spinco
Term Loan B, 1 Mo. LIBOR + 2.50%, 0.00% Floor................ 2.65% 06/21/24 20,234,099
4,363,920 Micro Focus International (MA Financeco LLC), Term Loan B4,
3 Mo. LIBOR + 4.25%, 1.00% Floor............................. 5.25% 06/05/25 4,336,645
5,244,701 Milano Acquisition Corp., Term Loan B, 3 Mo. LIBOR + 4.00%,
0.75% Floor.................................................. 4.75% 10/01/27 5,148,565
2,283,278 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
2019 Incremental Term Loan B, 3 Mo. LIBOR + 4.25%,
0.00% Floor.................................................. 4.48% 04/26/24 2,240,467
11,669,741 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor................ 4.50% 04/26/24 11,430,511
21,677,361 SolarWinds Holdings, Inc., 2018 Refinancing Term Loan, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 02/05/24 21,243,814
3,660,395 Solera Holdings, Inc., Term Loan B, 2 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 2.92% 03/03/23 3,556,477
777,423 TIBCO Software, Inc., Term Loan B-3, 1 Mo. LIBOR + 3.75%,
0.00% Floor.................................................. 3.90% 06/30/26 752,156
693,806 Ultimate Software Group, Inc., 2020 Incremental Term Loan,
3 Mo. LIBOR + 4.00%, 0.75% Floor............................. 4.75% 05/03/26 689,040
3,640,298 Veeam Software Holdings Ltd. (VS Buyer LLC), Term Loan B,
1 Mo. LIBOR + 3.25%, 0.00% Floor............................. 3.40% 02/28/27 3,549,290
---------------
179,557,467
---------------
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
AUTO PARTS & EQUIPMENT -- 1.5%
$ 15,028,493 Gates Global LLC, Initial B-2 Dollar Term Loan, 1
Mo. LIBOR + 2.75%, 1.00% Floor............................... 3.75% 03/31/24 $ 14,715,450
8,473,331 Lumileds (Bright Bidco B.V.), Term Loan B, 6 Mo. LIBOR +
3.50%, 1.00% Floor........................................... 4.50% 06/30/24 3,945,776
---------------
18,661,226
---------------
BROADCASTING -- 3.1%
1,739,414 E.W. Scripps Co., Term Loan B-2, 1 Mo. LIBOR + 2.50%, 0.00%
Floor........................................................ 2.65% 05/01/26 1,677,456
2,970,807 iHeartCommunications, Inc., Incremental Term Loan B, 1 Mo.
LIBOR + 4.00%, 0.75% Floor................................... 4.75% 05/01/26 2,858,154
21,899,146 iHeartCommunications, Inc., Term Loan B, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 3.15% 04/29/26 20,526,508
11,739,563 Nexstar Broadcasting, Inc., Incremental Term Loan B-4, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 09/19/26 11,422,594
3,622,287 Nexstar Broadcasting, Inc., Nexstar Term Loan B-3, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 2.40% 01/17/24 3,522,095
---------------
40,006,807
---------------
CABLE & SATELLITE -- 0.9%
11,238,817 Cablevision (aka CSC Holdings LLC), October 2018 Incremental
Term Loan B-3, 1 Mo. LIBOR + 2.25%, 0.00% Floor.............. 2.40% 01/15/26 10,841,975
---------------
CASINOS & GAMING -- 5.8%
991,775 Boyd Gaming Corp., Term Loan B, 1 Wk. LIBOR + 2.25%,
0.00% Floor.................................................. 2.34% 09/15/23 962,329
27,498,459 Caesars Resort Collection LLC, Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.90% 12/22/24 25,718,759
1,497,996 Caesars Resort Collection LLC, Term Loan B-1, 1 Mo. LIBOR +
4.50%, 0.00% Floor........................................... 4.65% 06/30/25 1,448,846
748,998 Caesars Resort Collection LLC, Term Loan B-1, 3 Mo. LIBOR +
4.50%, 0.00% Floor........................................... 4.65% 06/30/25 724,423
21,353,186 CityCenter Holdings LLC, Term Loan B, 1 Mo. LIBOR + 2.25%,
0.75% Floor.................................................. 3.00% 04/18/24 20,045,303
14,407,681 Golden Nugget, Inc., Term Loan B, 2 Mo. LIBOR + 2.50%,
0.75% Floor.................................................. 3.25% 10/04/23 12,660,750
7,787,376 Station Casinos, Inc. (Red Rocks), Term Loan B, 1 Mo. LIBOR +
2.25%, 0.25% Floor........................................... 2.50% 01/31/27 7,443,408
5,187,455 Twin River Worldwide Holdings, Inc., Term Loan B, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 05/10/26 4,924,191
---------------
73,928,009
---------------
COMMERCIAL SERVICES & SUPPLIES-- 0.1%
1,677,652 TruGreen L.P., Second Refinancing Term Loan, 1 Mo. LIBOR +
4.00%, 0.75% Floor........................................... 4.75% 11/02/27 1,665,070
---------------
COMMUNICATIONS EQUIPMENT -- 0.4%
5,249,090 Commscope, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 3.40% 04/06/26 5,056,921
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.1%
1,396,587 Cardtronics USA, Inc., Term Loan B, 1 Mo. LIBOR + 4.00%,
1.00% Floor.................................................. 5.00% 06/30/27 1,391,350
---------------
ELECTRIC UTILITIES -- 1.2%
15,538,419 PG&E Corp., Exit Term Loan, 3 Mo. LIBOR + 4.50%, 1.00%
Floor........................................................ 5.50% 06/23/25 15,344,189
---------------
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
ENVIRONMENTAL & FACILITIES SERVICES -- 0.9%
$ 11,588,391 Packers Holdings LLC, Term Loan B, 1 Mo. LIBOR + 3.00%,
1.00% Floor.................................................. 4.00% 12/04/24 $ 11,383,161
---------------
FOOD DISTRIBUTORS -- 0.2%
2,246,936 US Foods, Inc., 2019 Incremental Term Loan B, 1 Mo. LIBOR
+ 2.00%, 0.00% Floor......................................... 2.15% 08/31/26 2,130,388
---------------
HEALTH CARE FACILITIES -- 0.6%
7,520,719 Gentiva Health Services, Inc. (Kindred at Home), Term Loan B,
1 Mo. LIBOR + 3.25%, 0.00% Floor............................. 3.44% 07/02/25 7,351,503
662,255 Select Medical Corp., Term Loan B, 6 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 2.78% 03/06/25 644,248
---------------
7,995,751
---------------
HEALTH CARE SERVICES -- 11.7%
6,892,915 Air Methods Corp. (a/k/a ASP AMC Intermediate Holdings,
Inc.), Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor......... 4.50% 04/21/24 5,871,316
24,817,750 Athenahealth, Inc. (VVC Holding Corp.), Term Loan B, 3 Mo.
LIBOR + 4.50%, 0.00% Floor................................... 4.75% 02/15/26 24,259,350
28,841,944 CHG Healthcare Services, Inc., Term Loan, 6 Mo. LIBOR +
3.00%, 1.00% Floor........................................... 4.00% 06/07/23 28,120,895
8,536,350 DuPage Medical Group (Midwest Physician Admin. Services
LLC), Repricing Term Loan, 1 Mo. LIBOR + 2.75%, 0.75%
Floor........................................................ 3.50% 08/15/24 8,301,600
23,556,748 Envision Healthcare Corp., Initial Term Loan, 1 Mo. LIBOR +
3.75%, 0.00% Floor........................................... 3.90% 10/10/25 16,742,488
798,953 Global Medical Response, Inc. (fka Air Medical), 2018 New
Term Loan, 6 Mo. LIBOR + 4.25%, 1.00% Floor.................. 5.25% 03/14/25 771,237
11,223,630 Global Medical Response, Inc. (fka Air Medical), 2020
Refinancing Term Loan, 3 Mo. LIBOR + 4.75%, 1.00% Floor...... 5.75% 10/15/25 10,862,341
3,284,274 Help at Home (HAH Group Holding Co. LLC), Initial Term Loans,
3 Mo. LIBOR + 5.00%, 1.00% Floor............................. 6.00% 10/31/27 3,226,799
3,317,719 Packaging Coordinators, Inc. (PCI Pharma), Term Loan B, 6 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 4.50% 11/30/27 3,257,602
995,000 Surgery Centers Holdings, Inc., 2020 Incremental Term Loan,
1 Mo. LIBOR + 8.00%, 1.00% Floor............................. 9.00% 08/31/24 1,006,612
9,259,577 Surgery Centers Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.25%, 1.00% Floor........................................... 4.25% 08/31/24 8,760,394
8,166,985 Team Health, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 1.00%
Floor........................................................ 3.75% 02/06/24 6,635,676
10,572,385 U.S. Renal Care, Inc., Term Loan B, 1 Mo. LIBOR + 5.00%,
0.00% Floor.................................................. 5.19% 06/28/26 10,146,212
22,157,925 Verscend Technologies, Inc., Term Loan B, 1 Mo. LIBOR +
4.50%, 0.00% Floor........................................... 4.65% 08/27/25 21,707,897
---------------
149,670,419
---------------
HEALTH CARE TECHNOLOGY -- 3.1%
1,244,108 Change Healthcare Holdings LLC, Closing Date Term Loan,
1 Mo. LIBOR + 2.50%, 1.00% Floor............................. 3.50% 03/01/24 1,212,856
17,085,331 Change Healthcare Holdings LLC, Closing Date Term Loan,
3 Mo. LIBOR + 2.50%, 1.00% Floor............................. 3.50% 03/01/24 16,656,147
6,208,731 Press Ganey (Azalea TopCo, Inc.), Term Loan B, 1 Mo. LIBOR
+ 3.50%, 0.00% Floor......................................... 3.65% 07/25/26 5,975,903
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE TECHNOLOGY (CONTINUED)
$ 15,931,500 Zelis Payments Buyer, Inc., Initial Term Loan, 1 Mo. LIBOR +
4.75%, 0.00% Floor........................................... 4.90% 09/30/26 $ 15,814,881
---------------
39,659,787
---------------
HOUSEHOLD APPLIANCES -- 0.4%
3,804,264 Traeger Grills (TGP Holdings III LLC), 2018 Refinancing Term
Loan, 1 Mo. LIBOR + 4.00%, 1.00% Floor....................... 5.00% 09/25/24 3,636,230
1,000,000 Weber-Stephen Products LLC, Term Loan B, 1 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 4.00% 10/31/27 989,380
---------------
4,625,610
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.9%
11,721,550 Alight, Inc. (fka Tempo Acq.), Non Extended Term Loan, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 05/01/24 11,322,314
---------------
INDUSTRIAL MACHINERY -- 0.2%
2,653,563 Thyssenkrupp Elevator (Vertical U.S. Newco, Inc.), Term Loan B,
6 Mo. LIBOR + 4.25%, 0.00% Floor............................. 4.57% 07/31/27 2,612,114
---------------
INSURANCE BROKERS -- 9.9%
1,645,327 Alliant Holdings I LLC, 2019 New Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 3.40% 05/10/25 1,590,307
33,037,883 Alliant Holdings I LLC, Initial Term Loan, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.90% 05/09/25 31,768,898
31,792,103 AmWINS Group, Inc., Term Loan B (First Lien), 1 Mo. LIBOR +
2.75%, 1.00% Floor........................................... 3.75% 01/25/24 31,331,118
12,754,262 AssuredPartners, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 3.65% 02/15/27 12,291,920
7,453,166 BroadStreet Partners, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%,
0.00% Floor.................................................. 3.40% 01/31/27 7,175,536
2,699,759 Cross Financial Corp., Term Loan B, 1 Mo. LIBOR + 4.50%,
1.00% Floor.................................................. 5.50% 09/15/27 2,686,261
2,884,058 HUB International Ltd., 2019 Incremental Term Loan B2, 3 Mo.
LIBOR + 4.00%, 1.00% Floor................................... 5.00% 04/25/25 2,865,686
96,341 HUB International Ltd., Term Loan B, 2 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 3.19% 04/25/25 92,515
37,573,765 HUB International Ltd., Term Loan B, 3 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 3.21% 04/25/25 36,081,711
---------------
125,883,952
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 4.1%
10,408,944 Frontier Communications Corp., Term Loan B-1, Prime Rate +
2.75%, 0.75% Floor (c)....................................... 6.00% 06/15/24 10,203,159
8,817,716 Numericable (Altice France S.A. or SFR), Term Loan B-11, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 07/31/25 8,407,251
1,979,592 Numericable (Altice France S.A. or SFR), Term Loan B-12, 1 Mo.
LIBOR + 3.69%, 0.00% Floor................................... 3.84% 01/31/26 1,911,058
9,158,962 Numericable (Altice France S.A. or SFR), Term Loan B-13, 3 Mo.
LIBOR + 4.00%, 0.00% Floor................................... 4.24% 08/14/26 8,875,584
24,350,611 Zayo Group Holdings, Inc., Initial Dollar Term Loan, 1 Mo.
LIBOR + 3.00%, 0.00% Floor................................... 3.15% 03/09/27 23,427,236
---------------
52,824,288
---------------
INTERACTIVE HOME ENTERTAINMENT -- 0.7%
9,231,641 Playtika Holding Corp., Term Loan B, 3 Mo. LIBOR + 6.00%,
1.00% Floor.................................................. 7.00% 12/10/24 9,225,364
---------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
LEISURE FACILITIES -- 0.7%
$ 11,198,919 ClubCorp Holdings, Inc., Term Loan B, 3 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 2.97% 09/18/24 $ 9,380,887
---------------
MANAGED HEALTH CARE -- 2.1%
27,623,874 Multiplan, Inc. (MPH), Term Loan B, 3 Mo. LIBOR + 2.75%,
1.00% Floor.................................................. 3.75% 06/07/23 27,239,073
---------------
MOVIES & ENTERTAINMENT -- 1.3%
22,939,747 Cineworld Group PLC (Crown), Term Loan B, 6 Mo. LIBOR +
2.50%, 0.00% Floor........................................... 2.77% 02/28/25 12,756,335
4,887,699 PUG LLC (Stubhub), Term Loan B, 1 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 3.65% 02/12/27 4,258,407
---------------
17,014,742
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES -- 3.0%
14,245,314 AlixPartners, LLP, Term Loan B, 1 Mo. LIBOR + 2.50%, 0.00%
Floor........................................................ 2.65% 04/04/24 13,800,148
25,466,818 Refinitiv US Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 3.40% 10/01/25 25,057,057
---------------
38,857,205
---------------
PACKAGED FOODS & MEATS -- 0.2%
1,242,412 BellRing Brands LLC, Term Loan B, 1 Mo. LIBOR + 5.00%,
1.00% Floor.................................................. 6.00% 10/21/24 1,245,207
1,059,899 Simply Good Foods (Atkins Nutritionals, Inc.), Term Loan B,
1 Mo. LIBOR + 3.75%, 1.00% Floor............................. 4.75% 07/07/24 1,056,592
---------------
2,301,799
---------------
PAPER PACKAGING -- 1.8%
15,104,899 Graham Packaging Company, L.P., Initial Term Loan, 1 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 4.50% 08/04/27 14,966,387
7,853,494 Reynolds Group Holdings, Inc., Tranche B-1 US Term Loan,
1 Mo. LIBOR + 2.75%, 0.00% Floor............................. 2.90% 02/05/23 7,697,524
---------------
22,663,911
---------------
PHARMACEUTICALS -- 8.7%
2,928,475 Akorn, Inc., Exit Take Back Term Loan, 3 Mo. LIBOR + 7.50%,
1.00% Floor (d) (e).......................................... 8.50% 09/30/25 2,933,365
32,313,203 Bausch Health Cos., Inc. (Valeant), Term Loan B, 1 Mo. LIBOR
+ 3.00%, 0.00% Floor......................................... 3.15% 06/01/25 31,518,944
23,494,046 Endo LLC, Term Loan B, 3 Mo. LIBOR + 4.25%, 0.75% Floor......... 5.00% 04/29/24 22,260,609
16,419,185 Mallinckrodt International Finance S.A., 2017 Term Loan B,
3 Mo. LIBOR + 4.75%, 0.75% Floor (c)......................... 5.50% 09/24/24 15,113,860
4,260,386 Mallinckrodt International Finance S.A., 2018 Incremental Term
Loan, 6 Mo. LIBOR + 5.00%, 0.75% Floor (c)................... 5.75% 02/24/25 3,916,914
11,665,117 Parexel International Corp., Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.90% 09/27/24 11,173,549
24,366,218 Pharmaceutical Product Development, Inc. (PPDI/Jaguar), 2018
Term Loan, 1 Mo. LIBOR + 2.50%, 1.00% Floor.................. 3.50% 08/18/22 24,163,978
---------------
111,081,219
---------------
PUBLISHING -- 0.1%
1,746,041 Meredith Corp., Tranche B-3 Term Loan, 3 Mo. LIBOR + 4.25%,
1.00% Floor.................................................. 5.25% 01/31/25 1,705,306
---------------
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
RESEARCH & CONSULTING SERVICES -- 0.4%
$ 3,313,046 Clarivate Analytics PLC (Camelot), Amendment No. 2
Incremental Term Loan, 1 Mo. LIBOR + 3.00%, 1.00% Floor...... 4.00% 10/31/26 $ 3,273,025
1,397,727 Clarivate Analytics PLC (Camelot), Term Loan B, 1 Mo. LIBOR
+ 3.00%, 0.00% Floor......................................... 3.15% 10/31/26 1,358,702
577,903 Nielsen Finance LLC (VNU, Inc.), Term Loan B5, 1 Mo. LIBOR
+ 3.75%, 1.00% Floor......................................... 4.75% 06/30/25 575,591
---------------
5,207,318
---------------
RESTAURANTS -- 1.3%
4,043 1011778 B.C. Unlimited Liability Co. (Restaurant Brands) (aka
Burger King/Tim Horton's), Term Loan B-4, 1 Mo. LIBOR +
1.75%, 0.00% Floor........................................... 3.65% 11/14/26 3,873
44,861 IRB Holding Corp. (Arby's/Inspire Brands), Term Loan B, 3 Mo.
LIBOR + 2.75%, 1.00% Floor................................... 3.75% 02/05/25 42,568
17,450,961 IRB Holding Corp. (Arby's/Inspire Brands), Term Loan B, 6 Mo.
LIBOR + 2.75%, 1.00% Floor................................... 3.75% 02/05/25 16,559,043
---------------
16,605,484
---------------
SECURITY & ALARM SERVICES -- 0.1%
1,230,679 Garda World Security Corp., Term Loan B, 1 Mo. LIBOR +
4.75%, 0.00% Floor........................................... 4.90% 10/30/26 1,223,910
---------------
SPECIALIZED CONSUMER SERVICES -- 2.9%
10,339,697 Asurion LLC, Replacement B-2 Term Loan (Second Lien), 1 Mo.
LIBOR + 6.50%, 0.00% Floor................................... 6.65% 08/04/25 10,339,697
22,030,339 Asurion LLC, Term Loan B6, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 3.15% 11/03/23 21,603,611
4,476,129 Asurion LLC, Term Loan B7, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 3.15% 11/03/24 4,387,412
---------------
36,330,720
---------------
SYSTEMS SOFTWARE -- 4.8%
20,838,920 Applied Systems, Inc., Term Loan (First Lien), 3 Mo. LIBOR +
3.25%, 1.00% Floor........................................... 4.25% 09/19/24 20,713,470
2,331,175 Applied Systems, Inc., Term Loan (Second Lien), 3 Mo. LIBOR
+ 7.00%, 1.00% Floor......................................... 8.00% 09/19/25 2,342,831
13,381,953 BMC Software Finance, Inc. (Boxer Parent), Initial Dollar Term
Loan, 1 Mo. LIBOR + 4.25%, 0.00% Floor....................... 4.40% 10/02/25 12,985,312
3,920,027 Misys Financial Software Ltd. (Almonde, Inc.) (Finastra), Term
Loan B, 6 Mo. LIBOR + 3.50%, 1.00% Floor..................... 4.50% 06/13/24 3,693,528
30,541 Riverbed Technology, Inc., Term Loan B, 2 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 4.25% 04/24/22 27,213
11,514,020 Riverbed Technology, Inc., Term Loan B, 3 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 4.25% 04/24/22 10,259,453
10,535,101 Sophos Group PLC (Surf), Term Loan B, 3 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 3.75% 03/05/27 10,190,076
997,468 SUSE (Marcel Lux IV S.A.R.L.), Facility Term Loan B1 USD,
1 Mo. LIBOR + 3.25%, 0.00% Floor............................. 3.40% 03/15/26 964,432
---------------
61,176,315
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS................................................... 1,131,175,305
(Cost $1,179,314,398) ---------------
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 7.3%
BROADCASTING -- 2.7%
$ 8,978,000 Cumulus Media New Holdings, Inc. (f)............................ 6.75% 07/01/26 $ 8,364,937
8,201,000 Diamond Sports Group LLC / Diamond Sports Finance Co. (f)....... 5.38% 08/15/26 4,807,836
2,848,000 E.W. Scripps (The) Co. (f)...................................... 5.13% 05/15/25 2,721,620
2,148,000 Gray Television, Inc. (f)....................................... 5.88% 07/15/26 2,239,752
10,000,000 Sinclair Television Group, Inc. (f)............................. 5.63% 08/01/24 9,998,493
6,618,000 Univision Communications (f).................................... 5.13% 02/15/25 6,514,594
---------------
34,647,232
---------------
CABLE & SATELLITE -- 0.1%
1,621,000 CSC Holdings LLC (f)............................................ 5.50% 05/15/26 1,688,677
---------------
CASINOS & GAMING -- 0.3%
4,202,000 Caesars Entertainment, Inc. (f)................................. 6.25% 07/01/25 4,309,668
---------------
COAL & CONSUMABLE FUELS -- 0.2%
4,900,000 Peabody Energy Corp. (f)........................................ 6.00% 03/31/22 2,250,937
2,947,000 Peabody Energy Corp. (f)........................................ 6.38% 03/31/25 913,570
---------------
3,164,507
---------------
FOOD RETAIL -- 0.2%
2,000,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP /
Albertsons LLC (f)........................................... 3.50% 02/15/23 2,033,798
---------------
HEALTH CARE FACILITIES -- 1.9%
3,478,000 Acadia Healthcare Co., Inc...................................... 5.63% 02/15/23 3,499,737
2,000,000 HCA, Inc........................................................ 5.88% 05/01/23 2,177,910
6,130,000 Tenet Healthcare Corp. (f)...................................... 4.63% 09/01/24 6,281,411
845,000 Tenet Healthcare Corp........................................... 5.13% 05/01/25 837,353
8,764,000 Tenet Healthcare Corp. (f)...................................... 4.88% 01/01/26 8,901,337
3,008,000 Tenet Healthcare Corp. (f)...................................... 5.13% 11/01/27 3,104,858
---------------
24,802,606
---------------
HEALTH CARE SERVICES -- 0.1%
869,000 Global Medical Response, Inc. (f)............................... 6.50% 10/01/25 859,224
1,023,000 MEDNAX, Inc. (f)................................................ 5.25% 12/01/23 1,032,590
---------------
1,891,814
---------------
INSURANCE BROKERS -- 0.6%
7,000,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (f)................................................ 4.25% 10/15/27 6,960,625
893,000 HUB International Ltd. (f)...................................... 7.00% 05/01/26 916,222
---------------
7,876,847
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 0.2%
1,430,000 Frontier Communications Corp. (c) (f)........................... 5.88% 10/15/27 1,469,182
469,000 Windstream Escrow LLC / Windstream Escrow Finance
Corp. (f).................................................... 7.75% 08/15/28 453,757
---------------
1,922,939
---------------
MOVIES & ENTERTAINMENT -- 0.4%
8,311,000 AMC Entertainment Holdings, Inc. (f)............................ 0.50% 04/15/25 4,498,329
---------------
REAL ESTATE SERVICES -- 0.0%
250,000 KB Home......................................................... 7.00% 12/15/21 260,469
---------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 0.4%
4,616,000 Dell International LLC / EMC Corp. (f).......................... 5.88% 06/15/21 4,632,895
---------------
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS -- 0.0%
$ 250,000 United Rentals North America, Inc............................... 5.88% 09/15/26 $ 263,373
---------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.2%
2,000,000 T-Mobile USA, Inc............................................... 6.00% 03/01/23 2,002,500
---------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 93,995,654
(Cost $98,996,799) ---------------
FOREIGN CORPORATE BONDS AND NOTES -- 0.4%
PHARMACEUTICALS -- 0.4%
305,000 Bausch Health Cos., Inc. (f).................................... 5.88% 05/15/23 304,475
4,366,000 Bausch Health Cos., Inc. (f).................................... 6.13% 04/15/25 4,487,157
250,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (c) (f) (g).............................................. 5.63% 10/15/23 81,250
---------------
4,872,882
---------------
REAL ESTATE SERVICES -- 0.0%
250,000 Taylor Morrison Communities, Inc. / Taylor Morrison Holdings II,
Inc. (f)..................................................... 5.88% 04/15/23 265,309
---------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................................... 5,138,191
(Cost $5,271,174) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS -- 0.2%
PHARMACEUTICALS -- 0.2%
249,316 Akorn, Inc. (h) (i).......................................................................... 2,804,805
(Cost $2,858,880) ---------------
RIGHTS -- 0.0%
ELECTRIC UTILITIES -- 0.0%
4,887 Vistra Energy Corp. (h) (i).................................................................. 5,459
---------------
LIFE SCIENCES TOOLS & SERVICES -- 0.0%
1 New Millennium Holdco, Inc., Corporate Claim Trust (h) (i) (j) (k)........................... 0
1 New Millennium Holdco, Inc., Corporate Claim Trust (h) (i) (j) (k)........................... 0
---------------
0
---------------
TOTAL RIGHTS................................................................................. 5,459
(Cost $8,491) ---------------
MONEY MARKET FUNDS -- 4.9%
62,181,641 Morgan Stanley Institutional Liquidity Funds - Treasury
Portfolio - Institutional Class - 0.01% (l)............................................... 62,181,641
(Cost $62,181,641) ---------------
TOTAL INVESTMENTS -- 101.4%.................................................................. 1,295,301,055
(Cost $1,348,631,383) (m)
NET OTHER ASSETS AND LIABILITIES -- (1.4)%................................................... (18,336,754)
---------------
NET ASSETS -- 100.0%......................................................................... $ 1,276,964,301
===============
</TABLE>
-----------------------------
(a) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests generally pay interest at rates which are periodically
predetermined by reference to a base lending rate plus a premium. These
base lending rates are generally (i) the lending rate offered by one or
more major European banks, such as the LIBOR, (ii) the prime rate offered
by one or more United States banks or (iii) the certificate of deposit
rate. Certain Senior Loans are subject to a LIBOR floor that establishes a
minimum LIBOR rate. When a range of rates is disclosed, the Fund holds
more than one contract within the same tranche with identical LIBOR
period, spread and floor, but different LIBOR reset dates.
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
(b) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(c) This issuer has filed for protection in bankruptcy court.
(d) The issuer may pay interest on the loans (1) entirely in cash or (2) in
the event that both the Payment-In-Kind ("PIK") Toggle Condition has been
satisfied and the issuer elects to exercise the PIK interest, 2.50%
payable in cash and 7.00% payable as PIK interest. The first interest
payment is scheduled for January 4, 2021.
(e) On October 1, 2020, Akorn Holding Company LLC completed a Bankruptcy Plan
of Reorganization. In connection with the Plan of Reorganization, the Fund
received a portion of a new exit term loan and a share of the newly issued
common equity shares in the re-organized company.
(f) 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, 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, 2020, securities noted as such
amounted to $90,092,503 or 7.1% of net assets.
(g) This issuer is in default and interest is not being accrued by the Fund
nor paid by the issuer.
(h) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(i) Non-income producing security.
(j) This security's value was determined using significant unobservable inputs
(see Note 2A - Portfolio Valuation in the Notes to Financial Statements).
(k) This security is fair valued by the Advisor's Pricing Committee in
accordance with procedures adopted by the Trust's Board of Trustees, and
in accordance with provisions of the Investment Company Act of 1940, as
amended. At October 31, 2020, securities noted as such are valued at $0 or
0.0% of net assets.
(l) Rate shown reflects yield as of October 31, 2020.
(m) Aggregate cost for federal income tax purposes is $1,349,340,118. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$3,640,327 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$57,679,390. The net unrealized depreciation was $54,039,063.
LIBOR - London Interbank Offered Rate
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Senior Floating-Rate Loan Interests*.............. $1,131,175,305 $ -- $1,131,175,305 $ --
Corporate Bonds and Notes*........................ 93,995,654 -- 93,995,654 --
Foreign Corporate Bonds and Notes*................ 5,138,191 -- 5,138,191 --
Common Stocks*.................................... 2,804,805 -- 2,804,805 --
Rights:
Electric Utilities............................. 5,459 -- 5,459 --
Life Science Tools & Services.................. --** -- -- --**
Money Market Funds................................ 62,181,641 62,181,641 -- --
-------------- -------------- -------------- --------------
Total Investments................................. $1,295,301,055 $ 62,181,641 $1,233,119,414 $ --**
============== ============== ============== ==============
</TABLE>
* See Portfolio of Investments for industry breakout.
** Investment is valued at $0.
Level 3 Rights are fair valued by the Advisor's Pricing Committee and are
footnoted in the Portfolio of Investments. These values are based on
unobservable and non-quantitative inputs.
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $1,295,301,055
Receivables:
Investment securities sold............................................. 36,500,196
Interest............................................................... 3,047,447
Dividends.............................................................. 648
Capital shares sold.................................................... 9,180
--------------
Total Assets........................................................ 1,334,858,526
--------------
LIABILITIES:
Due to custodian.......................................................... 1,893,460
Payables:
Investment securities purchased........................................ 45,880,635
Capital shares purchased............................................... 9,179,441
Investment advisory fees............................................... 939,653
Unrealized depreciation on unfunded loan commitments...................... 1,036
--------------
Total Liabilities................................................... 57,894,225
--------------
NET ASSETS................................................................ $1,276,964,301
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $1,404,687,564
Par value................................................................. 278,500
Accumulated distributable earnings (loss)................................. (128,001,763)
--------------
NET ASSETS................................................................ $1,276,964,301
==============
NET ASSET VALUE, per share................................................ $ 45.85
==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................. 27,850,002
==============
Investments, at cost...................................................... $1,348,631,383
==============
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 65,060,375
Dividends - Unaffiliated.................................................. 524,037
Dividends - Affiliated.................................................... 215,267
--------------
Total investment income................................................ 65,799,679
--------------
EXPENSES:
Investment advisory fees.................................................. 12,483,139
--------------
Total expenses......................................................... 12,483,139
--------------
NET INVESTMENT INCOME (LOSS).............................................. 53,316,540
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Unaffiliated............................................. (47,791,805)
Investments - Affiliated............................................... 78,316
--------------
Net realized gain (loss).................................................. (47,713,489)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments - Unaffiliated............................................. (24,555,624)
Investments - Affiliated............................................... (64,020)
Unfunded loan commitments.............................................. (1,036)
--------------
Net change in unrealized appreciation (depreciation)...................... (24,620,680)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (72,334,169)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ (19,017,629)
==============
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/2020 10/31/2019
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 53,316,540 $ 74,073,286
Net realized gain (loss).................................................. (47,713,489) (11,874,050)
Net change in unrealized appreciation (depreciation)...................... (24,620,680) (16,779,812)
-------------- --------------
Net increase (decrease) in net assets resulting from operations........... (19,017,629) 45,419,424
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (53,352,275) (74,733,494)
Return of capital......................................................... (984,628) (385,786)
-------------- --------------
Total distributions to shareholders....................................... (54,336,903) (75,119,280)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 198,707,465 157,940,483
Cost of shares redeemed................................................... (451,536,565) (408,996,170)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................................... (252,829,100) (251,055,687)
-------------- --------------
Total increase (decrease) in net assets................................... (326,183,632) (280,755,543)
NET ASSETS:
Beginning of period....................................................... 1,603,147,933 1,883,903,476
-------------- --------------
End of period............................................................. $1,276,964,301 $1,603,147,933
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 34,000,002 39,450,002
Shares sold............................................................... 4,200,000 3,300,000
Shares redeemed........................................................... (10,350,000) (8,750,000)
-------------- --------------
Shares outstanding, end of period......................................... 27,850,002 34,000,002
============== ==============
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2020 2019 2018 2017 2016
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 47.15 $ 47.75 $ 48.26 $ 48.32 $ 48.07
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 1.67 2.13 1.87 1.68 1.80
Net realized and unrealized gain (loss)............... (1.27) (0.57) (0.43) (0.04) 0.27
---------- ---------- ---------- ---------- ----------
Total from investment operations...................... 0.40 1.56 1.44 1.64 2.07
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................. (1.67) (2.15) (1.92) (1.70) (1.82)
Return of capital..................................... (0.03) (0.01) (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions paid to shareholders.............. (1.70) (2.16) (1.95) (1.70) (1.82)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period........................ $ 45.85 $ 47.15 $ 47.75 $ 48.26 $ 48.32
========== ========== ========== ========== ==========
TOTAL RETURN (a)...................................... 0.90% 3.37% 3.03% 3.43% 4.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................. $1,276,964 $1,603,148 $1,883,903 $1,341,599 $ 594,277
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets (b)..... 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of net investment income (loss) to
average net assets................................. 3.63% 4.50% 3.94% 3.53% 3.84%
Portfolio turnover rate (c)........................... 76% 44% 88% 110% 67%
</TABLE>
(a) 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.
(b) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. This ratio
does not include these indirect fees and expenses.
(c) 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 Page 21
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Senior Loan Fund (the "Fund"), a diversified series of
the Trust, which trades under the ticker "FTSL" on The Nasdaq Stock Market LLC
("Nasdaq"). Unlike conventional mutual funds, the Fund issues and redeems shares
on a continuous basis, at net asset value ("NAV"), only in large specified
blocks consisting of 50,000 shares called a "Creation Unit." Creation Units are
generally issued and redeemed for cash and, in certain circumstances, in-kind
for securities in which the Fund invests. Except when aggregated in Creation
Units, the shares are not redeemable securities of the Fund.
The Fund's primary investment objective is to provide high current income. The
Fund's secondary investment objective is the preservation of capital. Under
normal market conditions, the Fund seeks to outperform each of the S&P/LSTA U.S.
Leveraged Loan 100 Index and the Markit iBoxx USD Liquid Leveraged Loan Index by
investing at least 80% of its net assets (including investment borrowings) in
first lien senior floating rate bank loans ("Senior Loans")(1). The S&P/LSTA
U.S. Leveraged Loan 100 Index (the "Primary Index") is a market value-weighted
index designed to measure the performance of the largest segment of the U.S.
syndicated leveraged loan market. The Primary Index consists of 100 loan
facilities drawn from a larger benchmark, the S&P/LSTA Leveraged Loan Index. The
Markit iBoxx USD Liquid Leveraged Loan Index (the "Secondary Index") selects the
100 most liquid Senior Loans in the market. The Fund does not seek to track
either the Primary or Secondary Index, but rather seeks to outperform each of
the indices. It is anticipated that the Fund, in accordance with its principal
investment strategy, will invest approximately 50% to 75% of its net assets in
Senior Loans that are eligible for inclusion in and meet the liquidity
thresholds of the Primary and/or the Secondary Indices at the time of
investment.
A Senior Loan is an advance or commitment of funds made by one or more banks or
similar financial institutions to one or more corporations, partnerships or
other business entities and typically pays interest at a floating or adjusting
rate that is determined periodically at a designated premium above a base
lending rate, most commonly the London Interbank Offered Rate. The Fund invests
primarily in Senior Loans that are below investment grade quality at the time of
investment. The Fund invests in Senior Loans made predominantly to businesses
operating in North America, but may also invest in Senior Loans made to
businesses operating outside of North America.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
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.
A. PORTFOLIO VALUATION
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 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
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 22
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. 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:
Senior Loans in which the Fund invests are not listed on any securities
exchange or board of trade. Senior Loans are typically bought and sold by
institutional investors in individually negotiated private transactions
that function in many respects like an over-the-counter secondary market,
although typically no formal market-makers exist. This market, while
having grown substantially since its inception, generally has fewer trades
and less liquidity than the secondary market for other types of
securities. Some Senior Loans have few or no trades, or trade
infrequently, and information regarding a specific Senior Loan may not be
widely available or may be incomplete. Accordingly, determinations of the
market value of Senior Loans may be based on infrequent and dated
information. Because there is less reliable, objective data available,
elements of judgment may play a greater role in valuation of Senior Loans
than for other types of securities. Typically, Senior Loans are valued
using information provided by a third-party pricing service. The
third-party pricing service primarily uses over-the-counter pricing from
dealer runs and broker quotes from indicative sheets to value the Senior
Loans.
Corporate bonds, corporate notes and other debt securities are fair valued
on the basis of valuations provided by dealers who make markets in such
securities or by a third-party pricing service approved by the Trust's
Board of Trustees, which may use the following valuation inputs when
available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
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 principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid 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 Trust's Board of Trustees or its
delegate, 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
Page 23
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020
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 fundamental business data relating to the borrower/issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based
on the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
(or equity securities) of the borrower/issuer, or comparable
companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) 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;
11) 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;
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
14) 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:
o 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.
o 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.
o 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, 2020, 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 over the expected life of each
respective borrowing for loans and bonds.
In July 2017, the Financial Conduct Authority ("FCA") announced that it will no
longer persuade or compel banks to submit rates for the calculations of the
London Interbank Offered Rates ("LIBOR") after 2021. Further, the FCA has
subsequently stated, as recently as March 2020, that the central assumption
continues to be that firms should not rely on LIBOR being published after the
end of 2021.
Page 24
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018.
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
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. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. 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. The Fund
had no when-issued, delayed-delivery, or forward purchase commitments (other
than unfunded loan commitments discussed below) as of October 31, 2020.
C. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. Unfunded loan commitments are marked-to-market daily, and
any unrealized appreciation (depreciation) is included in the Statement of
Assets and Liabilities and Statement of Operations. In connection with these
commitments, the Fund earns a commitment fee typically set as a percentage of
the commitment amount. As of October 31, 2020, the Fund had the following
unfunded loan commitment:
<TABLE>
<CAPTION>
UNREALIZED
PRINCIPAL COMMITMENT APPRECIATION
BORROWER VALUE AMOUNT VALUE (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Help at Home (HAH Group Holding Company, LLC), Term Loan $ 414,520 $ 408,302 $ 407,266 $ (1,036)
</TABLE>
D. AFFILIATED TRANSACTIONS
The Fund invests in securities of affiliated funds. Dividend income and realized
gains and losses, and change in appreciation (depreciation) from affiliated
funds are presented on the Statement of Operations. The Fund's investment
performance and risks are directly related to the investment performance and
risks of the affiliated funds.
Amounts related to these investments at October 31, 2020, and for the fiscal
year then ended are as follows:
<TABLE>
<CAPTION>
CHANGE IN
UNREALIZED REALIZED
SHARES AT VALUE AT APPRECIATION GAIN VALUE AT DIVIDEND
SECURITY NAME 10/31/2020 10/31/2018 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2020 INCOME
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust Enhanced
Short Maturity ETF -- $ 32,058,015 $ -- $(32,072,311) $ (64,020) $ 78,316 $ -- $ 215,267
===============================================================================================
</TABLE>
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
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
Page 25
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020
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, 2020 and 2019 was as follows:
Distributions paid from: 2020 2019
Ordinary income................................. $ 53,352,275 $ 74,733,494
Capital gains................................... -- --
Return of capital............................... 984,628 385,786
As of October 31, 2020, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ --
Accumulated capital and other gain (loss)....... (73,961,664)
Net unrealized appreciation (depreciation)...... (54,040,099)
F. INCOME TAXES
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 2017,
2018, 2019, and 2020 remain open to federal and state audit. As of October 31,
2020, 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. As of October 31, 2020, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $73,961,664.
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, 2020, 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. The results of operations and net assets
were not affected by these adjustments. For the fiscal year ended October 31,
2020, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 37,255 $ 811,084 $ (848,339)
G. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020
H. NEW ACCOUNTING PRONOUNCEMENT
On March 30, 2017, the FASB issued Accounting Standards Update ("ASU") 2017-08
"Premium Amortization on Purchased Callable Debt Securities," which amends the
amortization period for certain purchased callable debt securities held at a
premium by shortening such period to the earliest call date. The new guidance
requires an entity to amortize the premium on a callable debt security within
its scope to the earliest call date, unless the guidance for considering
estimated prepayments is applied. If the call option is not exercised at the
earliest call date, the yield is reset to the effective yield using the payment
terms of the security. If the security has more than one call date and the
premium was amortized to a call price greater than the next call price, any
excess of the amortized cost basis over the amount repayable at the next call
date will be amortized to that date. If there are no other call dates, any
excess of the amortized cost basis over the par amount will be amortized to
maturity. Discounts on purchased callable debt securities will continue to be
amortized to the security's maturity date. ASU 2017-08 is effective for public
business entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. ASU 2017-08 was adopted for these
financial statements and did not have a material impact.
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, pro rata
share of fees and expenses attributable to investments in other investment
companies ("acquired fund fees and expenses"), 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. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.85% of its average daily net assets. In addition, the
Fund incurs acquired fund fees and expenses. The total of the unitary management
fee and acquired fund fees and expenses represents the Fund's total annual
operating expenses.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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,
defined-outcome fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and the Valuation Committee 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 Lead Independent Trustee and Committee
Chairmen rotate every three years. 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, 2020, the cost of purchases and proceeds
from sales of investments, excluding short-term investments and in-kind
transactions, were $1,074,196,258 and $1,361,178,299, respectively.
For the fiscal year ended October 31, 2020, there were no in-kind transactions.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020
5. BORROWINGS
The Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund
III and First Trust Series Fund have a $410 million Credit Agreement with The
Bank of Nova Scotia ("Scotia") as administrative agent for a group of lenders.
Prior to November 25, 2019, the commitment amount was $385 million. Scotia
charges 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, 2020.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may increase or decrease with changes
in the Fund's portfolio. The price for each Creation Unit will equal the daily
NAV per share times the number of shares in a Creation Unit plus the fees
described above and, if applicable, any operational processing and brokerage
costs, transfer fees or stamp taxes. When Creation Units are issued for cash,
the Authorized Participant may also be assessed an amount to cover the cost of
purchasing portfolio securities, including operational processing and brokerage
costs, transfer fees, stamp taxes, and part or all of the spread between the
expected bid and offer side of the market related to such securities.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may increase or decrease with changes in the Fund's
portfolio. When shares are redeemed for cash, the Authorized Participant may
also be assessed an amount to cover other costs, including operational
processing and brokerage costs, transfer fees, stamp taxes and part or all of
the spread between the expected bid and offer side of the market related to
portfolio securities sold in connection with the redemption.
7. DISTRIBUTION PLAN
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 March 31, 2022.
8. INDEMNIFICATION
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.
9. SUBSEQUENT EVENTS
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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Senior Loan Fund (the "Fund"), a series of the First Trust Exchange-Traded
Fund IV, including the portfolio of investments, as of October 31, 2020, 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, 2020, 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.
BASIS FOR OPINION
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, 2020, by correspondence with
the custodian, agent banks and brokers; when replies were not received from
agent banks and 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, 2020
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to the foreign shareholders during the Fund's fiscal year
ended October 31, 2020 that were properly designated by the Fund as
"interest-related dividends" or "short-term capital gain dividends," may not be
subject to federal income tax provided that the income was earned directly by
such foreign shareholders.
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended October 31, 2020, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom's
Financial Conduct Authority announced that LIBOR will cease to be available for
use after 2021. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the fund or on certain
instruments in which the fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. Any such effects of the transition
away from LIBOR, as well as other unforeseen effects, could result in losses to
the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19 pandemic may last
for an extended period of time and will continue to impact the economy for the
foreseeable future.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (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 Senior Loan Fund (the "Fund"). The
Board approved the continuation of the Agreement for a one-year period ending
June 30, 2021 at a meeting held on June 8, 2020. 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 reasonable
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 May 11, 2020 and June 8, 2020, 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 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 fall-out 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 May
11, 2020, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the May
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
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 8, 2020 meeting, as well as at the meeting held that day.
The Board considered supplemental information provided by the Advisor on the
operations of the Advisor and the performance of the Fund since the onset of the
COVID-19 pandemic. 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 Leveraged Finance 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 Leveraged
Finance 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 Leveraged Finance Investment Team as it uses
for overseeing external sub-advisors, 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 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 May 11,
2020 meeting, described to the Board the scope of its ongoing investment in
additional infrastructure and personnel 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 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 advisory 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 above the median total (net) expense ratio of the peer funds in the
Expense Group. With respect to the Expense Group, the Board, at the May 11, 2020
meeting, 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 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 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, 2019
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 for the one-, three- and
five-year periods ended December 31, 2019. The Board also noted that the Fund
underperformed the benchmark index for the one , three- and five-year periods
ended December 31, 2019.
Page 33
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
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 and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. 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, 2019 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 fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out 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 noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out 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
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 Senior Loan Fund (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, 2019, the amount of remuneration paid (or to
be paid) by First Trust in respect of the Fund is $5,628,611. This figure is
comprised of $714,579 paid (or to be paid) in fixed compensation and $4,914,032
paid (or to be paid) in variable compensation. There were a total of 22
beneficiaries of the remuneration described above. Those amounts include
$365,981 paid (or to be paid) to senior management of First Trust and $5,262,630
paid (or to be paid) to other employees whose professional activities have a
material impact on the risk profiles of First Trust 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.
Page 34
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
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.
LIQUIDITY RISK MANAGEMENT PROGRAM
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund and each other fund in the First Trust Fund
Complex, other than the closed-end funds, have adopted and implemented a
liquidity risk management program (the "Program") reasonably designed to assess
and manage the funds' liquidity risk, i.e., the risk that a fund could not meet
requests to redeem shares issued by the fund without significant dilution of
remaining investors' interests in the fund. The Board of Trustees of the First
Trust Funds has appointed First Trust Advisors, L.P. (the "Advisor") as the
person designated to administer the Program, and in this capacity the Advisor
performs its duties primarily through the activities and efforts of the First
Trust Liquidity Committee (the "Liquidity Committee").
Pursuant to the Program, the Liquidity Committee classifies the liquidity of
each fund's portfolio investments into one of the four liquidity categories
specified by Rule 22e-4: highly liquid investments, moderately liquid
investments, less liquid investments and illiquid investments. The Liquidity
Committee determines certain of the inputs for this classification process,
including reasonably anticipated trade sizes and significant investor dilution
thresholds. The Liquidity Committee also determines and periodically reviews a
highly liquid investment minimum for certain funds, including the Fund, monitors
the funds' holdings of assets classified as illiquid investments to seek to
ensure they do not exceed 15% of a fund's net assets and establishes policies
and procedures regarding redemptions in kind.
At the May 11, 2020 meeting of the Board of Trustees, as required by Rule 22e-4
and the Program, the Advisor provided the Board with a written report prepared
by the Advisor that addressed the operation of the Program during the period
from June 1, 2019 (the initial compliance date for certain requirements of Rule
22e-4) through the Liquidity Committee's annual meeting held on March 20, 2020
and assessed the Program's adequacy and effectiveness of implementation during
this period, including the operation of the highly liquid investment minimum for
each fund, including the Fund, that is required under the Program to have one,
and any material changes to the Program. Note that because the Funds primarily
hold assets that are highly liquid investments, the Funds have not adopted a
highly liquid investment minimum.
As stated in the written report, during the review period, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor
concluded that each fund's investment strategy is appropriate for an open-end
fund; that the Program operated effectively in all material respects during the
review period; and that the Program is reasonably designed to assess and manage
the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
Page 35
<PAGE>
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 189 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 189 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 189 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 189 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 189 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 36
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 37
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2020 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 38
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<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Tactical High
Yield ETF (HYLS)
Annual Report
For the Year Ended
October 31, 2020
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2020
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 8
Portfolio of Investments..................................................... 9
Statement of Assets and Liabilities.......................................... 25
Statement of Operations...................................................... 26
Statements of Changes in Net Assets.......................................... 27
Statement of Cash Flows...................................................... 28
Financial Highlights......................................................... 29
Notes to Financial Statements................................................ 30
Report of Independent Registered Public Accounting Firm...................... 37
Additional Information....................................................... 38
Board of Trustees and Officers............................................... 44
Privacy Policy............................................................... 46
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Tactical High Yield ETF; hereinafter referred to as the
"Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that 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 investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2020
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Tactical High Yield ETF (the "Fund"), which contains detailed information about
the Fund for the twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that
my message this year should touch on the tone of the markets and the investing
climate rather than belabor all the news and events that brought us to this
juncture. We all know how tumultuous our lives have become over the past eight
or so months. The phrase "shelter-at-home" says it all. I would rather talk
about why I believe investors should be optimistic about where we could be
headed.
Having said that, allow me to at least acknowledge the two elephants in the
room: the coronavirus ("COVID-19") and the election. In the first 12 days of
November, we learned the following: that we likely have a new president-elect
(Joe Biden), though it may not be official for some time because it is being
contested by President Donald Trump and some of his loyal backers in the
Republican Party citing voter fraud in certain states; that we still do not know
which political party will have control of the Senate due to a couple of
run-offs in Georgia to be held on January 5, 2021; and, that it looks as though
we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either
the end of 2020 or the start of 2021, though that too is not yet official. It
could be a game-changer in the COVID-19 battle. And, we may gain access to
additional vaccines as well. The key to getting the economy back to running on
all cylinders is to fully reopen, and a vaccine is "what the doctor ordered."
With respect to the tone of the markets and investment climate, to say that I am
encouraged about what has transpired in 2020 would be an understatement. Despite
the extraordinary challenges so far this year, the S&P 500(R) Index posted a
total return of 2.77% over the first 10 months of 2020, this despite plunging
33.8% into bear market territory from February 19, 2020 through March 23, 2020,
according to Bloomberg. As impressive as that feat is, the future looks even
brighter. While Bloomberg's consensus earnings growth rate estimate for the S&P
500(R) Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022
estimates were 21.74% and 16.95%, respectively. That is a strong take on the
prospects for a rebound in Corporate America over the next 24 months. One of the
tailwinds that is providing a good deal of support to the economy and markets is
the decision by the Federal Reserve (the "Fed") to keep interest rates
artificially low for as long as need be to meet both its employment and
inflation targets. By keeping rates lower for longer, the Fed is essentially
inviting investors to assume more risk to generate higher returns. Brian
Wesbury, Chief Economist at First Trust, believes that the Fed could need until
2024 to accomplish its goals. That is a lot of runway for investors to
reposition their portfolios, if needed, and a very generous, and perhaps
unprecedented, amount of guidance from the Fed, in our opinion. Those investors
with cash on the sidelines earning next to nothing have options if they choose
to act.
We are encouraged about the prospects for the economy and the markets, but
investors should be prepared to weather some volatility until the COVID-19
pandemic is better contained. As always, we encourage investors to stay the
course!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
The primary investment objective of the First Trust Tactical High Yield ETF (the
"Fund") is to provide current income. The Fund's secondary investment objective
is to provide capital appreciation. Under normal market conditions, the Fund
invests at least 80% of its net assets (including investment borrowings) in high
yield debt securities that are rated below investment grade at the time of
purchase or unrated securities deemed by the Fund's advisor to be of comparable
quality. Below investment grade securities are those that, at the time of
purchase, are rated lower than "BBB-" by Standard & Poor's Ratings Group, a
division of the McGraw Hill Companies, Inc., or lower than "Baa3" by Moody's
Investors Service, Inc., or comparably rated by another nationally recognized
statistical rating organization. High yield debt securities that are rated below
investment grade are commonly referred to as "junk" debt. Such securities may
include U.S. and non-U.S. corporate debt obligations, bank loans and convertible
bonds. For purposes of determining whether a security is below investment grade,
the lowest available rating will be considered. The Fund may invest no more than
15% in non-income producing securities including Distressed Securities (defined
below) and common stocks. Companies whose financial condition is troubled or
uncertain and that may be involved in bankruptcy proceedings, reorganizations or
financial restructurings are referred to herein as "Distressed Securities." The
Fund may, under normal market conditions, invest up to 40% of its net assets
(including investment borrowings) in bank loans; however the Fund invests no
more than 15% of its net assets (including investment borrowings) in junior
loans, and all other bank loans in which the Fund invests are first lien senior
secured floating rate bank loans. The Fund may invest in listed and
over-the-counter derivatives to the extent permitted by the Nasdaq Stock Market
LLC. The Fund may not be appropriate for all investors.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (2/25/13) 5 Years Ended Inception (2/25/13)
10/31/20 10/31/20 to 10/31/20 10/31/20 to 10/31/20
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 2.92% 4.79% 4.84% 26.38% 43.78%
Market Price 3.18% 4.79% 4.87% 26.33% 44.10%
INDEX PERFORMANCE
ICE BofA US High Yield
Constrained Index 2.44% 6.11% 5.05% 34.59% 45.97%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative Annual
Total Returns" represent the total change in value of an investment over the
periods indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of the Fund did
not trade in the secondary market until after its inception, for the period from
inception to the first day of secondary market trading in shares of the Fund,
the NAV of the Fund is used as a proxy for the secondary market trading price to
calculate market returns. NAV and market returns assume that all distributions
have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. 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. The investment return and principal value of the shares of
the Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
-----------------------------------------------------------
% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS(1)
-----------------------------------------------------------
Health Care Providers & Services 15.4%
Media 13.0
Software 12.7
Pharmaceuticals 8.4
Insurance 7.5
Hotels, Restaurants & Leisure 7.0
Diversified Telecommunication Services 4.4
Entertainment 3.5
Diversified Consumer Services 2.5
Building Products 2.2
Health Care Technology 2.2
Containers & Packaging 2.1
Diversified Financial Services 1.7
Electric Utilities 1.7
Professional Services 1.6
Technology Hardware, Storage &
Peripherals 1.5
Food Products 1.4
Specialty Retail 1.2
Real Estate Management & Development 1.2
Automobiles 0.9
Food & Staples Retailing 0.7
Aerospace & Defense 0.7
Capital Markets 0.7
Auto Components 0.6
IT Services 0.6
Communications Equipment 0.5
Commercial Services & Supplies 0.5
Trading Companies & Distributors 0.5
Machinery 0.5
Industrial Conglomerates 0.3
Airlines 0.3
Independent Power and Renewable
Electricity Producers 0.3
Wireless Telecommunication Services 0.2
Construction & Engineering 0.2
Life Sciences Tools & Services 0.2
Construction Materials 0.2
Semiconductors & Semiconductor
Equipment 0.2
Consumer Finance 0.1
Household Durables 0.1
Electronic Equipment, Instruments
& Components 0.1
Metals & Mining 0.1
Road & Rail 0.1
Household Products 0.1
Chemicals 0.1
Interactive Media & Services 0.0*
Oil, Gas & Consumable Fuels 0.0*
Electrical Equipment 0.0*
Health Care Equipment & Supplies 0.0*
Personal Products 0.0*
--------
Total 100.0%
========
* Amount is less than 0.1%.
-----------------------------------------------------------
% OF TOTAL LONG-TERM
ASSET CLASSIFICATION INVESTMENTS(1)
-----------------------------------------------------------
Corporate Bonds 61.4%
Senior Floating-Rate Loan Interests 29.4
Foreign Corporate Bonds 9.1
Common Stock 0.1
Rights 0.0*
--------
Total 100.0%
========
-----------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
CREDIT QUALITY (S&P RATINGS)(2) DEBT SECURITIES(1)
-----------------------------------------------------------
BBB 0.4%
BBB- 1.3
BB+ 3.9
BB 9.2
BB- 9.5
B+ 16.8
B 27.0
B- 13.9
CCC+ 11.7
CCC 2.5
CCC- 0.5
D 2.7
NR 0.6
--------
Total 100.0%
========
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP 10 ISSUERS INVESTMENTS(1)
-----------------------------------------------------------
Bausch Health Cos., Inc. (Valeant) 3.4%
Alliant Holdings I LLC 2.6
HUB International Ltd. 2.4
Asurion LLC 2.2
Endo LLC 2.1
Gray Television, Inc. 2.0
AmWINS Group, Inc. 1.9
Tenet Healthcare Corp. 1.9
iHeartCommunications, Inc. 1.8
Frontier Communications Corp. 1.7
--------
Total 22.0%
========
(1) Percentages are based on the long positions only. Money market funds and
short positions are excluded.
(2) The ratings are by Standard & Poor's Rating Group, a division of the
McGraw-Hill Companies, Inc. 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 except for
those debt obligations that are only privately rated. 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. 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.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 25, 2013 - OCTOBER 31, 2020
First Trust Tactical ICE BofA US High
High Yield ETF Yield Constrained Index
<S> <C> <C>
2/25/13 $10,000 $10,000
4/30/13 10,403 10,308
10/31/13 10,676 10,458
4/30/14 11,167 10,956
10/31/14 11,285 11,070
4/30/15 11,493 11,238
10/31/15 11,376 10,845
4/30/16 11,519 11,089
10/31/16 11,933 11,950
4/30/17 12,431 12,602
10/31/17 12,744 13,042
4/30/18 12,748 13,012
10/31/18 12,948 13,154
4/30/19 13,650 13,885
10/31/19 13,970 14,250
4/30/20 13,284 13,153
10/31/20 14,378 14,597
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
ADVISOR
The First Trust Advisors L.P. ("First Trust") Leveraged Finance Team is
comprised of 16 experienced investment professionals specializing in below
investment grade securities. The team is comprised of portfolio management,
research, trading and operations personnel. As of October 31, 2020, the First
Trust Leveraged Finance Team managed or supervised approximately $5.43 billion
in senior secured bank loans and high-yield bonds. These assets are managed
across various strategies, including three closed-end funds, an open-end fund,
three exchange-traded funds, and a series of unit investment trusts on behalf of
retail and institutional clients.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA - MANAGING DIRECTOR OF FIXED INCOME AND SENIOR PORTFOLIO
MANAGER
JEFFREY SCOTT, CFA - SENIOR VICE PRESIDENT, DEPUTY CREDIT OFFICER AND PORTFOLIO
MANAGER
ORLANDO PURPURA, CFA, CMT - SENIOR VICE PRESIDENT, CHIEF CREDIT OFFICER
AND PORTFOLIO MANAGER
COMMENTARY
The First Trust Tactical High Yield ETF (the "Fund") is an actively managed
exchanged-traded fund ("ETF"). The Fund's primary investment objective is to
provide current income, with a secondary objective of capital appreciation.
MARKET RECAP
As we ended 2019, the Federal Reserve (the "Fed") had cut interest rates for the
last time in October 2019 and in December indicated that no action would be
likely in 2020 given the persistently low inflation environment. In January
2020, the United States and China signed "Phase One" of a trade agreement and
U.S. economic data remained strong. The combination of a patient Fed, improving
U.S.-China trade relations, and a robust domestic economy propelled the S&P
500(R) Index to new highs in late February 2020. Shortly after, as the
coronavirus ("COVID-19") pandemic gripped the world's attention, the financial
market implications from the onset of the resulting global economic shutdown
became clear. Equities experienced their most rapid sell-off since the global
financial crisis in 2008. By March 23, 2020 the S&P 500(R) Index was down nearly
-34% from its all-time high set on February 19, 2020. Policy makers then took
unprecedented steps to stabilize the markets. Central Banks around the world cut
interest rates and governments announced aggressive monetary stimulus packages.
Domestically, the CARES Act was passed and signed into law on March 27. The bill
included a historic $2 trillion stimulus package aimed at sending financial aid
to struggling U.S. citizens and businesses affected by COVID-19. The Fed also
cut the target Fed Funds rate by 150 basis points ("bps") during the month of
March. As fears subsided, and optimism that the combination of a re-opening of
the U.S. economy and aggressive fiscal and monetary stimulus would result in a
quicker than expected recovery, markets surpassed pre-pandemic levels before a
resurgence in COVID-19 infections tempered investor optimism at the end of the
12-month period ended October 31, 2020.
High-Yield Bond Market
High-yield bond spreads over U.S. Treasuries increased 119 bps to end the
12-month period ended October 31, 2020 at T+534 bps, which is well below the
spread of T+1087 bps experienced on March 23, 2020 during the depths of the
pandemic-induced market selloff. The spread is slightly inside the long-term
average spread over U.S. Treasuries of T+566 bps (December 1997 - October 2020).
High-yield bond funds experienced robust inflows in the period as the Fed added
high-yield bonds to its list of eligible asset classes for purchase under its
Secondary Market Corporate Credit Facility. This combined with investor appetite
for yield drove strong demand.
Higher quality high-yield bonds (BB rated) outperformed lower quality high-yield
bonds (B rated or below) in the period, which was a continuation of the trend
from the prior year period. High-yield bond issues rated BB returned 4.60%,
outperforming the 0.77% return of B rated issues and outperforming the -2.73%
return of issues rated CCC in the period. The average price of high-yield bonds
in the market at the beginning of the period was $99.09. The price dropped to
$78.60 on March 23, 2020 and subsequently recovered to end the period with an
average price of $99.29.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
Senior Loan Market
Senior loan spreads over 3-month London Interbank Offered Rate ("LIBOR")
increased 70 bps during the 12-month period ended October 31, 2020 to L+585 bps.
This is above the long-term average spread of L+518 (December 1997 - October
2020). Retail senior loan funds have experienced 25 consecutive monthly outflows
with demand impacted by the dramatic decrease of the 3-month LIBOR rate during
the same period.
Single-B rated senior loans outperformed both higher and lower quality senior
loans during the period, returning 3.13% while BB rated issues returned -0.60%.
Single Bs also outperformed CCC rated issues which returned -1.41% during the
same period. The average price of senior loans in the market decreased from
$95.42 in the beginning of the period to $93.17 at the end of the period.
Default Rates
During the 12-month period ended October 31, 2020, default rates increased
within the ICE BofA US High Yield Constrained Index and the S&P/LSTA Leveraged
Loan Index. The last twelve months ("LTM") default rate within the high-yield
bond market ended the period at 6.34% compared to the 2.54% default rate at the
beginning of the period. The senior loan market default rate ended the period at
4.11% compared to the 1.43% rate at the beginning of the period. The default
rates in both the high-yield bond market and the senior loan market are above
the long-term average default rates of 3.17% and 2.90%, respectively. Looking
forward, we anticipate high yield and senior loan market default rates to remain
above the long-term averages through 2021, but anticipate a decline in the
default rate as the economy recovers and the introduction of a vaccine bring a
recovery to the industries most impacted by COVID-19.
FUND PERFORMANCE
The Fund returned 2.92% on a net asset value ("NAV") basis and 3.18% on a market
price basis over the LTM period ended October 31, 2020. The ICE BofA US High
Yield Constrained Index ("the Index") returned 2.44% over the same time period.
The Fund held 410 individual positions diversified across 49 industries at the
end of the reporting period. Health Care Providers & Services (15.50%), Media
(12.95%), and Software (12.69%) were the Fund's largest three industry exposures
at the end of the period. By comparison, the Fund held 277 individual position
across 40 industries as of October 31, 2019. The Fund's duration as of October
31, 2020 was 2.59 years. The Fund strategically deployed leverage over the LTM
period, which was a tailwind to performance as risk asset prices generated
positive returns during the period. The Fund's long position was 116.56% as of
October 31, 2020.
During the LTM period the Fund's performance significantly benefitted from its
de minimis position in the energy industry. Energy was the worst performing
industry in the Index during the period. The average weight of the energy
industry in the Index during the LTM period was 12.28%, while the Fund held a
modest 0.64% allocation. The significant underweight during a period of
declining energy prices was significantly accretive to relative returns. In
addition, the Fund benefited from its overweight position and asset selection in
the healthcare industry and an overweight exposure to the technology &
electronics industry. Within the healthcare industry the Fund's overweight
position in a healthcare cost management solutions company, a managed services
provider, and a drug manufacturer all outperformed the broader healthcare
industry. The healthcare industry is expected to benefit from a divided
government, which we believe will result in no major healthcare legislation or
significant changes to the regulatory environment. Moreover, we anticipate a
continued recovery in healthcare volumes as the economy recovers from COVID-19.
Finally, the technology & electronics industry was the third-best performing
industry in the Index during the LTM period and an overweight position
benefitted the Fund. The average weight to the industry in the Index during the
LTM period was 4.98%, while the Fund had a 14.59% allocation.
Modestly offsetting these contributors were the Fund's overweight position and
asset selection within the leisure industry and underweight position and asset
selection within the basic industry and the automotive industry. The primary
driver of the leisure industry underperformance was the Fund's overweight
exposure to movie theaters. Movie theaters continue to face headwinds as new
movie releases have been pushed further out on the calendar as the industry
awaits a COVID-19 vaccine.
The Fund's most recent monthly distribution of $0.204 per share is $0.009 per
share higher than the monthly distribution paid in October 2019. At the end of
the period, the effective yield based on the distributions for the trailing
twelve months was 5.09% based on NAV and 5.07% based on market price.
Page 6
<PAGE>
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PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
The Fund experienced two defaults during the LTM period compared to 54 defaults
within the JP Morgan High-Yield Bond Universe during the LTM period. Since
inception, the Fund has experienced nine defaults, which compares to 237 within
the JP Morgan High-Yield Bond Universe during the same period. The Fund's LTM
default rate was 1.93% at month-end. The JP Morgan High-Yield Bond Universe
default rate was 6.34%.
MARKET AND FUND OUTLOOK
We believe high yield bonds are supported by spreads that remain in line with
the long-term average, opportunistic pockets of value across ratings and
industries, a low interest rate environment and an improving U.S. economy.
Moreover, while the default rate has increased during the period, we believe
individual credits that came into the 2020 recession with too much leverage and
sectors most impacted by COVID-19 will face a higher likelihood of defaults
including, but not limited to Energy, Travel, Leisure and Retail, in no
particular order. However, generally, businesses that haven't been impacted by
COVID-19 continue to perform well, in our opinion.
We remain confident that improving economic conditions, unprecedented support
from the Fed, and the potential for additional stimulus will provide a backdrop
for continued recovery in high-yield bonds, in our view. As we evaluate new
investment opportunities, decisions will continue to be rooted in our rigorous
bottom-up credit analysis and our focus will remain on identifying the
opportunities that we believe offer the best risk and reward balance.
Page 7
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2020 (UNAUDITED)
As a shareholder of First Trust Tactical High Yield ETF (the "Fund"), you incur
two types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service (12b-1) fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Fund and to compare these costs with the ongoing costs
of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2020.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO
BEGINNING ENDING BASED ON THE EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE
MAY 1, 2020 OCTOBER 31, 2020 PERIOD SIX-MONTH PERIOD (a)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
Actual $1,000.00 $1,082.40 1.01% $5.29
Hypothetical (5% return before expenses) $1,000.00 $1,020.06 1.01% $5.13
</TABLE>
(a) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2020
through October 31, 2020), multiplied by 184/366 (to reflect the six-month
period).
Page 8
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS -- 71.5%
AEROSPACE & DEFENSE -- 0.8%
$ 342,000 Booz Allen Hamilton, Inc. (a)................................... 3.88% 09/01/28 $ 347,771
7,802,000 Science Applications International Corp. (a).................... 4.88% 04/01/28 8,186,483
1,333,000 Spirit AeroSystems, Inc. (a).................................... 5.50% 01/15/25 1,357,994
3,000,000 Spirit AeroSystems, Inc. (a).................................... 7.50% 04/15/25 3,028,110
1,500,000 TransDigm, Inc. (a)............................................. 8.00% 12/15/25 1,625,700
1,000,000 TransDigm, Inc. (a)............................................. 6.25% 03/15/26 1,043,745
---------------
15,589,803
---------------
AGRICULTURAL PRODUCTS -- 0.0%
500,000 Lamb Weston Holdings, Inc. (a).................................. 4.88% 05/15/28 542,685
---------------
AIRLINES -- 0.3%
5,469,000 Mileage Plus Holdings LLC / Mileage Plus Intellectual Property
Assets Ltd. (a).............................................. 6.50% 06/20/27 5,704,851
---------------
ALTERNATIVE CARRIERS -- 0.5%
777,000 Level 3 Financing, Inc.......................................... 5.38% 05/01/25 800,594
2,000,000 Level 3 Financing, Inc.......................................... 5.25% 03/15/26 2,067,300
3,000,000 Level 3 Financing, Inc. (a)..................................... 4.63% 09/15/27 3,065,385
2,000,000 Level 3 Financing, Inc. (a)..................................... 4.25% 07/01/28 2,012,000
2,000,000 Level 3 Financing, Inc. (a)..................................... 3.63% 01/15/29 1,938,750
---------------
9,884,029
---------------
APPAREL RETAIL -- 0.7%
3,040,000 Burlington Coat Factory Warehouse Corp. (a)..................... 6.25% 04/15/25 3,190,100
1,000,000 Nordstrom, Inc. (a)............................................. 8.75% 05/15/25 1,095,685
11,149,000 Nordstrom, Inc.................................................. 4.00% 03/15/27 9,352,054
---------------
13,637,839
---------------
APPLICATION SOFTWARE -- 2.8%
1,276,000 BY Crown Parent LLC / BY Bond Finance, Inc. (a)................. 6.25% 05/01/25 1,100,699
4,910,000 Expedia Group, Inc. (a)......................................... 7.00% 05/01/25 5,261,540
6,486,000 Go Daddy Operating Co. LLC / GD Finance Co., Inc. (a)........... 5.25% 12/01/27 6,806,246
7,689,000 j2 Cloud Services LLC / j2 Cloud Co-Obligor, Inc. (a)........... 6.00% 07/15/25 8,062,685
12,000,000 J2 Global, Inc. (a) (b)......................................... 4.63% 10/15/30 12,146,700
4,411,000 LogMeIn, Inc. (a)............................................... 5.50% 09/01/27 4,477,165
5,685,000 Open Text Holdings, Inc. (a).................................... 4.13% 02/15/30 5,908,648
9,877,000 Solera LLC / Solera Finance, Inc. (a)........................... 10.50% 03/01/24 10,267,339
---------------
55,324,567
---------------
AUTO PARTS & EQUIPMENT -- 0.3%
4,855,000 Gates Global LLC / Gates Corp. (a).............................. 6.25% 01/15/26 5,033,033
---------------
AUTOMOBILE MANUFACTURERS -- 1.0%
3,000,000 Ford Motor Co................................................... 8.50% 04/21/23 3,316,035
2,665,000 Ford Motor Co................................................... 9.00% 04/22/25 3,143,847
7,957,000 Ford Motor Co................................................... 9.63% 04/22/30 10,695,044
2,000,000 Ford Motor Credit Co. LLC....................................... 3.66% 09/08/24 1,986,450
500,000 Ford Motor Credit Co. LLC....................................... 5.13% 06/16/25 521,770
667,000 Penske Automotive Group, Inc.................................... 3.50% 09/01/25 669,501
---------------
20,332,647
---------------
AUTOMOTIVE RETAIL -- 0.7%
167,000 Group 1 Automotive, Inc. (a).................................... 4.00% 08/15/28 167,417
4,926,000 IAA, Inc. (a)................................................... 5.50% 06/15/27 5,187,694
7,350,000 KAR Auction Services, Inc. (a).................................. 5.13% 06/01/25 7,414,312
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
AUTOMOTIVE RETAIL (CONTINUED)
$ 1,351,000 Lithia Motors, Inc. (a)......................................... 4.38% 01/15/31 $ 1,397,441
---------------
14,166,864
---------------
BROADCASTING -- 10.6%
12,265,000 Cumulus Media New Holdings, Inc. (a)............................ 6.75% 07/01/26 11,427,485
5,719,000 Diamond Sports Group LLC / Diamond Sports Finance Co. (a)....... 5.38% 08/15/26 3,352,764
18,673,000 Diamond Sports Group LLC / Diamond Sports Finance Co. (a)....... 6.63% 08/15/27 7,476,669
10,289,000 EW Scripps (The) Co. (a) (b).................................... 5.13% 05/15/25 9,832,426
28,294,000 Gray Television, Inc. (a) (b)................................... 5.88% 07/15/26 29,502,578
11,199,000 Gray Television, Inc. (a)....................................... 7.00% 05/15/27 12,094,920
4,800,000 Gray Television, Inc. (a)....................................... 4.75% 10/15/30 4,740,000
11,000,000 iHeartCommunications, Inc....................................... 8.38% 05/01/27 10,692,275
14,475,000 iHeartCommunications, Inc. (a) (b).............................. 5.25% 08/15/27 14,312,156
1,000,000 iHeartCommunications, Inc. (a).................................. 4.75% 01/15/28 956,690
16,568,000 Nexstar Broadcasting, Inc. (a) (b).............................. 5.63% 07/15/27 17,298,069
9,396,000 Nexstar Broadcasting, Inc. (a).................................. 4.75% 11/01/28 9,518,383
8,355,000 Scripps Escrow, Inc. (a) (b).................................... 5.88% 07/15/27 8,135,681
19,421,000 Sinclair Television Group, Inc. (a) (b)......................... 5.63% 08/01/24 19,418,073
10,599,000 Sinclair Television Group, Inc. (a) (b)......................... 5.88% 03/15/26 10,469,056
2,394,000 Sinclair Television Group, Inc. (a)............................. 5.13% 02/15/27 2,256,345
3,000,000 Sirius XM Radio, Inc. (a)....................................... 4.63% 07/15/24 3,097,350
2,000,000 Sirius XM Radio, Inc. (a)....................................... 4.13% 07/01/30 2,058,520
337,000 TEGNA, Inc. (a)................................................. 4.75% 03/15/26 346,689
8,700,000 TEGNA, Inc. (a)................................................. 4.63% 03/15/28 8,600,646
11,500,000 TEGNA, Inc...................................................... 5.00% 09/15/29 11,654,560
3,000,000 Univision Communications, Inc. (a).............................. 5.13% 02/15/25 2,953,125
8,782,000 Univision Communications, Inc. (a).............................. 6.63% 06/01/27 8,897,264
---------------
209,091,724
---------------
BUILDING PRODUCTS -- 0.3%
2,000,000 American Builders & Contractors Supply Co., Inc. (a)............ 5.88% 05/15/26 2,078,750
1,000,000 American Builders & Contractors Supply Co., Inc. (a)............ 4.00% 01/15/28 1,016,690
1,392,000 Standard Industries, Inc. (a)................................... 5.00% 02/15/27 1,438,110
350,000 Standard Industries, Inc. (a)................................... 4.38% 07/15/30 361,037
1,000,000 Standard Industries, Inc. (a)................................... 3.38% 01/15/31 974,584
---------------
5,869,171
---------------
CABLE & SATELLITE -- 3.1%
7,076,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a) (b)........... 5.75% 02/15/26 7,344,251
2,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.50% 05/01/26 2,082,810
2,828,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.13% 05/01/27 2,973,176
500,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.38% 06/01/29 541,820
2,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.75% 03/01/30 2,106,200
2,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.25% 02/01/31 2,052,080
1,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.50% 05/01/32 1,035,000
4,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.00% 02/01/28 4,206,000
9,183,000 CSC Holdings LLC (a) (b)........................................ 5.50% 05/15/26 9,566,390
819,000 CSC Holdings LLC (a)............................................ 5.50% 04/15/27 863,840
1,800,000 CSC Holdings LLC (a)............................................ 5.38% 02/01/28 1,917,000
5,800,000 CSC Holdings LLC (a)............................................ 7.50% 04/01/28 6,358,250
15,200,000 CSC Holdings LLC (a) (b)........................................ 5.75% 01/15/30 16,268,560
4,167,000 CSC Holdings LLC (a)............................................ 4.63% 12/01/30 4,172,688
---------------
61,488,065
---------------
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
CASINOS & GAMING -- 4.1%
$ 890,000 Boyd Gaming Corp. (a)........................................... 8.63% 06/01/25 $ 975,395
4,718,000 Boyd Gaming Corp................................................ 6.38% 04/01/26 4,901,860
3,850,000 Boyd Gaming Corp................................................ 6.00% 08/15/26 3,958,762
500,000 Boyd Gaming Corp................................................ 4.75% 12/01/27 487,285
12,576,000 Caesars Entertainment, Inc. (a) (b)............................. 6.25% 07/01/25 12,898,236
15,500,000 Caesars Entertainment, Inc. (a) (b)............................. 8.13% 07/01/27 16,197,500
5,000,000 Caesars Resort Collection LLC / CRC Finco, Inc. (a)............. 5.25% 10/15/25 4,755,075
7,430,000 Golden Nugget, Inc. (a)......................................... 6.75% 10/15/24 6,300,789
8,350,000 MGM Resorts International (b)................................... 7.75% 03/15/22 8,785,870
5,100,000 MGM Resorts International (b)................................... 6.00% 03/15/23 5,297,625
4,229,000 MGM Resorts International....................................... 6.75% 05/01/25 4,455,146
1,000,000 MGM Resorts International....................................... 5.75% 06/15/25 1,040,950
1,250,000 Scientific Games International, Inc. (a)........................ 8.63% 07/01/25 1,301,163
5,386,000 Station Casinos LLC (a)......................................... 5.00% 10/01/25 5,369,169
3,616,000 Station Casinos LLC (a)......................................... 4.50% 02/15/28 3,432,940
---------------
80,157,765
---------------
COAL & CONSUMABLE FUELS -- 0.0%
483,000 Peabody Energy Corp. (a)........................................ 6.00% 03/31/22 221,878
967,000 Peabody Energy Corp. (a)........................................ 6.38% 03/31/25 299,770
---------------
521,648
---------------
COMMUNICATIONS EQUIPMENT -- 0.6%
8,655,000 CommScope Technologies LLC (a).................................. 6.00% 06/15/25 8,592,078
3,679,000 CommScope Technologies LLC (a).................................. 5.00% 03/15/27 3,439,939
---------------
12,032,017
---------------
CONSTRUCTION & ENGINEERING -- 0.2%
4,039,000 Pike Corp. (a).................................................. 5.50% 09/01/28 4,140,823
---------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS -- 0.3%
5,565,000 Clark Equipment Co. (a)......................................... 5.88% 06/01/25 5,804,991
---------------
CONSTRUCTION MATERIALS -- 0.2%
3,623,000 Summit Materials LLC / Summit Materials Finance Corp. (a)....... 5.25% 01/15/29 3,736,219
---------------
CONSUMER FINANCE -- 0.2%
486,000 Black Knight InfoServ LLC (a)................................... 3.63% 09/01/28 492,682
3,000,000 FirstCash, Inc. (a)............................................. 4.63% 09/01/28 3,050,625
---------------
3,543,307
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.1%
1,084,000 Cardtronics, Inc. / Cardtronics USA, Inc. (a)................... 5.50% 05/01/25 1,097,436
---------------
DIVERSIFIED METALS & MINING -- 0.1%
2,500,000 Freeport-McMoRan, Inc........................................... 5.00% 09/01/27 2,609,300
---------------
DIVERSIFIED REAL ESTATE ACTIVITIES -- 0.1%
1,000,000 Meritage Homes Corp............................................. 7.00% 04/01/22 1,067,265
---------------
ELECTRIC UTILITIES -- 1.7%
2,500,000 Pacific Gas and Electric Co..................................... 4.55% 07/01/30 2,699,227
9,000,000 PG&E Corp....................................................... 5.00% 07/01/28 9,034,650
12,250,000 PG&E Corp. (b).................................................. 5.25% 07/01/30 12,265,312
5,000,000 Vistra Operations Co. LLC (a)................................... 5.63% 02/15/27 5,219,800
3,189,000 Vistra Operations Co. LLC (a)................................... 5.00% 07/31/27 3,335,694
---------------
32,554,683
---------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.0%
667,000 Sensata Technologies, Inc. (a).................................. 3.75% 02/15/31 661,164
---------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
FERTILIZERS & AGRICULTURAL CHEMICALS -- 0.0%
$ 250,000 Scotts Miracle-Gro (The) Co..................................... 4.50% 10/15/29 $ 266,414
---------------
FINANCIAL EXCHANGES & DATA -- 0.0%
750,000 MSCI, Inc. (a).................................................. 4.00% 11/15/29 784,012
---------------
FOOD DISTRIBUTORS -- 0.4%
4,837,000 US Foods, Inc. (a).............................................. 5.88% 06/15/24 4,827,931
3,488,000 US Foods, Inc. (a).............................................. 6.25% 04/15/25 3,649,616
---------------
8,477,547
---------------
FOOD RETAIL -- 0.4%
1,000,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP /
Albertsons LLC (a)........................................... 7.50% 03/15/26 1,109,875
3,700,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP /
Albertsons LLC (a)........................................... 4.63% 01/15/27 3,819,140
3,000,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP /
Albertsons LLC (a)........................................... 5.88% 02/15/28 3,177,570
---------------
8,106,585
---------------
HEALTH CARE EQUIPMENT -- 0.0%
250,000 Hill-Rom Holdings, Inc. (a)..................................... 4.38% 09/15/27 259,062
300,000 Teleflex, Inc. (a).............................................. 4.25% 06/01/28 313,875
---------------
572,937
---------------
HEALTH CARE FACILITIES -- 5.5%
11,663,000 Acadia Healthcare Co., Inc...................................... 5.63% 02/15/23 11,735,894
2,318,000 Acadia Healthcare Co., Inc...................................... 6.50% 03/01/24 2,378,604
1,000,000 Acadia Healthcare Co., Inc. (a)................................. 5.50% 07/01/28 1,041,875
788,000 Acadia Healthcare Co., Inc. (a)................................. 5.00% 04/15/29 813,846
1,087,000 Encompass Health Corp........................................... 5.13% 03/15/23 1,099,115
8,745,000 Encompass Health Corp. (b)...................................... 5.75% 11/01/24 8,745,000
2,284,000 Encompass Health Corp........................................... 5.75% 09/15/25 2,363,940
1,300,000 Encompass Health Corp........................................... 4.50% 02/01/28 1,333,553
6,080,000 Encompass Health Corp........................................... 4.75% 02/01/30 6,343,325
500,000 Encompass Health Corp........................................... 4.63% 04/01/31 515,625
2,000,000 HCA, Inc........................................................ 5.88% 05/01/23 2,177,910
6,530,000 HCA, Inc........................................................ 5.88% 02/15/26 7,387,062
16,229,000 Select Medical Corp. (a) (b).................................... 6.25% 08/15/26 17,146,588
1,168,000 Tenet Healthcare Corp. (a)...................................... 4.63% 09/01/24 1,196,850
1,500,000 Tenet Healthcare Corp. (a)...................................... 7.50% 04/01/25 1,617,937
4,379,000 Tenet Healthcare Corp........................................... 5.13% 05/01/25 4,339,370
7,492,000 Tenet Healthcare Corp. (a)...................................... 4.88% 01/01/26 7,609,404
6,281,000 Tenet Healthcare Corp. (a)...................................... 5.13% 11/01/27 6,483,248
2,327,000 Tenet Healthcare Corp. (a)...................................... 4.63% 06/15/28 2,363,359
19,531,000 Tenet Healthcare Corp. (a) (b).................................. 6.13% 10/01/28 18,981,691
2,250,000 Universal Health Services, Inc. (a)............................. 5.00% 06/01/26 2,342,385
---------------
108,016,581
---------------
HEALTH CARE SERVICES -- 5.4%
19,408,000 DaVita, Inc. (a)................................................ 4.63% 06/01/30 19,752,880
2,000,000 DaVita, Inc. (a)................................................ 3.75% 02/15/31 1,926,250
18,084,000 Global Medical Response, Inc. (a) (b)........................... 6.50% 10/01/25 17,880,555
16,225,000 MEDNAX, Inc. (a) (b)............................................ 5.25% 12/01/23 16,377,109
8,821,000 MEDNAX, Inc. (a)................................................ 6.25% 01/15/27 9,116,239
1,951,000 Providence Service (The) Corp. (a).............................. 5.88% 11/15/25 1,988,801
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
HEALTH CARE SERVICES (CONTINUED)
$ 100,000 Service Corp. International..................................... 3.38% 08/15/30 $ 101,562
6,462,000 US Renal Care, Inc. (a)......................................... 10.63% 07/15/27 6,898,185
18,034,000 Verscend Escrow Corp. (a) (b)................................... 9.75% 08/15/26 19,420,364
11,867,000 Vizient, Inc. (a) (b)........................................... 6.25% 05/15/27 12,591,599
---------------
106,053,544
---------------
HEALTH CARE TECHNOLOGY -- 1.6%
31,493,000 Change Healthcare Holdings LLC / Change Healthcare Finance,
Inc. (a) (b)................................................. 5.75% 03/01/25 31,518,824
---------------
HOTELS, RESORTS & CRUISE LINES -- 0.3%
1,100,000 Hilton Domestic Operating Co., Inc. (a)......................... 5.38% 05/01/25 1,137,818
1,100,000 Vail Resorts, Inc. (a).......................................... 6.25% 05/15/25 1,156,375
3,000,000 Wyndham Hotels & Resorts, Inc. (a).............................. 5.38% 04/15/26 3,043,125
711,000 Wyndham Hotels & Resorts, Inc. (a).............................. 4.38% 08/15/28 708,010
---------------
6,045,328
---------------
HOUSEHOLD PRODUCTS -- 0.1%
200,000 Central Garden & Pet Co......................................... 4.13% 10/15/30 202,875
1,350,000 Energizer Holdings, Inc. (a).................................... 4.38% 03/31/29 1,364,850
---------------
1,567,725
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.8%
3,000,000 Tempo Acquisition LLC / Tempo Acquisition Finance Corp. (a)..... 5.75% 06/01/25 3,153,750
11,478,000 Tempo Acquisition LLC / Tempo Acquisition Finance
Corp. (a) (b)................................................ 6.75% 06/01/25 11,661,648
---------------
14,815,398
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.3%
5,000,000 Calpine Corp. (a)............................................... 5.13% 03/15/28 5,162,600
667,000 Calpine Corp. (a)............................................... 4.63% 02/01/29 674,477
167,000 Calpine Corp. (a)............................................... 5.00% 02/01/31 170,749
---------------
6,007,826
---------------
INDUSTRIAL CONGLOMERATES -- 0.4%
2,500,000 Hillenbrand, Inc................................................ 5.75% 06/15/25 2,673,437
4,225,000 RBS Global, Inc. / Rexnord LLC (a).............................. 4.88% 12/15/25 4,320,950
---------------
6,994,387
---------------
INDUSTRIAL MACHINERY -- 0.2%
4,667,000 Vertical US Newco, Inc. (a)..................................... 5.25% 07/15/27 4,812,027
---------------
INSURANCE BROKERS -- 5.2%
32,532,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (a) (b)............................................ 6.75% 10/15/27 34,213,579
30,686,000 AmWINS Group, Inc. (a) (b)...................................... 7.75% 07/01/26 32,866,547
6,188,000 AssuredPartners, Inc. (a)....................................... 7.00% 08/15/25 6,377,446
27,438,000 HUB International Ltd. (a) (b).................................. 7.00% 05/01/26 28,151,525
---------------
101,609,097
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 2.7%
5,320,000 CenturyLink, Inc................................................ 5.80% 03/15/22 5,542,775
21,071,000 Frontier Communications Corp. (a) (d)........................... 8.50% 04/01/26 21,223,765
1,930,000 Frontier Communications Corp. (a) (d)........................... 5.88% 10/15/27 1,982,882
732,000 Windstream Escrow LLC / Windstream Escrow Finance
Corp. (a).................................................... 7.75% 08/15/28 708,210
2,500,000 Zayo Group Holdings, Inc. (a)................................... 4.00% 03/01/27 2,457,000
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INTEGRATED TELECOMMUNICATION SERVICES (CONTINUED)
$ 21,009,000 Zayo Group Holdings, Inc. (a) (b)............................... 6.13% 03/01/28 $ 21,228,964
---------------
53,143,596
---------------
INTERACTIVE MEDIA & SERVICES -- 0.1%
684,000 ANGI Group LLC (a).............................................. 3.88% 08/15/28 677,587
500,000 Match Group Holdings II LLC (a)................................. 4.63% 06/01/28 518,613
---------------
1,196,200
---------------
INVESTMENT BANKING & BROKERAGE -- 0.7%
14,050,000 LPL Holdings, Inc. (a) (b)...................................... 5.75% 09/15/25 14,581,792
---------------
IT CONSULTING & OTHER SERVICES -- 0.6%
6,261,000 CDK Global, Inc................................................. 4.88% 06/01/27 6,500,170
4,448,000 CDK Global, Inc. (a)............................................ 5.25% 05/15/29 4,775,551
250,000 Gartner, Inc. (a)............................................... 4.50% 07/01/28 261,302
250,000 Gartner, Inc. (a)............................................... 3.75% 10/01/30 255,963
---------------
11,792,986
---------------
LEISURE FACILITIES -- 0.7%
250,000 Cedar Fair LP................................................... 5.25% 07/15/29 227,298
1,850,000 Cedar Fair LP / Canada's Wonderland Co. / Magnum
Management Corp. / Millennium Op............................. 5.38% 04/15/27 1,717,031
11,209,000 Six Flags Entertainment Corp. (a) (b)........................... 4.88% 07/31/24 10,434,122
1,000,000 Six Flags Entertainment Corp. (a)............................... 5.50% 04/15/27 931,550
1,000,000 Six Flags Theme Parks, Inc. (a)................................. 7.00% 07/01/25 1,060,625
---------------
14,370,626
---------------
MANAGED HEALTH CARE -- 0.8%
2,000,000 Centene Corp.................................................... 4.75% 01/15/25 2,057,500
1,000,000 Centene Corp. (a)............................................... 5.38% 08/15/26 1,060,000
1,500,000 Centene Corp.................................................... 4.25% 12/15/27 1,582,522
1,000,000 Molina Healthcare, Inc. (a)..................................... 4.38% 06/15/28 1,026,000
10,200,000 MPH Acquisition Holdings LLC (a)................................ 5.75% 11/01/28 10,034,250
---------------
15,760,272
---------------
METAL & GLASS CONTAINERS -- 1.0%
1,000,000 Ball Corp....................................................... 2.88% 08/15/30 990,000
6,500,000 Berry Global, Inc. (a).......................................... 4.50% 02/15/26 6,599,027
2,000,000 Owens-Brockway Glass Container, Inc. (a)........................ 5.88% 08/15/23 2,108,000
6,550,000 Owens-Brockway Glass Container, Inc. (a)........................ 6.38% 08/15/25 7,209,094
684,000 Owens-Brockway Glass Container, Inc. (a)........................ 6.63% 05/13/27 734,873
2,200,000 Silgan Holdings, Inc............................................ 4.13% 02/01/28 2,290,860
---------------
19,931,854
---------------
MOVIES & ENTERTAINMENT -- 2.5%
5,955,000 AMC Entertainment Holdings, Inc. (a)............................ 10.50% 04/15/25 3,223,144
15,398,000 Cinemark USA, Inc. (b).......................................... 5.13% 12/15/22 13,386,636
6,234,000 Cinemark USA, Inc. (b).......................................... 4.88% 06/01/23 5,238,212
4,124,000 Cinemark USA, Inc. (a).......................................... 8.75% 05/01/25 4,276,073
7,000,000 Live Nation Entertainment, Inc. (a)............................. 4.88% 11/01/24 6,750,660
5,494,000 Live Nation Entertainment, Inc. (a)............................. 5.63% 03/15/26 5,255,011
523,000 Live Nation Entertainment, Inc. (a)............................. 6.50% 05/15/27 560,279
10,895,000 Live Nation Entertainment, Inc. (a)............................. 4.75% 10/15/27 10,030,209
1,000,000 WMG Acquisition Corp. (a)....................................... 3.00% 02/15/31 952,500
---------------
49,672,724
---------------
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
OIL & GAS EXPLORATION & PRODUCTION -- 0.0%
$ 3,250,000 Mesquite Energy Corp. (c) (d) (e)............................... 7.75% 06/15/21 $ 32,500
3,125,000 Mesquite Energy Corp. (c) (d) (e)............................... 6.13% 01/15/23 31,250
---------------
63,750
---------------
OIL & GAS REFINING & MARKETING -- 0.0%
415,000 Murphy Oil USA, Inc............................................. 5.63% 05/01/27 437,227
---------------
PACKAGED FOODS & MEATS -- 1.7%
2,190,000 B&G Foods, Inc.................................................. 5.25% 04/01/25 2,257,890
627,000 Kraft Heinz Foods Co............................................ 3.95% 07/15/25 678,437
750,000 Performance Food Group, Inc. (a)................................ 5.50% 10/15/27 770,122
12,246,000 Post Holdings, Inc. (a) (b)..................................... 5.00% 08/15/26 12,720,349
5,990,000 Post Holdings, Inc. (a)......................................... 5.75% 03/01/27 6,290,758
4,434,000 Post Holdings, Inc. (a)......................................... 5.63% 01/15/28 4,686,184
1,000,000 Post Holdings, Inc. (a)......................................... 5.50% 12/15/29 1,082,525
4,000,000 Post Holdings, Inc. (a)......................................... 4.63% 04/15/30 4,115,000
---------------
32,601,265
---------------
PAPER PACKAGING -- 0.9%
13,381,000 Graham Packaging Co., Inc. (a) (b).............................. 7.13% 08/15/28 14,008,234
2,000,000 Graphic Packaging International LLC (a)......................... 3.50% 03/15/28 2,005,600
1,000,000 Graphic Packaging International LLC (a)......................... 3.50% 03/01/29 1,001,875
376,000 Sealed Air Corp. (a)............................................ 5.50% 09/15/25 421,825
1,000,000 Sealed Air Corp. (a)............................................ 4.00% 12/01/27 1,050,000
---------------
18,487,534
---------------
PERSONAL PRODUCTS -- 0.0%
250,000 Prestige Brands, Inc. (a)....................................... 5.13% 01/15/28 260,156
---------------
PHARMACEUTICALS -- 2.1%
792,000 Bausch Health Americas, Inc. (a)................................ 9.25% 04/01/26 874,210
1,242,000 Bausch Health Americas, Inc. (a)................................ 8.50% 01/31/27 1,359,785
500,000 Catalent Pharma Solutions, Inc. (a)............................. 5.00% 07/15/27 522,095
4,000,000 Charles River Laboratories International, Inc. (a).............. 5.50% 04/01/26 4,187,500
750,000 Charles River Laboratories International, Inc. (a).............. 4.25% 05/01/28 785,018
1,333,000 Emergent BioSolutions, Inc. (a)................................. 3.88% 08/15/28 1,342,165
14,914,000 Horizon Therapeutics USA, Inc. (a) (b).......................... 5.50% 08/01/27 15,895,490
800,000 IQVIA, Inc. (a)................................................. 5.00% 10/15/26 830,616
1,278,000 IQVIA, Inc. (a)................................................. 5.00% 05/15/27 1,341,216
1,000,000 Jaguar Holding Co. II / PPD Development LP (a).................. 5.00% 06/15/28 1,043,560
10,000,000 Par Pharmaceutical, Inc. (a).................................... 7.50% 04/01/27 10,613,100
2,085,000 West Street Merger Sub, Inc. (a)................................ 6.38% 09/01/25 2,120,184
---------------
40,914,939
---------------
PUBLISHING -- 0.1%
2,445,000 Meredith Corp. (a).............................................. 6.50% 07/01/25 2,519,878
---------------
REAL ESTATE OPERATING COMPANIES -- 0.2%
1,379,000 Lennar Corp..................................................... 8.38% 01/15/21 1,400,374
2,785,000 Lennar Corp. (b)................................................ 5.25% 06/01/26 3,171,447
---------------
4,571,821
---------------
REAL ESTATE SERVICES -- 0.8%
3,310,000 KB Home (b)..................................................... 7.00% 12/15/21 3,448,606
500,000 MDC Holdings, Inc............................................... 3.85% 01/15/30 529,360
2,302,000 PulteGroup, Inc................................................. 5.50% 03/01/26 2,663,126
290,000 TRI Pointe Group, Inc........................................... 5.25% 06/01/27 312,783
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
REAL ESTATE SERVICES (CONTINUED)
$ 500,000 TRI Pointe Group, Inc........................................... 5.70% 06/15/28 $ 556,250
7,545,000 TRI Pointe Group, Inc. / TRI Pointe Homes, Inc. (b)............. 5.88% 06/15/24 8,186,325
---------------
15,696,450
---------------
RESEARCH & CONSULTING SERVICES -- 0.5%
2,961,000 Nielsen Finance LLC / Nielsen Finance Co. (a)................... 5.00% 04/15/22 2,965,441
4,254,000 Nielsen Finance LLC / Nielsen Finance Co. (a)................... 5.63% 10/01/28 4,394,914
2,666,000 Nielsen Finance LLC / Nielsen Finance Co. (a)................... 5.88% 10/01/30 2,804,299
---------------
10,164,654
---------------
RESTAURANTS -- 1.1%
661,000 Brinker International, Inc. (a)................................. 5.00% 10/01/24 663,509
8,483,000 IRB Holding Corp. (a)........................................... 7.00% 06/15/25 9,055,687
11,749,000 IRB Holding Corp. (a) (b)....................................... 6.75% 02/15/26 11,793,059
---------------
21,512,255
---------------
SECURITY & ALARM SERVICES -- 0.2%
1,200,000 Brink's (The) Co. (a)........................................... 5.50% 07/15/25 1,250,502
2,061,000 Brink's (The) Co. (a)........................................... 4.63% 10/15/27 2,106,765
---------------
3,357,267
---------------
SEMICONDUCTORS -- 0.2%
1,000,000 Microchip Technology, Inc. (a).................................. 4.25% 09/01/25 1,039,084
1,550,000 Qorvo, Inc...................................................... 4.38% 10/15/29 1,664,452
1,000,000 Qorvo, Inc. (a)................................................. 3.38% 04/01/31 1,013,750
---------------
3,717,286
---------------
SPECIALIZED CONSUMER SERVICES -- 0.3%
4,000,000 Aramark Services, Inc. (a)...................................... 6.38% 05/01/25 4,200,520
2,000,000 Aramark Services, Inc........................................... 4.75% 06/01/26 1,990,500
481,000 Aramark Services, Inc. (a)...................................... 5.00% 02/01/28 485,863
---------------
6,676,883
---------------
SPECIALTY CHEMICALS -- 0.2%
3,726,000 Avantor Funding, Inc. (a)....................................... 4.63% 07/15/28 3,865,539
250,000 HB Fuller Co.................................................... 4.25% 10/15/28 253,906
---------------
4,119,445
---------------
SYSTEMS SOFTWARE -- 1.9%
4,756,000 Boxer Parent Co., Inc. (a)...................................... 9.13% 03/01/26 5,071,085
250,000 PTC, Inc. (a)................................................... 3.63% 02/15/25 255,000
7,075,000 PTC, Inc. (a)................................................... 4.00% 02/15/28 7,327,047
24,100,000 SS&C Technologies, Inc. (a) (b)................................. 5.50% 09/30/27 25,644,328
---------------
38,297,460
---------------
TECHNOLOGY DISTRIBUTORS -- 0.2%
1,250,000 CDW LLC / CDW Finance Corp...................................... 4.13% 05/01/25 1,301,694
1,000,000 CDW LLC / CDW Finance Corp...................................... 4.25% 04/01/28 1,034,520
750,000 CDW LLC / CDW Finance Corp...................................... 3.25% 02/15/29 750,000
---------------
3,086,214
---------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 1.7%
8,042,000 Dell International LLC / EMC Corp. (a).......................... 5.88% 06/15/21 8,071,434
22,225,000 Dell International LLC / EMC Corp. (a) (b)...................... 7.13% 06/15/24 23,053,548
1,000,000 Dell International LLC / EMC Corp. (a).......................... 6.10% 07/15/27 1,190,303
1,000,000 Dell International LLC / EMC Corp. (a).......................... 6.20% 07/15/30 1,223,977
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS (CONTINUED)
$ 667,000 Xerox Holdings Corp. (a)........................................ 5.00% 08/15/25 $ 659,356
---------------
34,198,618
---------------
TRADING COMPANIES & DISTRIBUTORS -- 0.6%
940,000 Ashtead Capital, Inc. (a)....................................... 4.13% 08/15/25 967,796
2,000,000 Ashtead Capital, Inc. (a)....................................... 5.25% 08/01/26 2,122,500
750,000 Ashtead Capital, Inc. (a)....................................... 4.00% 05/01/28 783,750
4,199,000 Ashtead Capital, Inc. (a)....................................... 4.25% 11/01/29 4,491,880
2,276,000 United Rentals North America, Inc............................... 5.88% 09/15/26 2,397,743
257,000 United Rentals North America, Inc............................... 5.50% 05/15/27 273,705
---------------
11,037,374
---------------
TRUCKING -- 0.1%
2,350,000 XPO Logistics, Inc. (a)......................................... 6.25% 05/01/25 2,502,033
---------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.3%
1,219,000 SBA Communications Corp. (b).................................... 4.88% 09/01/24 1,247,098
500,000 SBA Communications Corp. (a).................................... 3.88% 02/15/27 508,750
2,329,000 T-Mobile USA, Inc............................................... 6.00% 03/01/23 2,331,911
1,180,000 T-Mobile USA, Inc............................................... 5.13% 04/15/25 1,213,176
416,000 T-Mobile USA, Inc............................................... 4.50% 02/01/26 427,180
---------------
5,728,115
---------------
TOTAL CORPORATE BONDS........................................................................ 1,410,640,802
(Cost $1,398,097,631) ---------------
FOREIGN CORPORATE BONDS -- 10.6%
APPLICATION SOFTWARE -- 0.3%
2,958,000 Open Text Corp. (a)............................................. 5.88% 06/01/26 3,080,018
2,336,000 Open Text Corp. (a)............................................. 3.88% 02/15/28 2,376,880
---------------
5,456,898
---------------
BUILDING PRODUCTS -- 2.3%
11,900,000 Cemex SAB de C.V. (a) (b)....................................... 7.75% 04/16/26 12,605,075
15,634,000 Cemex SAB de C.V. (a) (b)....................................... 7.38% 06/05/27 17,240,550
4,700,000 Cemex SAB de C.V. (a)........................................... 5.45% 11/19/29 4,979,885
2,000,000 Cemex SAB de C.V. (a)........................................... 5.20% 09/17/30 2,115,280
7,513,000 Masonite International Corp. (a)................................ 5.75% 09/15/26 7,877,831
1,000,000 Masonite International Corp. (a)................................ 5.38% 02/01/28 1,061,690
---------------
45,880,311
---------------
CABLE & SATELLITE -- 0.3%
250,000 Virgin Media Finance PLC (a).................................... 5.00% 07/15/30 249,063
3,073,000 Virgin Media Secured Finance PLC (a)............................ 5.50% 08/15/26 3,202,757
2,000,000 Virgin Media Secured Finance PLC (a)............................ 5.50% 05/15/29 2,140,000
---------------
5,591,820
---------------
CASINOS & GAMING -- 0.0%
500,000 International Game Technology PLC (a)........................... 5.25% 01/15/29 495,802
---------------
DIVERSIFIED SUPPORT SERVICES -- 0.0%
950,000 Ritchie Bros Auctioneers, Inc. (a).............................. 5.38% 01/15/25 979,094
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.1%
1,027,000 GFL Environmental, Inc. (a)..................................... 3.75% 08/01/25 1,028,926
500,000 GFL Environmental, Inc. (a)..................................... 5.13% 12/15/26 525,775
---------------
1,554,701
---------------
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS (CONTINUED)
INTEGRATED TELECOMMUNICATION SERVICES -- 0.4%
$ 7,693,000 Altice France S.A. (a).......................................... 7.38% 05/01/26 $ 8,037,262
---------------
METAL & GLASS CONTAINERS -- 0.0%
200,000 Ardagh Packaging Finance PLC / Ardagh Holdings USA,
Inc. (a)..................................................... 4.13% 08/15/26 204,250
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES -- 0.5%
1,867,000 AerCap Ireland Capital DAC / AerCap Global Aviation Trust....... 4.50% 09/15/23 1,940,156
6,000,000 AerCap Ireland Capital DAC / AerCap Global Aviation Trust....... 6.50% 07/15/25 6,617,142
1,500,000 AerCap Ireland Capital DAC / AerCap Global Aviation Trust....... 3.88% 01/23/28 1,418,174
---------------
9,975,472
---------------
PHARMACEUTICALS -- 5.7%
610,000 Bausch Health Cos., Inc. (a).................................... 5.50% 03/01/23 610,381
1,461,000 Bausch Health Cos., Inc. (a) (b)................................ 5.88% 05/15/23 1,458,487
55,462,000 Bausch Health Cos., Inc. (a) (b)................................ 6.13% 04/15/25 57,001,070
4,349,000 Bausch Health Cos., Inc. (a).................................... 5.00% 01/30/28 4,303,901
3,818,000 Bausch Health Cos., Inc. (a).................................... 6.25% 02/15/29 3,940,176
3,000,000 Bausch Health Cos., Inc. (a).................................... 7.25% 05/30/29 3,232,140
5,000,000 Bausch Health Cos., Inc. (a).................................... 5.25% 01/30/30 4,943,350
169,000 Cheplapharm Arzneimittel GmbH (a)............................... 5.50% 01/15/28 171,359
11,840,000 Endo Dac / Endo Finance LLC / Endo Finco, Inc. (a) (b).......... 5.88% 10/15/24 11,877,000
16,083,000 Endo Dac / Endo Finance LLC / Endo Finco, Inc. (a) (b).......... 9.50% 07/31/27 17,282,551
1,000,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (a) (c) (d).............................................. 5.63% 10/15/23 325,000
1,750,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (a) (c) (d).............................................. 5.50% 04/15/25 595,000
7,000,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (a) (d).................................................. 10.00% 04/15/25 7,630,000
---------------
113,370,415
---------------
REAL ESTATE SERVICES -- 0.3%
5,346,000 Taylor Morrison Communities, Inc. / Taylor Morrison
Holdings II, Inc. (a)........................................ 5.88% 04/15/23 5,673,362
---------------
RESEARCH & CONSULTING SERVICES -- 0.2%
3,774,000 Camelot Finance S.A. (a)........................................ 4.50% 11/01/26 3,932,036
140,000 Nielsen Co. Luxembourg (The) S.A.R.L. (a)....................... 5.50% 10/01/21 140,569
---------------
4,072,605
---------------
RESTAURANTS -- 0.4%
507,000 1011778 BC ULC / New Red Finance, Inc. (a)...................... 5.00% 10/15/25 520,005
7,000,000 1011778 BC ULC / New Red Finance, Inc. (a)...................... 4.00% 10/15/30 6,965,000
---------------
7,485,005
---------------
SPECIALTY CHEMICALS -- 0.1%
1,000,000 Axalta Coating Systems LLC / Axalta Coating Systems Dutch
Holding B B.V. (a)........................................... 4.75% 06/15/27 1,048,750
---------------
TOTAL FOREIGN CORPORATE BONDS................................................................ 209,825,747
(Cost $202,901,190) ---------------
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS -- 34.2%
AIRLINES -- 0.0%
$ 823,022 Delta Air Lines, Inc., Term Loan B, 3 Mo. LIBOR + 3.75%,
1.00% Floor.................................................. 4.75% 09/16/27 $ 819,080
---------------
APPLICATION SOFTWARE -- 7.3%
3,000,000 Epicor Software Corp., Term Loan (Second Lien), 1 Mo. LIBOR
+ 7.75%, 1.00% Floor......................................... 8.75% 07/30/28 3,063,750
3,295,945 Epicor Software Corp., Term Loan B, 1 Mo. LIBOR + 4.25%,
1.00% Floor.................................................. 5.25% 07/30/27 3,280,290
21,063,770 Greeneden U.S. Holdings II LLC (Genesys Telecommunications
Laoratories, Inc.), Initial Dollar Term Loan, 1 Mo. LIBOR +
4.00%, 0.75% Floor........................................... 4.75% 11/30/27 20,708,424
11,713,146 Hyland Software, Inc., Term Loan (Second Lien), 1 Mo. LIBOR
+ 7.00%, 0.75% Floor......................................... 7.75% 07/10/25 11,576,454
22,220,448 Hyland Software, Inc., 2018 Refinancing Term Loan,
1 Mo. LIBOR + 3.50%, 0.75% Floor............................. 4.25% 07/01/24 21,871,364
4,682,639 Internet Brands, Inc. (WebMD/MH Sub I. LLC), 2020 June New
Term Loan, 1 Mo. LIBOR + 3.75%, 1.00% Floor.................. 4.75% 09/15/24 4,597,790
14,951,423 Internet Brands, Inc. (WebMD/MH Sub I. LLC), Initial Term
Loan, 1 Mo. LIBOR + 3.50%, 0.00% Floor....................... 3.65% 09/13/24 14,435,151
6,273,194 Internet Brands, Inc. (WebMD/MH Sub I. LLC), Term Loan
(Second Lien), 1 Mo. LIBOR + 7.50%, 1.00% Floor.............. 7.65% 09/15/25 6,233,987
17,479,852 LogMeIn, Inc. (Logan), Term Loan B, 1 Mo. LIBOR + 4.75%,
0.00% Floor.................................................. 4.89% 08/31/27 16,922,769
7,525,065 McAfee LLC, Term Loan B, 1 Mo. LIBOR + 3.75%, 0.00%
Floor........................................................ 3.89% 09/30/24 7,441,386
1,109,359 Micro Focus International (MA Financeco LLC), Miami Escrow
Term Loan B3, 1 Mo. LIBOR + 2.50%, 0.00% Floor............... 2.65% 06/21/24 1,042,797
7,491,398 Micro Focus International (MA Financeco LLC), Seattle Spinco
Term Loan B, 1 Mo. LIBOR + 2.50%, 0.00% Floor................ 2.65% 06/21/24 7,041,914
5,632,703 Micro Focus International (MA Financeco LLC), Term Loan B4,
3 Mo. LIBOR + 4.25%, 1.00% Floor............................. 5.25% 06/05/25 5,597,498
8,908,090 Milano Acquisition Corp., Term Loan B, 3 Mo. LIBOR + 4.00%,
0.75% Floor.................................................. 4.75% 10/01/27 8,744,805
1,846,699 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
2019 Incremental Term Loan B, 3 Mo. LIBOR + 4.25%,
0.00% Floor.................................................. 4.48% 04/26/24 1,812,074
8,057,862 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor................ 4.50% 04/26/24 7,892,675
1,989,583 Solera Holdings, Inc., Term Loan B, 2 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 2.92% 03/03/23 1,933,099
---------------
144,196,227
---------------
AUTO PARTS & EQUIPMENT -- 0.5%
6,984,038 Gates Global LLC, Initial B-2 Dollar Term Loan, 1 Mo. LIBOR
+ 2.75%, 1.00% Floor......................................... 3.75% 03/31/24 6,838,560
6,850,769 Lumileds (Bright Bidco B.V.), Term Loan B, 6 Mo. LIBOR +
3.50%, 1.00% Floor........................................... 4.50% 06/30/24 3,190,198
---------------
10,028,758
---------------
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
BROADCASTING -- 0.8%
$ 14,896,385 iHeartCommunications, Inc., Incremental Term Loan B, 1 Mo.
LIBOR + 4.00%, 0.75% Floor................................... 4.75% 05/01/26 $ 14,331,515
1,661,415 iHeartCommunications, Inc., Term Loan B, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 3.15% 04/29/26 1,557,277
---------------
15,888,792
---------------
CASINOS & GAMING -- 1.3%
13,582,401 Caesars Resort Collection LLC, Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.90% 12/22/24 12,703,348
1,000,000 Caesars Resort Collection LLC, Term Loan B-1, 1 Mo. LIBOR +
4.50%, 0.00% Floor........................................... 4.65% 06/30/25 967,190
500,000 Caesars Resort Collection LLC, Term Loan B-1, 3 Mo. LIBOR +
4.50%, 0.00% Floor........................................... 4.65% 06/30/25 483,595
1,994,845 CityCenter Holdings LLC, Term Loan B, 1 Mo. LIBOR + 2.25%,
0.75% Floor.................................................. 3.00% 04/18/24 1,872,661
3,646,228 Golden Nugget, Inc., Term Loan B, 2 Mo. LIBOR + 2.50%,
0.75% Floor.................................................. 3.25% 10/04/23 3,204,123
1,241,653 Scientific Games International, Inc., Term Loan B5, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 08/14/24 1,152,801
5,075,571 Scientific Games International, Inc., Term Loan B5, 6 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.99% 08/14/24 4,712,363
---------------
25,096,081
---------------
ELECTRIC UTILITIES -- 0.3%
5,985,000 PG&E Corp., Exit Term Loan, 3 Mo. LIBOR + 4.50%, 1.00%
Floor........................................................ 5.50% 06/23/25 5,910,188
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.3%
5,245,940 Packers Holdings LLC, Term Loan B, 1 Mo. LIBOR + 3.00%,
1.00% Floor.................................................. 4.00% 12/04/24 5,153,034
---------------
HEALTH CARE SERVICES -- 5.8%
2,430,949 Air Methods Corp. (a/k/a ASP AMC Intermediate Holdings, Inc.),
Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor................ 4.50% 04/21/24 2,070,658
28,319,975 athenahealth, Inc. (VVC Holding Corp.), Term Loan B, 3 Mo.
LIBOR + 4.50%, 0.00% Floor................................... 4.75% 02/15/26 27,682,776
20,132,303 CHG Healthcare Services, Inc., Term Loan, 6 Month LIBOR +
3.00%, 1.00% Floor........................................... 4.00% 06/07/23 19,628,995
1,768,869 DuPage Medical Group (Midwest Physician Admin. Services
LLC), Repricing Term Loan, 1 Mo. LIBOR + 2.75%, 0.75%
Floor........................................................ 3.50% 08/15/24 1,720,225
12,726,324 Envision Healthcare Corp., Initial Term Loan, 1 Mo. LIBOR +
3.75%, 0.00% Floor........................................... 3.90% 10/10/25 9,044,980
238,266 Exam Works (Gold Merger Co., Inc.), Term Loan B-1, 3 Mo.
LIBOR + 3.25%, 1.00% Floor................................... 4.25% 07/27/23 235,388
2,561,422 Global Medical Response, Inc. (fka Air Medical), 2018 New
Term Loan, 6 Mo. LIBOR + 4.25%, 1.00% Floor.................. 5.25% 03/14/25 2,472,566
5,748,111 Help at Home (HAH Group Holding Co. LLC), Initial Term Loans,
3 Mo. LIBOR + 5.00%, 1.00% Floor............................. 6.00% 10/31/27 5,647,519
2,570,642 Surgery Centers Holdings, Inc., 2020 Incremental Term Loan,
1 Mo. LIBOR + 8.00%, 1.00% Floor............................. 9.00% 08/31/24 2,600,642
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE SERVICES (CONTINUED)
$ 15,706,757 Surgery Centers Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.25%, 1.00% Floor........................................... 4.25% 08/31/24 $ 14,860,006
6,928,714 Team Health, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 1.00%
Floor........................................................ 3.75% 02/06/24 5,629,580
11,083,845 U.S. Renal Care, Inc., Term Loan B, 1 Mo. LIBOR + 5.00%,
0.00% Floor.................................................. 5.19% 06/28/26 10,637,055
12,922,413 Verscend Technologies, Inc., Term Loan B, 1 Mo. LIBOR +
4.50%, 0.00% Floor........................................... 4.65% 08/27/25 12,659,959
---------------
114,890,349
---------------
HEALTH CARE TECHNOLOGY -- 1.0%
19,042,662 Zelis Payments Buyer, Inc., Initial Term Loan, 1 Mo. LIBOR +
4.75%, 0.00% Floor........................................... 4.90% 09/30/26 18,903,270
---------------
HOUSEHOLD APPLIANCES -- 0.2%
3,594,975 Traeger Grills (TGP Holdings III LLC), 2018 Refinancing Term
Loan, 1 Mo. LIBOR + 4.00%, 1.00% Floor....................... 5.00% 09/25/24 3,436,185
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.3%
7,255,591 Alight, Inc. (fka Tempo Acq.), Non Extended Term Loan, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 05/01/24 7,008,466
---------------
INSURANCE BROKERS -- 3.5%
8,859,702 Alliant Holdings I LLC, 2019 New Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 3.40% 05/10/25 8,563,433
18,505,910 Alliant Holdings I LLC, Initial Term Loan, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.90% 05/09/25 17,795,098
11,915,234 AmWINS Group, Inc., Term Loan B (First Lien), 1 Mo. LIBOR
+ 2.75%, 1.00% Floor......................................... 3.75% 01/25/24 11,742,463
4,962,500 AssuredPartners, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 3.65% 02/15/27 4,782,609
6,953,509 HUB International Ltd., 2019 Incremental Term Loan B2, 3 Mo.
LIBOR + 4.00%, 1.00% Floor................................... 5.00% 04/25/25 6,909,215
63,606 HUB International Ltd., Term Loan B, 2 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 3.19% 04/25/25 61,080
20,931,672 HUB International Ltd., Term Loan B, 3 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 3.21% 04/25/25 20,100,476
---------------
69,954,374
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 1.5%
16,881,129 Frontier Communications Corp., Term Loan B-1, Prime Rate +
2.75%, 0.75% Floor (d)....................................... 6.00% 06/15/24 16,547,388
4,480,034 Numericable (Altice France S.A. or SFR), Term Loan B-11, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 2.90% 07/31/25 4,271,488
1,989,744 Numericable (Altice France S.A. or SFR), Term Loan B-12, 1 Mo.
LIBOR + 3.69%, 0.00% Floor................................... 3.84% 01/31/26 1,920,859
7,920,566 Numericable (Altice France S.A. or SFR), Term Loan B-13, 3 Mo.
LIBOR + 4.00%, 0.00% Floor................................... 4.24% 08/14/26 7,675,504
---------------
30,415,239
---------------
INTERACTIVE HOME ENTERTAINMENT -- 0.9%
17,617,774 Playtika Holding Corp., Term Loan B, 3 Mo. LIBOR + 6.00%,
1.00% Floor.................................................. 7.00% 12/10/24 17,605,793
---------------
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
MANAGED HEALTH CARE -- 0.5%
$ 9,706,092 Multiplan, Inc. (MPH), Term Loan B, 3 Mo. LIBOR + 2.75%,
1.00% Floor.................................................. 3.75% 06/07/23 $ 9,570,886
---------------
MOVIES & ENTERTAINMENT -- 0.6%
19,550,753 Cineworld Group PLC (Crown), Term Loan B, 6 Mo. LIBOR +
2.50%, 0.00% Floor........................................... 2.77% 02/28/25 10,871,783
1,739,898 PUG LLC (Stubhub), Term Loan B, 1 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 3.65% 02/12/27 1,515,886
---------------
12,387,669
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES -- 1.5%
30,224,535 Refinitiv US Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 3.40% 10/01/25 29,738,222
---------------
PAPER PACKAGING -- 0.5%
9,486,473 Graham Packaging Company, L.P., Intial Term Loan, 1 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 4.50% 08/04/27 9,399,482
---------------
PHARMACEUTICALS -- 1.8%
3,053,454 Akorn, Inc., Exit Take Back Term Loan, 3 Mo. LIBOR + 7.50%,
1.00% Floor (h) (i).......................................... 8.50% 09/30/25 3,058,554
8,607,038 Endo LLC, Term Loan B, 3 Mo. LIBOR + 4.25%, 0.75% Floor......... 5.00% 04/29/24 8,155,169
16,276,109 Mallinckrodt International Finance S.A., 2017 Term Loan B,
3 Mo. LIBOR + 4.75%, 0.75% Floor (d)......................... 5.50% 09/24/24 14,982,158
193,927 Mallinckrodt International Finance S.A., 2018 Incremental Term
Loan, 6 Mo. LIBOR + 5.00%, 0.75% Floor (d)................... 5.75% 02/24/25 178,292
10,527,561 Parexel International Corp., Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.90% 09/27/24 10,083,930
---------------
36,458,103
---------------
PUBLISHING -- 0.2%
3,459,933 Meredith Corp., Tranche B-3 Term Loan, 3 Mo. LIBOR + 4.25%,
1.00% Floor.................................................. 5.25% 01/31/25 3,379,212
---------------
RESTAURANTS -- 0.3%
15,385 IRB Holding Corp. (Arby's/Inspire Brands), Term Loan B, 3 Mo.
LIBOR + 2.75%, 1.00% Floor................................... 3.75% 02/05/25 14,598
5,984,615 IRB Holding Corp. (Arby's/Inspire Brands), Term Loan B, 6 Mo.
LIBOR + 2.75%, 1.00% Floor................................... 3.75% 02/05/25 5,678,742
---------------
5,693,340
---------------
SPECIALIZED CONSUMER SERVICES -- 2.6%
50,439,305 Asurion LLC, Second Lien Replacement B-2 Term Loan, 1 Mo.
LIBOR + 6.50%, 0.00% Floor................................... 6.65% 08/04/25 50,439,305
---------------
SYSTEMS SOFTWARE -- 2.5%
8,930,327 Applied Systems, Inc., Term Loan (First Lien), 3 Mo. LIBOR +
3.25%, 1.00% Floor........................................... 4.25% 09/19/24 8,876,567
1,262,391 Applied Systems, Inc., Term Loan (Second Lien), 3 Mo. LIBOR
+ 7.00%, 1.00% Floor......................................... 8.00% 09/19/25 1,268,703
20,564,358 BMC Software Finance, Inc. (Boxer Parent), Initial Dollar Term
Loan, 1 Mo. LIBOR + 4.25%, 0.00% Floor....................... 4.40% 10/02/25 19,954,830
5,356,494 Misys Financial Software Ltd. (Almonde, Inc.) (Finastra), Term
Loan B, 6 Mo. LIBOR + 3.50%, 1.00% Floor..................... 4.50% 06/13/24 5,046,996
24,134 Riverbed Technology, Inc., Term Loan B, 2 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 4.25% 04/24/22 21,504
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SYSTEMS SOFTWARE (CONTINUED)
$ 9,098,385 Riverbed Technology, Inc., Term Loan B, 3 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 4.25% 04/24/22 $ 8,107,025
4,108,501 Sophos Group PLC (Surf), Term Loan B, 3 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 3.75% 03/05/27 3,973,948
1,537,461 SUSE (Marcel Lux IV S.A.R.L.), Facility B1 USD, 1 Mo. LIBOR
+ 3.25%, 0.00% Floor......................................... 3.40% 03/15/26 1,486,540
---------------
48,736,113
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................................... 675,108,168
(Cost $691,973,721) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS -- 0.1%
PHARMACEUTICALS -- 0.1%
259,956 Akorn, Inc. (e) (j).......................................................................... 2,924,505
(Cost $2,979,179) ---------------
RIGHTS -- 0.0%
ELECTRIC UTILITIES -- 0.0%
1,629 Vistra Energy Corp. (e) (j).................................................................. 1,820
(Cost $2,830) ---------------
MONEY MARKET FUNDS -- 0.3%
5,066,654 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio -
Institutional Class - 0.01% (k)........................................................... 5,066,654
(Cost $5,066,654) ---------------
TOTAL INVESTMENTS -- 116.7%.................................................................. 2,303,567,696
(Cost $2,301,021,205) (l) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
U.S. TREASURY BILLS SOLD SHORT -- (17.5)%
$ (70,000,000) U.S. Treasury Bill.............................................. (m) 11/10/20 (69,999,183)
(60,000,000) U.S. Treasury Bill.............................................. (m) 12/03/20 (59,996,125)
(100,000,00) U.S. Treasury Bill.............................................. (m) 12/10/20 (99,991,556)
(55,000,000) U.S. Treasury Bill.............................................. (m) 12/17/20 (54,994,672)
(10,000,000) U.S. Treasury Bill.............................................. (m) 12/22/20 (9,998,924)
(50,000,000) U.S. Treasury Bill.............................................. (m) 01/28/21 (49,989,729)
---------------
TOTAL U.S. TREASURY BILLS SOLD SHORT........................................................ (344,970,189)
(Proceeds $344,930,997) ---------------
NET OTHER ASSETS AND LIABILITIES -- 0.8%..................................................... 15,528,234
---------------
NET ASSETS -- 100.0%......................................................................... $ 1,974,125,741
===============
</TABLE>
-----------------------------
(a) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, 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. ("First Trust"
or 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, 2020, securities noted as such
amounted to $1,369,200,245 or 69.4% of net assets.
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
(b) This security or a portion of this security is segregated as collateral
for investments sold short.
(c) This issuer is in default and interest is not being accrued by the Fund
nor paid by the issuer.
(d) This issuer has filed for protection in bankruptcy court.
(e) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(f) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests generally pay interest at rates which are periodically
predetermined by reference to a base lending rate plus a premium. These
base lending rates are generally (i) the lending rate offered by one or
more major European banks, such as the LIBOR, (ii) the prime rate offered
by one or more United States banks or (iii) the certificate of deposit
rate. Certain Senior Loans are subject to a LIBOR floor that establishes a
minimum LIBOR rate. When a range of rates is disclosed, the Fund holds
more than one contract within the same tranche with identical LIBOR
period, spread and floor, but different LIBOR reset dates.
(g) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(h) The issuer may pay interest on the loans (1) entirely in cash or (2) in
the event that both the Payme("PIK") Toggle Condition has been satisfied
and the issuer elects to exercise the PIK interest, 2.50% payable in cash
and 7.00% payable as PIK interest. The First interest payment is scheduled
for January 4, 2021.
(i) On October 1, 2020, Akorn Holding Company LLC completed a Bankruptcy Plan
of Reorganization. In connection with the Plan of Reorganization, the Fund
received a portion of a new exit term loan and a share of the newly issued
common equity shares in the re-organized company.
(j) Non-income producing security.
(k) Rate shown reflects yield as of October 31, 2020.
(l) Aggregate cost for federal income tax purposes is $1,959,252,935. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$45,945,157 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$46,600,585. The net unrealized depreciation was $655,428. The amounts
presented are inclusive of investments sold short.
(m) Zero coupon security.
LIBOR - London Interbank Offered Rate
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Corporate Bonds*.................................. $ 1,410,640,802 $ -- $ 1,410,640,802 $ --
Foreign Corporate Bonds*.......................... 209,825,747 -- 209,825,747 --
Senior Floating-Rate Loan Interests*.............. 675,108,168 -- 675,108,168 --
Common Stocks*.................................... 2,924,505 -- 2,924,505 --
Rights*........................................... 1,820 -- 1,820 --
Money Market Funds................................ 5,066,654 5,066,654 -- --
--------------- --------------- --------------- ---------------
Total Investments................................. $ 2,303,567,696 $ 5,066,654 $ 2,298,501,042 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
U.S. Treasury Bills Sold Short.................... $ (344,970,189) $ -- $ (344,970,189) $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $ 2,303,567,696
Cash...................................................................... 206,124
Restricted Cash........................................................... 62,579,860
Receivables:
Interest............................................................... 24,090,877
Investment securities sold............................................. 15,727,424
Capital shares sold.................................................... 35,252
Dividends.............................................................. 85
---------------
Total Assets........................................................ 2,406,207,318
---------------
LIABILITIES:
Investments sold short, at value (proceeds $344,930,997).................. 344,970,189
Payables:
Investment securities purchased........................................ 61,853,287
Capital shares purchased............................................... 23,501,646
Investment advisory fees............................................... 1,642,018
Margin interest expense................................................ 112,623
Unrealized depreciation on unfunded loan commitments...................... 1,814
---------------
Total Liabilities................................................... 432,081,577
---------------
NET ASSETS................................................................ $ 1,974,125,741
===============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $ 2,026,129,354
Par value................................................................. 420,000
Accumulated distributable earnings (loss)................................. (52,423,613)
---------------
NET ASSETS................................................................ $ 1,974,125,741
===============
NET ASSET VALUE, per share................................................ $ 47.00
===============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................. 42,000,002
===============
Investments, at cost...................................................... $ 2,301,021,205
===============
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 98,821,217
Dividends................................................................. 173,575
---------------
Total investment income................................................ 98,994,792
---------------
EXPENSES:
Investment advisory fees.................................................. 15,619,019
Margin interest expense................................................... 775,201
Interest on investments sold short........................................ 131,731
---------------
Total expenses......................................................... 16,525,951
---------------
NET INVESTMENT INCOME (LOSS).............................................. 82,468,841
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................ (23,932,010)
Investments sold short................................................. (2,314,918)
---------------
Net realized gain (loss).................................................. (26,246,928)
---------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ 587,285
Investments sold short................................................. (39,192)
Unfunded loan commitments.............................................. (1,814)
---------------
Net change in unrealized appreciation (depreciation)...................... 546,279
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (25,700,649)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 56,768,192
===============
</TABLE>
Page 26 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2020 10/31/2019
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 82,468,841 $ 64,768,034
Net realized gain (loss).................................................. (26,246,928) (1,271,330)
Net change in unrealized appreciation (depreciation)...................... 546,279 23,388,851
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........... 56,768,192 86,885,555
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (84,896,005) (66,781,356)
Return of capital......................................................... -- (495,649)
--------------- ---------------
Total distributions to shareholders....................................... (84,896,005) (67,277,005)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 971,116,727 378,687,649
Cost of shares redeemed................................................... (400,951,154) (219,243,496)
--------------- ---------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................................... 570,165,573 159,444,153
--------------- ---------------
Total increase (decrease) in net assets................................... 542,037,760 179,052,703
NET ASSETS:
Beginning of period....................................................... 1,432,087,981 1,253,035,278
--------------- ---------------
End of period............................................................. $ 1,974,125,741 $ 1,432,087,981
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 29,800,002 26,650,002
Shares sold............................................................... 21,100,000 7,900,000
Shares redeemed........................................................... (8,900,000) (4,750,000)
--------------- ---------------
Shares outstanding, end of period......................................... 42,000,002 29,800,002
=============== ===============
</TABLE>
See Notes to Financial Statements Page 27
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net increase (decrease) in net assets resulting from operations........... $ 56,768,192
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash used in operating activities:
Purchases of investments............................................ (2,778,181,610)
Borrowed investments sold short..................................... 784,479,794
Cost to cover short positions....................................... (442,079,144)
Sales, maturities and paydowns of investments....................... 1,920,844,519
Net amortization/accretion of premiums/discounts on investments..... 267,616
Net realized gain/loss on investments............................... 23,932,010
Net realized gain/loss on investments sold short.................... 2,314,918
Net change in unrealized appreciation/depreciation on investments
and unfunded loan commitments.................................... (585,471)
Net change in unrealized appreciation/depreciation on investments
sold short....................................................... 39,192
CHANGES IN ASSETS AND LIABILITIES
Increase in interest receivable..................................... (9,940,854)
Decrease in dividends receivable.................................... 19,009
Decrease in margin interest rebate receivable....................... 1,186
Increase in margin interest expense payable......................... 108,600
Increase in investment advisory fees payable........................ 506,771
---------------
CASH USED IN OPERATING ACTIVITIES......................................... $ (441,505,272)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares sold........................................... 971,081,475
Cost of shares redeemed............................................. (377,449,508)
Distributions to shareholders from investment operations............ (84,896,005)
Repayment of borrowings............................................. (4,697,696)
---------------
CASH PROVIDED BY FINANCING ACTIVITIES..................................... 504,038,266
---------------
Increase in cash and restricted cash...................................... 62,532,994
Cash and restricted cash at beginning of period........................... 252,990
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD................................. $ 62,785,984
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................................. $ 666,601
===============
CASH AND RESTRICTED CASH RECONCILIATION:
Cash................................................................ $ 206,124
Restricted Cash..................................................... 62,579,860
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD:................................ $ 62,785,984
===============
</TABLE>
Page 28 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2020 2019 2018 2017 2016
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 48.06 $ 47.02 $ 48.95 $ 48.31 $ 48.69
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 2.33 2.49 2.52 2.56 2.41
Net realized and unrealized gain (loss) (1.00) 1.13 (1.76) 0.66 (0.14)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.33 3.62 0.76 3.22 2.27
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (2.39) (2.56) (2.69) (2.58) (2.48)
Return of capital -- (0.02) (0.00)(a) -- (0.17)
---------- ---------- ---------- ---------- ----------
Total distributions (2.39) (2.58) (2.69) (2.58) (2.65)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 47.00 $ 48.06 $ 47.02 $ 48.95 $ 48.31
========== ========== ========== ========== ==========
TOTAL RETURN (b) 2.92% 7.90% 1.60% 6.79% 4.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,974,126 $1,432,088 $1,253,035 $1,250,565 $1,077,297
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.01% 1.23% 1.16% 1.10% 1.11%
Ratio of total expenses to average net assets
excluding interest expense 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income (loss) to average
net assets 5.02% 5.22% 5.26% 5.25% 5.04%
Portfolio turnover rate (c) 68% 50% 52% 75% 45%
</TABLE>
(a) Amount represents less than $0.01 per share.
(b) 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.
(c) 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 Page 29
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Tactical High Yield ETF (the "Fund"), a diversified
series of the Trust which trades under the ticker "HYLS" on The Nasdaq Stock
Market LLC ("Nasdaq"). Unlike conventional mutual funds, the Fund issues and
redeems shares on a continuous basis, at net asset value ("NAV"), only in large
specified blocks consisting of 50,000 shares called a "Creation Unit." Creation
Units are generally issued and redeemed for cash and, in certain circumstances,
in-kind for securities in which the Fund invests. Except when aggregated in
Creation Units, the Fund's shares are not redeemable securities.
The primary investment objective of the Fund is to provide current income. The
Fund's secondary investment objective is to provide capital appreciation. Under
normal market conditions, the Fund invests at least 80% of its net assets
(including investment borrowings) in high yield debt securities that are rated
below investment grade at the time of purchase or unrated securities deemed by
the Fund's advisor to be of comparable quality. Below investment grade
securities are those that, at the time of purchase, are rated lower than "BBB-"
by Standard & Poor's Ratings Group, a division of the McGraw Hill Companies,
Inc., or lower than "Baa3" by Moody's Investors Service, Inc., or comparably
rated by another nationally recognized statistical rating organization. High
yield debt securities that are rated below investment grade are commonly
referred to as "junk" debt. Such securities may include U.S. and non-U.S.
corporate debt obligations, bank loans and convertible bonds. For purposes of
determining whether a security is below investment grade, the lowest available
rating will be considered.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
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.
A. PORTFOLIO VALUATION
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 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 Advisor's Pricing Committee of the
Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the
"Advisor"), in accordance with valuation procedures adopted by the Trust's Board
of Trustees, and in accordance with provisions of the 1940 Act. 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, U.S. government securities and other
debt securities are fair valued on the basis of valuations provided by
dealers who make markets in such securities or by a third-party pricing
service approved by the Trust's Board of Trustees, which may use the
following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Senior Floating-Rate Loan Interests ("Senior Loans")(1) are not listed on
any securities exchange or board of trade. Senior Loans are typically
bought and sold by institutional investors in individually negotiated
private transactions that function in many respects like an
over-the-counter secondary market, although typically no formal
market-makers exist. This market, while having grown substantially since
its inception, generally has fewer trades and less liquidity than the
secondary market for other types of securities. Some Senior Loans have few
or no trades, or trade infrequently, and information regarding a specific
Senior Loan may not be widely available or may be incomplete. Accordingly,
determinations of the market value of Senior Loans may be based on
infrequent and dated information. Because there is less reliable,
objective data available, elements of judgment may play a greater role in
valuation of Senior Loans than for other types of securities. Typically,
Senior Loans are fair valued using information provided by a third-party
pricing service. The third-party pricing service primarily uses
over-the-counter pricing from dealer runs and broker quotes from
indicative sheets to value the Senior Loans.
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 Trust's Board of Trustees or its
delegate, 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 fundamental business data relating to the borrower/issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based
on the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) 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 issuer's management;
11) 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;
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
14) 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:
o 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.
o 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.
o 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, 2020, 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 over the expected life of each
respective borrowing for loans and bonds.
In July 2017, the Financial Conduct Authority ("FCA") announced that it will no
longer persuade or compel banks to submit rates for the calculations of the
London Interbank Offered Rates ("LIBOR") after 2021. Further, the FCA has
subsequently stated, as recently as March 2020, that the central assumption
continues to be that firms should not rely on LIBOR being published after the
end of 2021.
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018.
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
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. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Fund maintains liquid assets with current value at least equal to the amount of
its when-issued, delayed-delivery or forward purchase commitments. The Fund had
no when-issued, delayed-delivery, or forward purchase commitments (other than
unfunded loan commitments discussed below) as of October 31, 2020.
C. SHORT SALES
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 that 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
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020
borrowing the securities. The Fund is charged 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 effected 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 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
purchasing or borrowing securities on margin. The Fund pays interest on any
margin balance, which is calculated as the daily margin account balance times
the broker's margin interest rate. At October 31, 2020, the Fund had $62,579,860
in restricted cash associated with investments sold short and $344,970,189 of
investments sold short as shown on Statement of Assets and Liabilities. The Fund
is charged interest on debit margin balance at a rate equal to the Overnight
Bank Funding Rate plus 75 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 Overnight Bank Funding Rate less 35 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. At October 31, 2020, the Fund
had a debit margin balance of $282,384,540 with an interest rate of 0.83%. For
the fiscal year ended October 31, 2020, the Fund had margin interest expense of
$775,201, as shown on the Statement of Operations. For the fiscal year ended
October 31, 2020, the average margin balance and interest rates were $82,303,401
and 1.36%, respectively.
D. RESTRICTED CASH
Restricted cash includes cash on deposit with other banks or brokers that is
legally restricted as to the withdrawal and primarily serves as collateral for
investments sold short. The Fund presents restricted cash activity within
"Increase in cash and restricted cash" and as part of "Cash and restricted cash
at beginning of period" and "Cash and restricted cash at end of period" in the
Statement of Cash Flows, along with a reconciliation of those balances in the
Statement of Assets and Liabilities.
E. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. Unfunded loan commitments are marked-to-market daily, and
any unrealized appreciation (depreciation) is included in the Statement of
Assets and Liabilities and Statement of Operations. In connection with these
commitments, the Fund earns a commitment fee typically set as a percentage of
the commitment amount. As of October 31, 2020, the Fund had the following
unfunded loan commitment:
<TABLE>
<CAPTION>
UNREALIZED
PRINCIPAL COMMITMENT APPRECIATION
BORROWER VALUE AMOUNT VALUE (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Help at Home (HAH Group Holdings Company, LLC),
Term Loan................................................... $ 725,490 $ 714,608 $ 712,794 $ (1,814)
</TABLE>
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
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 significantly modified 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.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020
The tax character of distributions paid during the fiscal years ended October
31, 2020 and 2019 was as follows:
Distributions paid from: 2020 2019
Ordinary income................................. $ 84,896,005 $ 66,781,356
Capital gains................................... -- --
Return of capital............................... -- 495,649
As of October 31, 2020, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 1,007,704
Accumulated capital and other gain (loss)....... (52,774,075)
Net unrealized appreciation (depreciation)...... (657,242)
G. INCOME TAXES
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 2017,
2018, 2019, and 2020 remain open to federal and state audit. As of October 31,
2020, 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. As of October 31, 2020, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $52,774,075.
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, 2020, 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. The results of operations and net assets
were not affected by these adjustments. For the fiscal year ended October 31,
2020, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 3,434,868 $ (2,723,295) $ (711,573)
H. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3). The Fund is subject to an interest expense
due to the costs associated with the Fund's short positions in securities.
I. NEW ACCOUNTING PRONOUNCEMENTS
On March 30, 2017, the FASB issued Accounting Standards Update ("ASU") 2017-08
"Premium Amortization on Purchased Callable Debt Securities," which amends the
amortization period for certain purchased callable debt securities held at a
premium by shortening such period to the earliest call date. The new guidance
requires an entity to amortize the premium on a callable debt security within
its scope to the earliest call date, unless the guidance for considering
estimated prepayments is applied. If the call option is not exercised at the
earliest call date, the yield is reset to the effective yield using the payment
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020
terms of the security. If the security has more than one call date and the
premium was amortized to a call price greater than the next call price, any
excess of the amortized cost basis over the amount repayable at the next call
date will be amortized to that date. If there are no other call dates, any
excess of the amortized cost basis over the par amount will be amortized to
maturity. Discounts on purchased callable debt securities will continue to be
amortized to the security's maturity date. ASU 2017-08 is effective for public
business entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. ASU 2017-08 was adopted for these
financial statements and did not have a material impact.
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, expenses associated with short sale transactions, distribution and
service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary
expenses. The Fund has agreed to pay First Trust an annual unitary management
fee equal to 0.95% of its average daily net assets.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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,
defined-outcome fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee 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 Lead Independent Trustee and Committee
Chairmen rotate every three years. 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, 2020, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, investments sold
short and in-kind transactions, were $2,047,460,237 and $1,157,659,965,
respectively. The cost of purchases to cover short sales and the proceeds of
short sales were $22,087,500 and $19,768,750, respectively.
For the fiscal year ended October 31, 2020, there were no in-kind transactions.
5. BORROWINGS
The Trust, on behalf of the Fund, along with the First Trust Series Fund and
First Trust Variable Insurance Trust, entered into a $200 million Credit
Agreement ("Line of Credit") with BNYM, to be a liquidity backstop during
periods of high redemption volume. A commitment fee of 0.15% of the daily amount
of the excess of the commitment amount over the outstanding principal balance of
the loans will be charged by BNYM, which First Trust allocates amongst the funds
that had access to the Line of Credit. To the extent that the Fund accesses the
Line of Credit, there would also be an interest fee charged. The Fund did not
have any borrowings outstanding during the fiscal year ended October 31, 2020.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may increase or decrease with changes
in the Fund's portfolio. The price for each Creation Unit will equal the daily
NAV per share times the number of shares in a Creation Unit plus the fees
described above and, if applicable, any operational processing and brokerage
costs, transfer fees or stamp taxes. When Creation Units are issued for cash,
the Authorized Participant may also be assessed an amount to cover the cost of
purchasing portfolio securities, including operational processing and brokerage
costs, transfer fees, stamp taxes, and part or all of the spread between the
expected bid and offer side of the market related to such securities. Authorized
Participants redeeming Creation Units must pay to BNYM, as transfer agent, a
standard redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may increase or decrease with changes in the Fund's
portfolio. When shares are redeemed for cash, the Authorized Participant may
also be assessed an amount to cover other costs, including operational
processing and brokerage costs, transfer fees, stamp taxes and part or all of
the spread between the expected bid and offer side of the market related to
portfolio securities sold in connection with the redemption.
7. DISTRIBUTION PLAN
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 March 31, 2022.
8. INDEMNIFICATION
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.
9. SUBSEQUENT EVENTS
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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Tactical High Yield ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2020, the related statement of operations and cash flows 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, 2020, and the results of
its operations and its cash flows 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.
BASIS FOR OPINION
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, 2020, by correspondence with
the custodian, agent banks and brokers; when replies were not received from
agent banks and 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, 2020
We have served as the auditor of one or more First Trust investment companies
since 2001.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to the foreign shareholders during the Fund's fiscal year
ended October 31, 2020 that were properly designated by the Fund as
"interest-related dividends" or "short-term capital gain dividends," may not be
subject to federal income tax provided that the income was earned directly by
such foreign shareholders.
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended October 31, 2020, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom's
Financial Conduct Authority announced that LIBOR will cease to be available for
use after 2021. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the fund or on certain
instruments in which the fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. Any such effects of the transition
away from LIBOR, as well as other unforeseen effects, could result in losses to
the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19 pandemic may last
for an extended period of time and will continue to impact the economy for the
foreseeable future.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (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 Tactical High Yield ETF (the
"Fund"). The Board approved the continuation of the Agreement for a one-year
period ending June 30, 2021 at a meeting held on June 8, 2020. 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
reasonable 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 May 11, 2020 and June 8, 2020, 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 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 fall-out 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 May
11, 2020, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the May
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 8, 2020 meeting, as well as at the meeting held that day.
The Board considered supplemental information provided by the Advisor on the
operations of the Advisor and the performance of the Fund since the onset of the
COVID-19 pandemic. The Board applied its business judgment to determine whether
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
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 Leveraged Finance 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 Leveraged
Finance 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 Leveraged Finance Investment Team as it uses
for overseeing external sub-advisors, 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 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 May 11,
2020 meeting, described to the Board the scope of its ongoing investment in
additional infrastructure and personnel 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 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 advisory or unitary 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 above the median total (net) expense ratio of the peer
funds in the Expense Group. With respect to the Expense Group, the Board, at the
May 11, 2020 meeting, 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 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 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, 2019
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 for the one-, three- and
five-year periods ended December 31, 2019 but underperformed the benchmark index
for the one-, three- and five-year periods ended December 31, 2019.
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 and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
the unitary fee structure provides a level of certainty in expenses for the
Fund. 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, 2019 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 fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out 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 noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out 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
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 Tactical High Yield 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, 2019, the amount of remuneration paid (or to
be paid) by First Trust in respect of the Fund is $4,451,157. This figure is
comprised of $565,095 paid (or to be paid) in fixed compensation and $3,886,062
paid (or to be paid) in variable compensation. There were a total of 22
beneficiaries of the remuneration described above. Those amounts include
$289,421 paid (or to be paid) to senior management of First Trust and $4,161,736
paid (or to be paid) to other employees whose professional activities have a
material impact on the risk profiles of First Trust 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.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
LIQUIDITY RISK MANAGEMENT PROGRAM
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund and each other fund in the First Trust Fund
Complex, other than the closed-end funds, have adopted and implemented a
liquidity risk management program (the "Program") reasonably designed to assess
and manage the funds' liquidity risk, i.e., the risk that a fund could not meet
requests to redeem shares issued by the fund without significant dilution of
remaining investors' interests in the fund. The Board of Trustees of the First
Trust Funds has appointed First Trust Advisors L.P. (the "Advisor") as the
person designated to administer the Program, and in this capacity the Advisor
performs its duties primarily through the activities and efforts of the First
Trust Liquidity Committee (the "Liquidity Committee").
Pursuant to the Program, the Liquidity Committee classifies the liquidity of
each fund's portfolio investments into one of the four liquidity categories
specified by Rule 22e-4: highly liquid investments, moderately liquid
investments, less liquid investments and illiquid investments. The Liquidity
Committee determines certain of the inputs for this classification process,
including reasonably anticipated trade sizes and significant investor dilution
thresholds. The Liquidity Committee also determines and periodically reviews a
highly liquid investment minimum for certain funds, monitors the funds' holdings
of assets classified as illiquid investments to seek to ensure they do not
exceed 15% of a fund's net assets and establishes policies and procedures
regarding redemptions in kind. At the May 11, 2020 meeting of the Board of
Trustees, as required by Rule 22e-4 and the Program, the Advisor provided the
Board with a written report prepared by the Advisor that addressed the operation
of the Program during the period from June 1, 2019 (the initial compliance date
for certain requirements of Rule 22e-4) through the Liquidity Committee's annual
meeting held on March 20, 2020 and assessed the Program's adequacy and
effectiveness of implementation during this period, including the operation of
the highly liquid investment minimum for each fund that is required under the
Program to have one, and any material changes to the Program. Note that because
the Fund primarily holds assets that are highly liquid investments, the Fund has
not adopted a highly liquid investment minimum.
As stated in the written report, during the review period, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor
concluded that each fund's investment strategy is appropriate for an open-end
fund; that the Program operated effectively in all material respects during the
review period; and that the Program is reasonably designed to assess and manage
the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
Page 43
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 189 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 189 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 189 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 189 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 189 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 44
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 45
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2020 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 46
<PAGE>
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<PAGE>
This page intentionally left blank.
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Enhanced Short
Maturity ETF (FTSM)
Annual Report
For the Year Ended
October 31, 2020
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2020
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 28
Statement of Operations...................................................... 29
Statements of Changes in Net Assets.......................................... 30
Financial Highlights......................................................... 31
Notes to Financial Statements................................................ 32
Report of Independent Registered Public Accounting Firm...................... 38
Additional Information....................................................... 39
Board of Trustees and Officers............................................... 45
Privacy Policy............................................................... 47
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Enhanced Short Maturity ETF; hereinafter referred to as
the "Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that 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 investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2020
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Enhanced Short Maturity ETF (the "Fund"), which contains detailed information
about the Fund for the twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that
my message this year should touch on the tone of the markets and the investing
climate rather than belabor all the news and events that brought us to this
juncture. We all know how tumultuous our lives have become over the past eight
or so months. The phrase "shelter-at-home" says it all. I would rather talk
about why I believe investors should be optimistic about where we could be
headed.
Having said that, allow me to at least acknowledge the two elephants in the
room: the coronavirus ("COVID-19") and the election. In the first 12 days of
November, we learned the following: that we likely have a new president-elect
(Joe Biden), though it may not be official for some time because it is being
contested by President Donald Trump and some of his loyal backers in the
Republican Party citing voter fraud in certain states; that we still do not know
which political party will have control of the Senate due to a couple of
run-offs in Georgia to be held on January 5, 2021; and, that it looks as though
we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either
the end of 2020 or the start of 2021, though that too is not yet official. It
could be a game-changer in the COVID-19 battle. And, we may gain access to
additional vaccines as well. The key to getting the economy back to running on
all cylinders is to fully reopen, and a vaccine is "what the doctor ordered."
With respect to the tone of the markets and investment climate, to say that I am
encouraged about what has transpired in 2020 would be an understatement. Despite
the extraordinary challenges so far this year, the S&P 500(R) Index posted a
total return of 2.77% over the first 10 months of 2020, this despite plunging
33.8% into bear market territory from February 19, 2020 through March 23, 2020,
according to Bloomberg. As impressive as that feat is, the future looks even
brighter. While Bloomberg's consensus earnings growth rate estimate for the S&P
500(R) Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022
estimates were 21.74% and 16.95%, respectively. That is a strong take on the
prospects for a rebound in Corporate America over the next 24 months. One of the
tailwinds that is providing a good deal of support to the economy and markets is
the decision by the Federal Reserve (the "Fed") to keep interest rates
artificially low for as long as need be to meet both its employment and
inflation targets. By keeping rates lower for longer, the Fed is essentially
inviting investors to assume more risk to generate higher returns. Brian
Wesbury, Chief Economist at First Trust, believes that the Fed could need until
2024 to accomplish its goals. That is a lot of runway for investors to
reposition their portfolios, if needed, and a very generous, and perhaps
unprecedented, amount of guidance from the Fed, in our opinion. Those investors
with cash on the sidelines earning next to nothing have options if they choose
to act.
We are encouraged about the prospects for the economy and the markets, but
investors should be prepared to weather some volatility until the COVID-19
pandemic is better contained. As always, we encourage investors to stay the
course!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
The investment objective of First Trust Enhanced Short Maturity ETF (the "Fund")
is to seek current income, consistent with preservation of capital and daily
liquidity. Under normal market conditions, the Fund intends to achieve its
investment objective by investing at least 80% of its net assets in a portfolio
of U.S. dollar-denominated fixed- and variable-rate debt securities, including
securities issued or guaranteed by the U.S. government or its agencies,
instrumentalities or U.S. government-sponsored entities, residential and
commercial mortgage-backed securities, asset-backed securities, U.S. corporate
bonds, fixed income securities issued by non-U.S. corporations and governments,
municipal obligations, privately issued securities and other debt securities
bearing fixed or floating interest rates. The Fund may also invest in money
market securities. Shares of the Fund are listed on The Nasdaq Stock Market LLC
under the ticker symbol "FTSM."
The Fund's investment advisor, First Trust Advisors L.P. (the "Advisor"),
selects securities for the portfolio by evaluating fixed income sectors and
macro market trends while completing bottom-up analysis of individual
securities. Portfolio securities are selected based upon relative value in the
context of overall portfolio duration. Key inputs for the screens in the
securities selection process include, but are not limited to, credit quality,
yield, interest rate sensitivity and liquidity. The Fund's holdings are
systematically monitored for meaningful changes in performance and risk
measures. A security will generally be sold when the Advisor believes that a
security can be substituted for a similar investment that represents better
relative value; it lacks adequate compensation for embedded credit risk; or when
rebalancing the portfolio to maintain diversification. Under normal market
conditions, the Fund's average duration is expected to be less than one year and
the average maturity of the Fund's portfolio is expected to be less than three
years.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (8/5/14) 5 Years Ended Inception (8/5/14)
10/31/20 10/31/20 to 10/31/20 10/31/20 to 10/31/20
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 1.34% 1.67% 1.41% 8.63% 9.12%
Market Price 1.34% 1.69% 1.41% 8.72% 9.14%
INDEX PERFORMANCE
ICE BofA 0-1 Year U.S. Treasury Index 1.37% 1.40% 1.15% 7.19% 7.39%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the period
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of the Fund did
not trade in the secondary market until after the Fund's inception, for the
period from inception to the first day of secondary market trading in shares of
the Fund, the NAV of the Fund is used as a proxy for the secondary market
trading price to calculate market returns. NAV and market returns assume that
all distributions have been reinvested in the Fund at NAV and Market Price,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. 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. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
--------------------------------------------------------
% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS & CASH
--------------------------------------------------------
Corporate Bonds and Notes 40.04%
Commercial Paper 24.56
Foreign Corporate Bonds and Notes 16.38
Asset-Backed Securities 11.97
U.S. Government Agency Mortgage-
Backed Securities 4.35
Mortgage-Backed Securities 1.30
U.S. Government Notes 0.78
Certificate of Deposit 0.29
U.S. Treasury Bills 0.29
Cash 0.04
-------
Total 100.00%
=======
--------------------------------------------------------
% OF TOTAL
CREDIT QUALITY(1) INVESTMENTS & CASH
--------------------------------------------------------
Government and Agency 5.42%
AAA 7.12
AA+ 1.84
AA 0.67
AA- 3.67
A+ 6.04
A 7.28
A- 9.86
BBB+ 16.20
BBB 9.62
BBB- 1.62
Not Rated 30.62
Cash 0.04
-------
Total 100.00%
=======
--------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
--------------------------------------------------------
ETP Legacy, L.P., 0.61% - 0.69%,
11/02/2020 0.87%
U.S. Treasury Note, 1.50%, 11/30/2021 0.78
Flagship Credit Auto Trust,
Series 2020-4, Class A 0.62
TransCanada PipeLines Ltd. 0.60
Verizon Owner Trust, Series 2020-B,
Class A 0.57
CVS Health Corp. 0.50
Enbridge Energy Partners, L.P. 0.50
Nutrien Ltd. 0.50
Verizon Communications, Inc., 3 Mo.
LIBOR + 1.00% 0.49
Government National Mortgage Association,
Series 2020-144, Class GP 0.49
-------
Total 5.92%
=======
-----------------------------
(1) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. 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 highest to lowest on a scale that generally ranges from AAA
to D for long-term ratings and A-1+ to C for short-term ratings.
Investment grade is defined as those issuers that have a long-term credit
rating of BBB- or higher or a short-term credit rating of A-3 or higher.
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.
U.S. Treasury and U.S. Agency mortgage-backed securities appear under
"Government". Credit ratings are subject to change.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 5, 2014 - OCTOBER 31, 2020
First Trust Enhanced ICE BofA 0-1 Year
Short Maturity ETF U.S. Treasury Index
<S> <C> <C>
8/5/14 $10,000 $10,000
10/31/14 10,016 10,002
4/30/15 10,047 10,011
10/31/15 10,045 10,020
4/30/16 10,079 10,045
10/31/16 10,139 10,073
4/30/17 10,206 10,096
10/31/17 10,289 10,147
4/30/18 10,371 10,207
10/31/18 10,486 10,311
4/30/19 10,624 10,449
10/31/19 10,767 10,594
4/30/20 10,780 10,732
10/31/20 10,912 10,739
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust") is the investment advisor to the First
Trust Enhanced Short Maturity ETF (the "Fund" or "FTSM"). In this capacity,
First Trust is responsible for the selection and ongoing monitoring of the
investments in the Fund's portfolio and certain other services necessary for the
management of the portfolio.
PORTFOLIO MANAGEMENT TEAM
TODD LARSON, CFA - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER, FIRST TRUST
INVESTMENT GRADE FIXED INCOME GROUP
JEREMIAH CHARLES - SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, FIRST TRUST
SECURITIZED PRODUCTS GROUP
JAMES SNYDER - SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, FIRST TRUST
SECURITIZED PRODUCTS GROUP
ERIC MAISEL, CFA - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER, FIRST TRUST
INVESTMENT GRADE FIXED INCOME GROUP
COMMENTARY
The Fund is an actively-managed exchange-traded fund ("ETF"). Its investment
objective is to seek current income, consistent with preservation of capital and
daily liquidity.
MARKET RECAP
The front-end of the U.S. bond market improved over the 12 month-period ended
October 31, 2020. The ICE BofA 0-1 Year U.S. Treasury Index and ICE BofA 0-1
Year U.S. Corporate Index, two broad measures of market performance, had returns
of 1.37% and 1.99%, respectively, for the period. However, those returns were
earned through turbulence the market and economy had not witnessed since the
2008-2009 Global Financial Crisis ("GFC").
Solid estimates for 2020 growth abounded to start the year, only to be abruptly
undone in March 2020 as the outbreak of the coronavirus ("COVID-19") upended
markets and whole economies. Investor sentiment eroded sharply, and markets
turned extraordinarily volatile. Industry-wide demand for cash led to forced
selling, subsequently causing severe illiquidity in all markets, including in
Treasuries and agency mortgage-backed securities. By mid-March, spreads on all
credit sectors had quickly gapped out to levels not seen since the GFC. A
potential liquidity crisis in U.S. credit markets was headed off by the U.S.
Federal Reserve (the "Fed"), which slashed interest rates and unleashed an array
of programs designed to ensure the flow of credit in the private and public
sectors. Meanwhile, Congress enacted a fiscal stimulus bill valued at $2
trillion, a sum equal to nearly 10% of the U.S. gross domestic product ("GDP"),
in an effort to support businesses, employees, and households. Collectively,
these measures proved to be a game-changer for the market and the result was a
rapid improvement in sentiment and asset prices.
Over the subsequent months of the reporting period, credit spreads in front-end
bond markets improved and returned to levels seen in January-February 2020.
During this time, issuance of new bonds increased to record levels as many
high-quality companies issued long-term debt to weather the uncertain outlook.
New issuance was easily absorbed as investors sought higher yields amid falling
interest rates and low yields on U.S. Treasury bonds. In aggregate, high-grade
bond funds and ETFs reported inflows for every week between the beginning of
April through the end of October.
Having re-established the Zero Interest Rate Policy regime in the wake of the
pandemic, the Fed also adopted a new, flexible average-inflation-targeting
framework during the third quarter of 2020. We expect this to result in policy
rates remaining at low levels for another two or three years. The Fed's policy
announcement came as the U.S. economy is rebounding from the sharp pullback
experienced in the first half of 2020. While the labor market has yet to fully
heal, employment has continued to bounce back. Non-farm payrolls recouped 12
million jobs from April through October and retail sales were also robust,
doubtlessly aided by economic stimulus measures. As the reporting period came to
a close, it was reported U.S. economic growth jumped to an annualized rate of
33.1% in the third quarter, up from -31.4% in the second quarter and -5.0% in
the first quarter.
PERFORMANCE ANALYSIS
The Fund's net asset value ("NAV") and market performance for the 12-month
period ended October 31, 2020 was 1.34%, versus the ICE BofA 0-1 Year U.S.
Treasury Index's (the "Benchmark") return of 1.37%. The distribution declared on
October 29, 2020 of $0.035 represented an annualized distribution rate of 0.70%
based on the Fund's closing market price of $60.04 on October 30, 2020. The
Fund's distribution rate is not constant and is subject to change over time
based on market conditions and performance of the Fund.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
The allocation to securitized debt was a source of outperformance with the best
results coming from Agency collateralized mortgage-backed obligations ("CMOs"),
Agency commercial mortgage-backed securities ("CMBS"), and Auto asset-backed
securities ("ABS"). The Fund's relatively small allocation to Treasury
securities was another contributor to outperformance versus the Benchmark. On
the other hand, cash equivalents and corporate bonds moderately underperformed
on a relative basis. Within corporates, the leading detractor was investments in
the Energy sector. Holdings in ten other corporate sectors positively
contributed to relative performance including finance companies, electric
utilities, consumer non-cyclicals, and banking. From a rating quality
perspective, "A" rated corporate bonds delivered slightly better returns
compared to "BBB" rated corporate bonds.
Throughout the 12-month period ended October 31, 2020, the Fund maintained a
diversified allocation with an emphasis on securities having a high level of
liquidity. Overall credit risk was kept low as the investment strategy focused
on high quality, short-term holdings. The Fund's weighted average maturity was
kept around one year and weighted average effective duration between 0.3 and 0.6
years.
MARKET AND FUND OUTLOOK
Despite uncertainty surrounding COVID-19, our outlook for the front-end fixed
income markets and economy is generally positive. We anticipate drug companies
will successfully produce vaccines and therapies for COVID-19 in the near term
and that those will serve as catalysts for a return to more normal social
behavior and more rapid economic growth. From a policy perspective, we expect
lawmakers to provide another round of fiscal stimulus to support households and
small businesses. We also believe the Fed will continue to anchor the front-end
of the Treasury yield curve and short-term funding rates by keeping the Fed
Funds rate at zero.
As a result, our outlook is the economy will continue to recover and that has
supportive implications for credit fundamentals. We are also encouraged by the
strong technical backdrop seen in the front-end given steady flows into funds
and ETFs.
From a strategy perspective, as we head into the closing months of 2020, we
believe credit spreads reflect a great deal of this positive outlook and, as
such, we are cautious about increasing risk exposures significantly. Because our
outlook is for anchored front-end rates, we do not believe yield curve
positioning will have a material impact on performance. Credit spreads are a
different matter and we await opportunities to initiate positions at more
attractive levels. In the corporate space, we remain focused on lending to
leading companies with relatively noncyclical revenues, robust free cash flow,
durable balance sheets, multiple degrees of freedom, and prudent management. We
believe high quality mortgage-backed and asset-backed securities represent some
of the best opportunities in the front-end at this time, given falling
unemployment and our expectation that fiscal stimulus measures will continue
supporting household balance sheets. As always, capital preservation remains a
focus and we expect to maintain a laddered maturity profile of commercial paper
to support liquidity and stable NAV, although low yields in the very front end
of the curve remain a challenge.
As we evaluate new investment opportunities, our research will seek to identify
opportunities that we believe offer the best risk/reward balance, and decisions
will continue to be based on the analysis of data that results in sound,
evidence-based conclusions.
Page 6
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2020 (UNAUDITED)
As a shareholder of First Trust Enhanced Short Maturity ETF (the "Fund"), you
incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service (12b-1) fees, if any, and
other Fund expenses. This Example is intended to help you understand your
ongoing costs of investing in the Fund and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2020.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2020 OCTOBER 31, 2020 PERIOD (a) PERIOD (b)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
Actual $1,000.00 $1,012.20 0.36% $1.82
Hypothetical (5% return before expenses) $1,000.00 $1,023.33 0.36% $1.83
</TABLE>
(a) These expense ratios reflect expense waivers. See Note 3 in the Notes to
the Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2020
through October 31, 2020), multiplied by 184/366 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 40.3%
AEROSPACE/DEFENSE -- 0.2%
$ 10,000,000 L3Harris Technologies, Inc...................................... 4.95% 02/15/21 $ 10,033,279
1,492,000 Northrop Grumman Corp........................................... 2.55% 10/15/22 1,551,829
----------------
11,585,108
----------------
AGRICULTURE -- 1.1%
12,648,000 Altria Group, Inc............................................... 4.75% 05/05/21 12,937,894
15,000,000 Altria Group, Inc............................................... 2.85% 08/09/22 15,620,907
12,452,000 BAT Capital Corp., 3 Mo. LIBOR + 0.88% (a)...................... 1.16% 08/15/22 12,520,742
1,550,000 Philip Morris International, Inc................................ 2.38% 08/17/22 1,603,631
12,960,000 Reynolds American, Inc.......................................... 4.00% 06/12/22 13,687,731
----------------
56,370,905
----------------
AUTO MANUFACTURERS -- 4.7%
3,800,000 American Honda Finance Corp., Medium-Term Note,
3 Mo. LIBOR + 0.47% (a)...................................... 0.70% 01/08/21 3,803,351
3,000,000 American Honda Finance Corp., Medium-Term Note,
3 Mo. LIBOR + 0.35% (a)...................................... 0.60% 06/11/21 3,006,023
2,000,000 American Honda Finance Corp., Medium-Term Note.................. 0.40% 10/21/22 2,000,392
20,000,000 American Honda Finance Corp., Medium-Term Note,
3 Mo. LIBOR + 0.37% (a)...................................... 0.61% 05/10/23 20,018,749
10,925,000 BMW US Capital LLC, 3 Mo. LIBOR + 0.41% (a) (b)................. 0.63% 04/12/21 10,939,933
4,400,000 BMW US Capital LLC, 3 Mo. LIBOR + 0.50% (a) (b)................. 0.75% 08/13/21 4,409,222
565,000 BMW US Capital LLC (b).......................................... 1.85% 09/15/21 571,650
5,730,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.43% (a) (b)................................................ 0.69% 02/12/21 5,732,804
640,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.45% (a) (b)................................................ 0.71% 02/22/21 640,496
5,130,000 Daimler Finance North America LLC (b)........................... 3.35% 05/04/21 5,203,449
5,000,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.67% (a) (b)................................................ 0.92% 11/05/21 5,012,210
7,000,000 Daimler Finance North America LLC (b)........................... 3.75% 11/05/21 7,218,718
2,000,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.90% (a) (b)................................................ 1.18% 02/15/22 2,013,380
5,000,000 Daimler Finance North America LLC (b)........................... 1.75% 03/10/23 5,105,993
3,000,000 General Motors Financial Co., Inc., 3 Mo. LIBOR +
0.54% (a).................................................... 0.79% 11/06/20 3,000,051
11,270,000 General Motors Financial Co., Inc............................... 4.20% 03/01/21 11,354,578
13,401,000 General Motors Financial Co., Inc............................... 3.20% 07/06/21 13,583,138
6,763,000 General Motors Financial Co., Inc............................... 4.38% 09/25/21 6,973,048
8,000,000 General Motors Financial Co., Inc., 3 Mo. LIBOR +
1.10% (a).................................................... 1.35% 11/06/21 7,998,394
4,000,000 General Motors Financial Co., Inc............................... 4.20% 11/06/21 4,121,871
12,736,000 Hyundai Capital America (b)..................................... 3.95% 02/01/22 13,202,979
6,885,000 Hyundai Capital America (b)..................................... 2.38% 02/10/23 7,086,727
6,910,000 Hyundai Capital America (b)..................................... 1.25% 09/18/23 6,931,062
1,050,000 Nissan Motor Acceptance Corp. (b)............................... 1.90% 09/14/21 1,054,933
1,800,000 PACCAR Financial Corp., Medium-Term Note........................ 2.25% 02/25/21 1,811,359
2,000,000 PACCAR Financial Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.26% (a)............................................ 0.50% 05/10/21 2,002,790
4,000,000 Toyota Motor Credit Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.28% (a)............................................ 0.50% 04/13/21 4,004,853
15,000,000 Toyota Motor Credit Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.29% (a)............................................ 0.51% 10/07/21 15,033,804
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
AUTO MANUFACTURERS (CONTINUED)
$ 9,677,000 Toyota Motor Credit Corp., Medium-Term Note..................... 1.80% 10/07/21 $ 9,816,460
10,000,000 Toyota Motor Credit Corp., Medium-Term Note..................... 1.15% 05/26/22 10,127,597
18,370,000 Volkswagen Group of America Finance LLC, 3 Mo.
LIBOR + 0.77% (a) (b)........................................ 1.02% 11/13/20 18,373,675
10,000,000 Volkswagen Group of America Finance LLC, 3 Mo.
LIBOR + 0.86% (a) (b)........................................ 1.08% 09/24/21 10,048,070
11,828,000 Volkswagen Group of America Finance
LLC (b)...................................................... 2.50% 09/24/21 12,038,479
1,931,000 Volkswagen Group of America Finance LLC (b)..................... 4.00% 11/12/21 1,999,373
7,253,000 Volkswagen Group of America Finance LLC (b)..................... 2.90% 05/13/22 7,491,485
1,202,000 Volkswagen Group of America Finance LLC (b)..................... 2.70% 09/26/22 1,246,219
----------------
244,977,315
----------------
BANKS -- 8.0%
6,239,000 Bank of America Corp., 3 Mo. LIBOR + 0.38% (a).................. 0.59% 01/23/22 6,242,743
5,000,000 Bank of America Corp. (c)....................................... 2.74% 01/23/22 5,026,364
5,000,000 Bank of America Corp., Global Medium-Term Note,
3 Mo. LIBOR + 1.42% (a)...................................... 1.64% 04/19/21 5,031,496
20,447,000 Bank of America Corp., Global Medium-Term Note (c).............. 2.82% 07/21/23 21,207,811
18,560,000 Bank of America Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.65% (a)............................................ 0.88% 06/25/22 18,624,135
12,000,000 Bank of America Corp., Medium-Term Note (c)..................... 0.81% 10/24/24 12,017,071
3,385,000 Capital One N.A., 3 Mo. LIBOR + 0.82% (a)....................... 1.06% 08/08/22 3,410,313
9,505,000 Capital One N.A................................................. 2.15% 09/06/22 9,784,413
10,760,000 Citibank N.A., 3 Mo. LIBOR + 0.35% (a).......................... 0.61% 02/12/21 10,767,415
15,000,000 Citibank N.A., 3 Mo. LIBOR + 0.60% (a).......................... 0.85% 05/20/22 15,037,767
1,000,000 Citigroup, Inc., 3 Mo. LIBOR + 1.19% (a)........................ 1.40% 08/02/21 1,008,284
2,000,000 Citigroup, Inc., 3 Mo. LIBOR + 1.07% (a)........................ 1.32% 12/08/21 2,019,135
9,959,000 Citigroup, Inc., 3 Mo. LIBOR + 0.96% (a)........................ 1.17% 04/25/22 10,062,830
5,000,000 Citigroup, Inc., SOFR + 0.87% (a)............................... 0.96% 11/04/22 5,025,776
9,440,000 Citigroup, Inc. (c)............................................. 2.31% 11/04/22 9,612,577
5,500,000 Citigroup, Inc. (c)............................................. 2.88% 07/24/23 5,709,268
3,000,000 Citigroup, Inc. (c)............................................. 1.68% 05/15/24 3,074,298
2,250,000 Citizens Bank N.A./Providence RI, Medium-Term Note.............. 2.55% 05/13/21 2,272,549
5,000,000 Fifth Third Bancorp............................................. 2.60% 06/15/22 5,167,641
7,725,000 Fifth Third Bank/Cincinnati OH, 3 Mo. LIBOR +
0.44% (a).................................................... 0.65% 07/26/21 7,744,189
6,000,000 Goldman Sachs Group, (The), Inc................................. 2.60% 12/27/20 6,020,488
10,308,000 Goldman Sachs Group, (The), Inc., 3 Mo. LIBOR +
1.17% (a).................................................... 1.45% 11/15/21 10,312,196
5,000,000 Goldman Sachs Group, (The), Inc., 3 Mo. LIBOR +
1.11% (a).................................................... 1.32% 04/26/22 5,019,192
5,000,000 Goldman Sachs Group, (The), Inc................................. 3.00% 04/26/22 5,061,965
11,500,000 Goldman Sachs Group, (The), Inc. (c)............................ 2.88% 10/31/22 11,774,807
10,000,000 Goldman Sachs Group, (The), Inc. (c)............................ 2.91% 07/24/23 10,388,933
15,970,000 JPMorgan Chase & Co. (c)........................................ 3.51% 06/18/22 16,273,483
10,365,000 JPMorgan Chase & Co............................................. 2.97% 01/15/23 10,689,008
6,935,000 JPMorgan Chase & Co. (c)........................................ 2.78% 04/25/23 7,176,906
9,053,000 JPMorgan Chase & Co. (c)........................................ 1.51% 06/01/24 9,252,818
3,300,000 KeyBank N.A./Cleveland OH, 3 Mo. LIBOR +
0.81% (a).................................................... 1.07% 11/22/21 3,325,329
15,784,000 Morgan Stanley, 3 Mo. LIBOR + 1.18% (a)......................... 1.40% 01/20/22 15,818,184
5,815,000 Morgan Stanley.................................................. 2.75% 05/19/22 6,023,419
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 11,000,000 Morgan Stanley, Global Medium-Term Note, 3 Mo.
LIBOR + 1.40% (a)............................................ 1.61% 04/21/21 $ 11,068,342
5,333,000 Morgan Stanley, Global Medium-Term Note......................... 2.50% 04/21/21 5,386,703
25,000,000 Morgan Stanley, Global Medium-Term Note, SOFR +
0.70% (a).................................................... 0.79% 01/20/23 25,091,222
5,000,000 Morgan Stanley, Global Medium-Term Note......................... 3.13% 01/23/23 5,287,032
4,900,000 National Securities Clearing Corp. (b).......................... 1.20% 04/23/23 4,995,235
3,990,000 State Street Corp. (b) (c)...................................... 2.83% 03/30/23 4,126,194
10,000,000 Truist Bank, 3 Mo. LIBOR + 0.59% (a)............................ 0.87% 05/17/22 10,059,943
3,000,000 Truist Bank, SOFR + 0.73% (a)................................... 0.82% 03/09/23 3,024,615
2,852,000 Truist Financial Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.22% (a)............................................ 0.43% 02/01/21 2,852,988
12,137,000 Truist Financial Corp., Medium-Term Note........................ 3.05% 06/20/22 12,640,990
2,000,000 US Bank N.A./Cincinnati OH, 3 Mo. LIBOR +
0.32% (a).................................................... 0.53% 04/26/21 2,002,311
6,952,000 Wells Fargo & Co., 3 Mo. LIBOR + 0.93% (a)...................... 1.18% 02/11/22 6,966,628
17,857,000 Wells Fargo & Co................................................ 3.07% 01/24/23 18,400,098
5,000,000 Wells Fargo & Co., Medium-Term Note............................. 3.00% 01/22/21 5,028,049
10,000,000 Wells Fargo & Co., Medium-Term Note............................. 3.50% 03/08/22 10,414,105
10,646,000 Wells Fargo Bank N.A. (c)....................................... 2.08% 09/09/22 10,796,840
----------------
414,124,098
----------------
BEVERAGES -- 0.4%
20,254,000 Keurig Dr Pepper, Inc........................................... 3.55% 05/25/21 20,619,506
----------------
BIOTECHNOLOGY -- 0.4%
5,000,000 Gilead Sciences, Inc., 3 Mo. LIBOR + 0.15% (a).................. 0.37% 09/17/21 5,003,627
3,000,000 Gilead Sciences, Inc., 3 Mo. LIBOR + 0.52% (a).................. 0.74% 09/29/23 3,005,328
10,000,000 Gilead Sciences, Inc............................................ 0.75% 09/29/23 10,025,830
----------------
18,034,785
----------------
CHEMICALS -- 0.2%
10,527,000 DuPont de Nemours, Inc., 3 Mo. LIBOR + 0.71% (a)................ 0.99% 11/15/20 10,529,523
----------------
COMMERCIAL SERVICES -- 0.2%
788,000 Equifax, Inc.................................................... 2.30% 06/01/21 795,228
7,561,000 Global Payments, Inc............................................ 3.80% 04/01/21 7,648,616
----------------
8,443,844
----------------
COMPUTERS -- 0.8%
3,000,000 Apple, Inc...................................................... 1.55% 08/04/21 3,025,981
7,000,000 Apple, Inc...................................................... 0.75% 05/11/23 7,072,859
19,905,000 Hewlett Packard Enterprise Co., 3 Mo. LIBOR +
0.68% (a).................................................... 0.93% 03/12/21 19,938,584
3,000,000 Hewlett Packard Enterprise Co., 3 Mo. LIBOR +
0.72% (a).................................................... 0.95% 10/05/21 3,000,410
10,000,000 International Business Machines Corp., 3 Mo. LIBOR +
0.40% (a).................................................... 0.65% 05/13/21 10,019,498
----------------
43,057,332
----------------
DIVERSIFIED FINANCIAL SERVICES -- 1.6%
4,100,000 AIG Global Funding, 3 Mo. LIBOR + 0.65% (a) (b)................. 0.87% 01/22/21 4,105,485
3,235,000 AIG Global Funding (b).......................................... 3.35% 06/25/21 3,299,637
4,000,000 AIG Global Funding (b).......................................... 0.80% 07/07/23 4,030,815
1,000,000 Air Lease Corp.................................................. 2.50% 03/01/21 1,006,518
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
$ 6,000,000 American Express Co., 3 Mo. LIBOR + 0.53% (a)................... 0.81% 05/17/21 $ 6,014,007
11,000,000 American Express Co., 3 Mo. LIBOR + 0.60% (a)................... 0.85% 11/05/21 11,052,388
14,495,000 American Express Co., 3 Mo. LIBOR + 0.62% (a)................... 0.87% 05/20/22 14,591,850
8,226,000 Capital One Financial Corp...................................... 3.45% 04/30/21 8,332,238
7,667,000 Capital One Financial Corp...................................... 2.60% 05/11/23 8,039,088
10,505,000 Charles Schwab (The) Corp., 3 Mo. LIBOR + 0.32% (a)............. 0.57% 05/21/21 10,518,342
2,500,000 Intercontinental Exchange, Inc.................................. 2.35% 09/15/22 2,585,445
10,000,000 Intercontinental Exchange, Inc., 3 Mo. LIBOR +
0.65% (a).................................................... 0.90% 06/15/23 10,043,530
----------------
83,619,343
----------------
ELECTRIC -- 2.4%
10,410,000 Alabama Power Co., Series 17A................................... 2.45% 03/30/22 10,697,527
4,567,000 American Electric Power Co., Inc., Series I..................... 3.65% 12/01/21 4,721,853
2,080,000 Appalachian Power Co............................................ 4.60% 03/30/21 2,093,553
11,000,000 Consolidated Edison Co. of New York Inc., Series C,
3 Mo. LIBOR + 0.40% (a)...................................... 0.63% 06/25/21 11,022,429
11,351,000 Consolidated Edison, Inc........................................ 2.00% 05/15/21 11,440,177
8,510,000 Dominion Energy, Inc., Series B................................. 2.75% 01/15/22 8,725,365
2,342,000 Dominion Energy, Inc., Series C................................. 2.00% 08/15/21 2,368,609
7,000,000 Dominion Energy, Inc., Series D, 3 Mo. LIBOR +
0.53% (a).................................................... 0.78% 09/15/23 7,020,560
10,300,000 DTE Energy Co., Series B........................................ 2.60% 06/15/22 10,642,545
5,000,000 Duke Energy Corp., 3 Mo. LIBOR + 0.50% (a) (b).................. 0.76% 05/14/21 5,011,167
3,170,000 Duke Energy Corp................................................ 3.55% 09/15/21 3,233,757
5,900,000 Duke Energy Corp., 3 Mo. LIBOR + 0.65% (a)...................... 0.90% 03/11/22 5,935,722
3,000,000 Duke Energy Florida LLC, Series A, 3 Mo. LIBOR +
0.25% (a).................................................... 0.48% 11/26/21 3,004,152
5,000,000 Florida Power & Light Co., 3 Mo. LIBOR + 0.38% (a).............. 0.60% 07/28/23 5,002,544
4,000,000 Georgia Power Co................................................ 2.40% 04/01/21 4,027,426
7,425,000 NextEra Energy Capital Holdings, Inc............................ 2.40% 09/01/21 7,553,571
4,520,000 NextEra Energy Capital Holdings, Inc., 3 Mo. LIBOR +
0.72% (a).................................................... 0.97% 02/25/22 4,555,943
1,100,000 Public Service Enterprise Group, Inc............................ 2.00% 11/15/21 1,116,706
3,860,000 Public Service Enterprise Group, Inc............................ 2.65% 11/15/22 4,033,647
12,514,000 Southern (The) Co............................................... 2.35% 07/01/21 12,657,223
----------------
124,864,476
----------------
ELECTRONICS -- 0.6%
19,563,000 Fortive Corp.................................................... 2.35% 06/15/21 19,757,242
2,000,000 Honeywell International, Inc., 3 Mo. LIBOR + 0.37% (a).......... 0.61% 08/08/22 2,008,272
7,085,000 Roper Technologies, Inc......................................... 3.00% 12/15/20 7,084,351
4,000,000 Roper Technologies, Inc......................................... 2.80% 12/15/21 4,099,648
----------------
32,949,513
----------------
ENVIRONMENTAL CONTROL -- 0.3%
14,855,000 Waste Management, Inc........................................... 4.60% 03/01/21 14,904,177
----------------
FOOD -- 0.4%
13,477,000 General Mills, Inc., 3 Mo. LIBOR + 0.54% (a).................... 0.77% 04/16/21 13,499,893
1,759,000 General Mills, Inc.............................................. 3.15% 12/15/21 1,800,977
5,348,000 Kroger (The) Co................................................. 2.60% 02/01/21 5,363,605
----------------
20,664,475
----------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
GAS -- 0.7%
$ 13,057,000 Dominion Energy Gas Holdings LLC................................ 2.80% 11/15/20 $ 13,066,498
18,010,000 Dominion Energy Gas Holdings LLC, Series A, 3 Mo.
LIBOR + 0.60% (a)............................................ 0.85% 06/15/21 18,066,959
5,000,000 Southern California Gas Co., 3 Mo. LIBOR + 0.35% (a)............ 0.57% 09/14/23 5,001,943
----------------
36,135,400
----------------
HEALTH CARE SERVICES -- 0.9%
17,383,000 Anthem, Inc..................................................... 2.50% 11/21/20 17,402,244
5,900,000 Anthem, Inc..................................................... 3.70% 08/15/21 6,007,460
5,000,000 Anthem, Inc..................................................... 3.13% 05/15/22 5,206,669
9,300,000 Humana, Inc..................................................... 2.50% 12/15/20 9,321,992
1,001,000 UnitedHealth Group, Inc......................................... 2.13% 03/15/21 1,007,864
6,156,000 UnitedHealth Group, Inc., 3 Mo. LIBOR + 0.26% (a)............... 0.51% 06/15/21 6,166,179
----------------
45,112,408
----------------
INSURANCE -- 3.5%
1,000,000 Allstate (The) Corp., 3 Mo. LIBOR + 0.43% (a)................... 0.65% 03/29/21 1,001,662
8,742,000 American International Group, Inc............................... 3.30% 03/01/21 8,806,668
13,125,000 Athene Global Funding, 3 Mo. LIBOR + 1.23% (a) (b).............. 1.46% 07/01/22 13,222,781
5,108,000 Athene Global Funding (b)....................................... 3.00% 07/01/22 5,264,436
9,640,000 Athene Global Funding (b)....................................... 1.20% 10/13/23 9,658,350
11,510,000 Jackson National Life Global Funding, 3 Mo. LIBOR +
0.48% (a) (b)................................................ 0.73% 06/11/21 11,534,344
4,200,000 MassMutual Global Funding II (b)................................ 2.45% 11/23/20 4,205,732
10,000,000 MassMutual Global Funding II (b)................................ 0.85% 06/09/23 10,099,904
25,000,000 MET Tower Global Funding, SOFR + 0.55% (a) (b).................. 0.64% 01/17/23 25,119,961
10,000,000 Metropolitan Life Global Funding I, 3 Mo. LIBOR +
0.23% (a) (b)................................................ 0.46% 01/08/21 10,004,750
2,000,000 Metropolitan Life Global Funding I, SOFR +
0.57% (a) (b)................................................ 0.66% 01/13/23 2,008,925
5,000,000 Metropolitan Life Global Funding I (b).......................... 0.90% 06/08/23 5,056,347
2,000,000 New York Life Global Funding, 3 Mo. LIBOR +
0.28% (a) (b)................................................ 0.50% 01/28/21 2,001,233
20,000,000 New York Life Global Funding, 3 Mo. LIBOR +
0.28% (a) (b)................................................ 0.49% 01/21/22 20,053,584
10,550,000 New York Life Global Funding, 3 Mo. LIBOR +
0.44% (a) (b)................................................ 0.66% 07/12/22 10,606,260
25,000,000 New York Life Global Funding, 3 Mo. LIBOR +
0.28% (a) (b)................................................ 0.50% 01/10/23 24,994,829
1,750,000 Principal Life Global Funding II (b)............................ 2.63% 11/19/20 1,752,949
14,300,000 Protective Life Global Funding, 3 Mo. LIBOR +
0.52% (a) (b)................................................ 0.75% 06/28/21 14,349,864
----------------
179,742,579
----------------
INTERNET -- 0.1%
6,633,000 TD Ameritrade Holding Corp., 3 Mo. LIBOR +
0.43% (a).................................................... 0.64% 11/01/21 6,657,005
----------------
LODGING -- 0.3%
1,850,000 Marriott International, Inc., 3 Mo. LIBOR + 0.65% (a)........... 0.90% 03/08/21 1,845,733
13,405,000 Marriott International, Inc., Series Y, 3 Mo. LIBOR +
0.60% (a).................................................... 0.85% 12/01/20 13,397,329
----------------
15,243,062
----------------
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
MACHINERY-CONSTRUCTION & MINING -- 0.7%
$ 3,750,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.30% (a)...................................... 0.55% 03/08/21 $ 3,754,147
6,000,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.23% (a)...................................... 0.48% 03/15/21 6,005,598
9,879,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.28% (a)...................................... 0.53% 09/07/21 9,900,324
3,000,000 Caterpillar Financial Services Corp., Medium-Term Note.......... 0.95% 05/13/22 3,027,831
15,000,000 Caterpillar Financial Services Corp., Medium-Term Note,
Series I, 3 Mo. LIBOR + 0.39% (a)............................ 0.67% 05/17/21 15,031,698
----------------
37,719,598
----------------
MACHINERY-DIVERSIFIED -- 0.5%
15,000,000 John Deere Capital Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.49% (a)............................................ 0.74% 06/13/22 15,106,153
10,000,000 Otis Worldwide Corp., 3 Mo. LIBOR + 0.45% (a)................... 0.68% 04/05/23 10,003,142
----------------
25,109,295
----------------
MEDIA -- 0.8%
22,810,000 NBCUniversal Enterprise, Inc., 3 Mo. LIBOR +
0.40% (a) (b)................................................ 0.63% 04/01/21 22,846,517
1,800,000 Time Warner Cable LLC........................................... 4.13% 02/15/21 1,803,739
4,235,000 TWDC Enterprises 18 Corp........................................ 2.30% 02/12/21 4,258,864
5,000,000 Walt Disney (The) Co., 3 Mo. LIBOR + 0.25% (a).................. 0.50% 09/01/21 5,009,537
5,000,000 Walt Disney (The) Co., 3 Mo. LIBOR + 0.39% (a).................. 0.64% 09/01/22 5,024,550
----------------
38,943,207
----------------
MINING -- 0.2%
9,297,000 Newmont Corp.................................................... 3.63% 06/09/21 9,426,470
----------------
MISCELLANEOUS MANUFACTURING -- 0.1%
1,000,000 General Electric Co., Medium-Term Note.......................... 4.65% 10/17/21 1,040,348
1,950,000 General Electric Co............................................. 2.70% 10/09/22 2,023,502
3,070,000 General Electric Co., Global Medium-Term Note................... 3.15% 09/07/22 3,203,954
----------------
6,267,804
----------------
OIL & GAS -- 2.0%
9,169,000 BP Capital Markets America, Inc., 3 Mo. LIBOR +
0.65% (a).................................................... 0.88% 09/19/22 9,182,483
3,500,000 Chevron Corp., 3 Mo. LIBOR + 0.95% (a).......................... 1.23% 05/16/21 3,516,727
2,235,000 Chevron Corp., 3 Mo. LIBOR + 0.48% (a).......................... 0.73% 03/03/22 2,247,100
12,796,000 Chevron Corp.................................................... 2.41% 03/03/22 13,114,874
2,857,000 Chevron Corp.................................................... 1.14% 05/11/23 2,908,769
16,153,000 ConocoPhillips Co., 3 Mo. LIBOR + 0.90% (a)..................... 1.18% 05/15/22 16,252,114
2,540,000 EOG Resources, Inc.............................................. 4.10% 02/01/21 2,563,052
10,000,000 Exxon Mobil Corp., 3 Mo. LIBOR + 0.33% (a)...................... 0.61% 08/16/22 10,045,096
10,568,000 Marathon Petroleum Corp......................................... 3.40% 12/15/20 10,577,414
20,005,000 Marathon Petroleum Corp......................................... 5.13% 03/01/21 20,312,308
7,419,000 Phillips 66, 3 Mo. LIBOR + 0.60% (a)............................ 0.83% 02/26/21 7,420,096
3,289,000 Pioneer Natural Resources Co.................................... 3.45% 01/15/21 3,299,491
----------------
101,439,524
----------------
PHARMACEUTICALS -- 3.4%
2,460,000 AbbVie, Inc..................................................... 2.30% 05/14/21 2,481,354
5,000,000 AbbVie, Inc., 3 Mo. LIBOR + 0.35% (a) (b)....................... 0.60% 05/21/21 5,005,149
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
PHARMACEUTICALS (CONTINUED)
$ 5,000,000 AbbVie, Inc., 3 Mo. LIBOR + 0.46% (a) (b)....................... 0.73% 11/19/21 $ 5,012,305
18,715,000 AbbVie, Inc. (b)................................................ 2.15% 11/19/21 19,054,379
12,000,000 AbbVie, Inc., 3 Mo. LIBOR + 0.65% (a) (b)....................... 0.90% 11/21/22 12,057,968
5,000,000 Bayer US Finance II LLC, 3 Mo. LIBOR +
0.63% (a) (b)................................................ 0.86% 06/25/21 5,011,384
21,157,000 Bayer US Finance II LLC (b)..................................... 3.50% 06/25/21 21,522,673
17,761,000 Bristol-Myers Squibb Co., 3 Mo. LIBOR + 0.20% (a)............... 0.48% 11/16/20 17,762,828
6,255,000 Bristol-Myers Squibb Co......................................... 2.55% 05/14/21 6,331,853
6,000,000 Bristol-Myers Squibb Co., 3 Mo. LIBOR + 0.38% (a)............... 0.66% 05/16/22 6,023,972
5,600,000 Cigna Corp...................................................... 3.40% 09/17/21 5,749,890
1,000,000 Cigna Corp...................................................... 3.90% 02/15/22 1,043,331
11,000,000 Cigna Corp., Series WI, 3 Mo. LIBOR + 0.65% (a)................. 0.90% 09/17/21 11,002,200
6,000,000 CVS Health Corp., 3 Mo. LIBOR + 0.72% (a)....................... 0.96% 03/09/21 6,012,177
25,924,000 CVS Health Corp................................................. 3.35% 03/09/21 26,194,270
6,631,000 CVS Health Corp................................................. 2.13% 06/01/21 6,688,777
4,148,000 CVS Health Corp................................................. 3.50% 07/20/22 4,343,091
2,500,000 Express Scripts Holding Co., 3 Mo. LIBOR + 0.75% (a)............ 1.01% 11/30/20 2,500,553
1,573,000 Express Scripts Holding Co...................................... 2.60% 11/30/20 1,575,680
6,961,000 Upjohn, Inc. (b)................................................ 1.13% 06/22/22 7,026,413
4,439,000 Zoetis, Inc..................................................... 3.25% 08/20/21 4,543,007
----------------
176,943,254
----------------
PIPELINES -- 1.0%
25,577,000 Enbridge Energy Partners, L.P................................... 4.20% 09/15/21 26,166,892
12,098,000 Enterprise Products Operating LLC............................... 2.80% 02/15/21 12,188,267
6,442,000 Enterprise Products Operating LLC............................... 3.50% 02/01/22 6,687,139
4,876,000 Southern Natural Gas Co. LLC / Southern Natural Issuing
Corp......................................................... 4.40% 06/15/21 4,941,907
----------------
49,984,205
----------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
5,483,000 Boston Properties, L.P.......................................... 4.13% 05/15/21 5,541,407
----------------
RETAIL -- 0.4%
3,000,000 Home Depot (The), Inc........................................... 4.40% 04/01/21 3,020,479
7,916,000 Lowe's Cos., Inc................................................ 3.75% 04/15/21 7,971,931
10,000,000 McDonald's Corp., Medium-Term Note, 3 Mo. LIBOR +
0.43% (a).................................................... 0.65% 10/28/21 10,035,611
856,000 Starbucks Corp.................................................. 2.10% 02/04/21 858,418
----------------
21,886,439
----------------
SEMICONDUCTORS -- 0.5%
10,000,000 Intel Corp., 3 Mo. LIBOR + 0.35% (a)............................ 0.60% 05/11/22 10,047,599
8,572,000 Maxim Integrated Products, Inc.................................. 3.38% 03/15/23 9,057,270
5,000,000 Xilinx, Inc..................................................... 3.00% 03/15/21 5,039,327
----------------
24,144,196
----------------
SOFTWARE -- 1.1%
5,177,000 Fidelity National Information Services, Inc..................... 3.50% 04/15/23 5,509,757
8,387,000 Fiserv, Inc..................................................... 4.75% 06/15/21 8,543,166
23,195,000 Infor, Inc. (b)................................................. 1.45% 07/15/23 23,543,563
5,500,000 Oracle Corp..................................................... 2.80% 07/08/21 5,596,403
8,474,000 Oracle Corp..................................................... 1.90% 09/15/21 8,581,734
6,000,000 Oracle Corp..................................................... 2.50% 10/15/22 6,253,105
----------------
58,027,728
----------------
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS -- 1.5%
$ 7,940,000 AT&T, Inc., 3 Mo. LIBOR + 0.75% (a)............................. 1.00% 06/01/21 $ 7,970,329
21,600,000 AT&T, Inc., 3 Mo. LIBOR + 0.95% (a)............................. 1.19% 07/15/21 21,735,118
12,118,000 AT&T, Inc....................................................... 3.00% 06/30/22 12,580,275
9,049,000 Cisco Systems, Inc.............................................. 2.90% 03/04/21 9,135,072
25,385,000 Verizon Communications, Inc., 3 Mo. LIBOR +
1.00% (a).................................................... 1.24% 03/16/22 25,718,971
----------------
77,139,765
----------------
TRANSPORTATION -- 0.6%
6,435,000 Ryder System, Inc., Medium-Term Note............................ 3.50% 06/01/21 6,550,538
350,000 Ryder System, Inc., Medium-Term Note............................ 2.25% 09/01/21 354,714
7,004,000 Union Pacific Corp.............................................. 4.00% 02/01/21 7,004,000
18,802,000 Union Pacific Corp.............................................. 3.20% 06/08/21 19,117,997
----------------
33,027,249
----------------
TRUCKING & LEASING -- 0.6%
7,365,000 Aviation Capital Group LLC, 3 Mo. LIBOR +
0.95% (a) (b)................................................ 1.20% 06/01/21 7,258,990
3,802,000 GATX Corp....................................................... 4.85% 06/01/21 3,892,623
8,300,000 GATX Corp., 3 Mo. LIBOR + 0.72% (a)............................. 0.97% 11/05/21 8,294,816
9,163,000 Penske Truck Leasing Co., L.P. / PTL Finance Corp. (b).......... 3.65% 07/29/21 9,351,136
----------------
28,797,565
----------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 2,082,032,560
(Cost $2,073,159,172) ----------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 24.7%
AGRICULTURE -- 0.9%
10,000,000 BAT International Finance PLC................................... 0.36% 11/06/20 9,999,514
25,000,000 BAT International Finance PLC................................... 0.31% 11/23/20 24,995,416
10,100,000 BAT International Finance PLC................................... 0.27% 12/02/20 10,097,652
----------------
45,092,582
----------------
AUTO MANUFACTURERS -- 2.3%
5,000,000 American Honda Finance Corp..................................... 0.26% 01/21/21 4,997,075
15,000,000 American Honda Finance Corp..................................... 0.27% 01/27/21 14,990,212
7,000,000 General Motors Financial Co., Inc............................... 0.46% 11/02/20 6,999,912
10,000,000 General Motors Financial Co., Inc............................... 0.50% 11/13/20 9,998,333
5,000,000 General Motors Financial Co., Inc............................... 0.71% 01/13/21 4,992,902
10,000,000 General Motors Financial Co., Inc............................... 0.75% 01/20/21 9,983,333
15,000,000 Harley-Davidson Financial Services, Inc......................... 0.27% 11/10/20 14,998,987
15,000,000 Harley-Davidson Financial Services, Inc......................... 0.31% 11/17/20 14,998,000
14,000,000 Harley-Davidson Financial Services, Inc......................... 0.33% 12/02/20 13,996,142
10,000,000 Harley-Davidson Financial Services, Inc......................... 0.51% 01/11/21 9,990,137
15,200,000 Hyundai Capital America......................................... 0.27% 01/13/21 15,191,678
----------------
121,136,711
----------------
BANKS -- 0.8%
15,000,000 National Bank of Canada......................................... 0.13% 11/12/20 14,999,404
25,000,000 National Securities Clearing Corp............................... 0.15% 12/03/20 24,996,667
----------------
39,996,071
----------------
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
CHEMICALS -- 3.1%
$ 20,000,000 Albemarle Corp.................................................. 0.32% 11/12/20 $ 19,998,105
20,000,000 Dow Chemical (The) Co........................................... 0.19% 11/02/20 19,999,894
10,000,000 Dow Chemical (The) Co........................................... 0.18% 11/04/20 9,999,850
20,000,000 Dow Chemical (The) Co........................................... 0.21% 11/12/20 19,998,716
11,700,000 Eastman Chemical Co............................................. 0.27% 11/06/20 11,699,561
15,000,000 Eastman Chemical Co............................................. 0.31% 11/09/20 14,999,000
5,000,000 Eastman Chemical Co............................................. 0.31% 11/20/20 4,999,208
15,000,000 EI du Pont de Nemours and Co.................................... 0.17% 12/04/20 14,997,663
26,000,000 Nutrien Ltd..................................................... 0.18% 11/20/20 25,997,530
20,000,000 Nutrien Ltd..................................................... 0.20% 12/16/20 19,995,000
----------------
162,684,527
----------------
DIVERSIFIED FINANCIAL SERVICES -- 1.9%
15,000,000 CNPC Finance HK Ltd............................................. 0.45% 11/04/20 14,999,450
10,000,000 CNPC Finance HK Ltd............................................. 0.45% 11/16/20 9,998,166
10,000,000 CNPC Finance HK Ltd............................................. 0.46% 11/18/20 9,997,875
15,000,000 CNPC Finance HK Ltd............................................. 0.45% 11/30/20 14,994,683
15,000,000 CNPC Finance HK Ltd............................................. 0.45% 12/08/20 14,993,063
10,000,000 CNPC Finance HK Ltd............................................. 0.45% 12/10/20 9,995,233
15,000,000 Intercontinental Exchange, Inc.................................. 0.31% 11/17/20 14,997,999
10,000,000 Intercontinental Exchange, Inc.................................. 0.38% 01/14/21 9,992,393
----------------
99,968,862
----------------
ELECTRIC -- 2.0%
9,000,000 Duke Energy Corp................................................ 0.12% 11/04/20 8,999,910
10,500,000 Duke Energy Corp................................................ 0.15% 12/04/20 10,498,556
20,000,000 Enel Finance America LLC........................................ 0.33% 01/19/21 19,985,955
15,000,000 Enel Finance America LLC........................................ 0.42% 02/18/21 14,981,374
10,000,000 Entergy Corp.................................................... 0.21% 12/14/20 9,997,492
10,000,000 Entergy Corp.................................................... 0.26% 01/21/21 9,994,150
10,000,000 Entergy Corp.................................................... 0.25% 01/28/21 9,993,888
18,500,000 Ontario Power Generation, Inc................................... 0.18% 11/03/20 18,499,815
----------------
102,951,140
----------------
ELECTRONICS -- 1.6%
10,000,000 Jabil, Inc...................................................... 0.71% 11/04/20 9,999,416
20,000,000 Jabil, Inc...................................................... 0.71% 11/05/20 19,998,444
15,000,000 Jabil, Inc...................................................... 0.71% 11/06/20 14,998,541
20,000,000 Jabil, Inc...................................................... 0.71% 11/09/20 19,996,887
10,000,000 Jabil, Inc...................................................... 0.70% 11/13/20 9,997,667
10,000,000 Jabil, Inc...................................................... 0.70% 11/19/20 9,996,550
----------------
84,987,505
----------------
FOOD -- 0.7%
25,000,000 Conagra Brands, Inc............................................. 0.30% 11/17/20 24,996,666
12,100,000 Smithfield Foods, Inc........................................... 0.20% 11/02/20 12,099,933
----------------
37,096,599
----------------
HEALTH CARE SERVICES -- 0.4%
20,000,000 Humana, Inc..................................................... 0.26% 11/13/20 19,998,266
----------------
MINING -- 1.2%
20,000,000 Glencore Funding LLC............................................ 0.41% 11/18/20 19,996,221
10,000,000 Glencore Funding LLC............................................ 0.42% 12/11/20 9,995,333
10,000,000 Glencore Funding LLC............................................ 0.54% 01/15/21 9,988,957
20,000,000 Glencore Funding LLC............................................ 0.54% 01/21/21 19,976,146
----------------
59,956,657
----------------
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
OIL & GAS -- 5.9%
$ 10,000,000 Canadian Natural Resources Ltd.................................. 0.23% 11/05/20 $ 9,999,744
7,000,000 Canadian Natural Resources Ltd.................................. 0.20% 11/09/20 6,999,689
10,000,000 Canadian Natural Resources Ltd.................................. 0.19% 11/10/20 9,999,525
11,800,000 Canadian Natural Resources Ltd.................................. 0.19% 11/19/20 11,798,879
25,000,000 Canadian Natural Resources Ltd.................................. 0.22% 11/20/20 24,997,097
17,000,000 Eni Finance USA, Inc............................................ 0.37% - 0.38% 01/14/21 16,987,212
20,000,000 Eni Finance USA, Inc............................................ 0.38% 01/20/21 19,983,552
10,000,000 Eni Finance USA, Inc............................................ 0.38% 01/26/21 9,991,160
15,000,000 Exxon Mobil Corp................................................ 0.40% 02/16/21 14,982,584
10,000,000 Motiva Enterprises LLC.......................................... 0.21% 11/10/20 9,999,475
20,000,000 Motiva Enterprises LLC.......................................... 0.20% 11/18/20 19,998,111
20,000,000 Motiva Enterprises LLC.......................................... 0.28% 12/09/20 19,994,089
15,000,000 Shell International Finance B.V................................. 2.12% 02/03/21 14,918,867
24,250,000 Sinopec Century Bright Capital Investment America LLC........... 0.31% - 0.36% 11/16/20 24,246,671
25,000,000 Sinopec Century Bright Capital Investment America LLC........... 0.41% 12/16/20 24,987,498
20,000,000 Sinopec Century Bright Capital Investment Ltd................... 0.39% 11/19/20 19,996,199
8,000,000 Suncor Energy, Inc.............................................. 0.22% 11/09/20 7,999,609
19,000,000 Suncor Energy, Inc.............................................. 0.25% 01/12/21 18,990,499
10,000,000 Suncor Energy, Inc.............................................. 0.26% 01/20/21 9,994,222
9,500,000 Suncor Energy, Inc.............................................. 0.26% 01/27/21 9,494,031
----------------
306,358,713
----------------
OIL & GAS SERVICES -- 0.4%
22,000,000 Schlumberger Holdings Corp...................................... 0.41% 02/11/21 21,975,044
----------------
PHARMACEUTICALS -- 1.0%
25,000,000 Cigna Corp...................................................... 0.23% - 0.26% 11/10/20 24,998,487
14,500,000 Cigna Corp...................................................... 0.24% 12/01/20 14,497,100
10,000,000 Cigna Corp...................................................... 0.24% 12/14/20 9,997,133
----------------
49,492,720
----------------
PIPELINES -- 1.8%
45,000,000 ETP Legacy, L.P................................................. 0.61% - 0.69% 11/02/20 44,999,228
31,000,000 TransCanada PipeLines Ltd....................................... 0.21% - 0.25% 12/15/20 30,991,554
15,000,000 TransCanada PipeLines Ltd....................................... 0.30% 01/15/21 14,990,937
----------------
90,981,719
----------------
REAL ESTATE INVESTMENT TRUSTS -- 0.7%
14,135,000 Alexandria Real Estate Equities, Inc............................ 0.20% 11/04/20 14,134,764
20,000,000 Alexandria Real Estate Equities, Inc............................ 0.23% 11/18/20 19,997,828
----------------
34,132,592
----------------
TOTAL COMMERCIAL PAPER....................................................................... 1,276,809,708
(Cost $1,276,809,708) ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES -- 16.5%
AEROSPACE/DEFENSE -- 0.1%
4,822,000 BAE Systems PLC (b)............................................. 4.75% 10/11/21 5,013,092
----------------
AUTO MANUFACTURERS -- 0.1%
5,500,000 BMW Finance N.V., 3 Mo. LIBOR + 0.79% (a) (b)................... 1.05% 08/12/22 5,536,783
----------------
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
BANKS -- 13.3%
$ 16,095,000 ABN AMRO Bank N.V., 3 Mo. LIBOR + 0.41% (a) (b)................. 0.63% 01/19/21 $ 16,112,209
7,158,000 ABN AMRO Bank N.V., 3 Mo. LIBOR + 0.57% (a) (b)................. 0.82% 08/27/21 7,191,627
5,000,000 ANZ New Zealand Int'l Ltd./London (b)........................... 2.75% 01/22/21 5,027,246
2,500,000 ANZ New Zealand Int'l Ltd./London, 3 Mo. LIBOR +
1.00% (a) (b)................................................ 1.22% 01/25/22 2,526,596
12,090,000 Australia & New Zealand Banking Group Ltd., 3 Mo.
LIBOR + 0.46% (a) (b)........................................ 0.74% 05/17/21 12,120,106
3,000,000 Australia & New Zealand Banking Group Ltd., 3 Mo.
LIBOR + 0.99% (a) (b)........................................ 1.24% 06/01/21 3,015,864
4,000,000 Australia & New Zealand Banking Group Ltd., 3 Mo.
LIBOR + 0.49% (a) (b)........................................ 0.74% 11/21/22 4,025,447
6,130,000 Australia & New Zealand Banking Group Ltd., Medium-
Term Note.................................................... 2.05% 11/21/22 6,340,226
2,000,000 Bank of Montreal, Medium-Term Note, 3 Mo. LIBOR +
0.79% (a).................................................... 1.04% 08/27/21 2,013,090
13,026,000 Bank of Montreal, Medium-Term Note, Series D, 3 Mo.
LIBOR + 0.46% (a)............................................ 0.68% 04/13/21 13,053,384
17,867,000 Bank of Nova Scotia (The), 3 Mo. LIBOR + 0.44% (a).............. 0.66% 04/20/21 17,900,562
3,000,000 Bank of Nova Scotia (The)....................................... 1.63% 05/01/23 3,082,017
1,770,000 Barclays Bank PLC, 3 Mo. LIBOR + 0.46% (a)...................... 0.68% 01/11/21 1,770,787
5,860,000 Barclays Bank PLC............................................... 2.65% 01/11/21 5,874,683
3,181,000 Barclays Bank PLC............................................... 1.70% 05/12/22 3,241,404
6,775,000 BNP Paribas S.A................................................. 5.00% 01/15/21 6,839,979
15,000,000 BNP Paribas S.A., 3 Mo. LIBOR + 0.39% (a) (b)................... 0.63% 08/07/21 15,043,744
25,000,000 BPCE S.A., Medium-Term Note, 3 Mo. LIBOR +
0.88% (a).................................................... 1.14% 05/31/22 25,266,022
17,625,000 Canadian Imperial Bank of Commerce, SOFR +
0.80% (a).................................................... 0.89% 03/17/23 17,746,771
7,000,000 Commonwealth Bank of Australia, 3 Mo. LIBOR +
0.70% (a) (b)................................................ 0.95% 03/10/22 7,051,717
5,200,000 Cooperatieve Rabobank UA/NY, 3 Mo. LIBOR +
0.43% (a).................................................... 0.64% 04/26/21 5,209,860
2,100,000 Cooperatieve Rabobank UA/NY..................................... 3.13% 04/26/21 2,129,224
9,816,000 Cooperatieve Rabobank UA/NY, 3 Mo. LIBOR +
0.83% (a).................................................... 1.05% 01/10/22 9,901,989
20,000,000 Credit Agricole Corporate & Investment Bank S.A.,
Medium-Term Note, 3 Mo. LIBOR + 0.40% (a) (b)................ 0.62% 05/03/21 20,036,482
2,500,000 Credit Suisse AG/New York NY.................................... 2.10% 11/12/21 2,544,373
7,707,000 Credit Suisse AG/New York NY.................................... 1.00% 05/05/23 7,805,104
17,000,000 Credit Suisse Group Funding Guernsey Ltd........................ 3.13% 12/10/20 17,047,363
5,500,000 Credit Suisse Group Funding Guernsey Ltd., 3 Mo. LIBOR
+ 2.29% (a).................................................. 2.51% 04/16/21 5,554,880
1,125,000 Credit Suisse Group Funding Guernsey Ltd........................ 3.45% 04/16/21 1,140,935
500,000 Danske Bank A/S (b) (c)......................................... 3.00% 09/20/22 508,841
6,000,000 Danske Bank A/S (b)............................................. 1.23% 06/22/24 6,063,842
11,915,000 Danske Bank A/S, Medium-Term Note (b)........................... 2.80% 03/10/21 12,018,990
2,500,000 Deutsche Bank AG/New York NY.................................... 3.13% 01/13/21 2,510,694
12,625,000 Deutsche Bank AG/New York NY.................................... 3.15% 01/22/21 12,687,184
6,000,000 DNB Bank ASA, 3 Mo. LIBOR + 0.62% (a) (b)....................... 0.86% 12/02/22 6,048,669
2,000,000 HSBC Holdings PLC, 3 Mo. LIBOR + 2.24% (a)...................... 2.49% 03/08/21 2,015,091
17,000,000 HSBC Holdings PLC............................................... 3.40% 03/08/21 17,177,025
3,000,000 HSBC Holdings PLC............................................... 5.10% 04/05/21 3,059,351
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 2,980,000 ING Groep N.V., 3 Mo. LIBOR + 1.15% (a)......................... 1.37% 03/29/22 $ 3,011,072
9,135,000 ING Groep N.V................................................... 3.15% 03/29/22 9,491,938
6,000,000 ING Groep N.V., 3 Mo. LIBOR + 1.00% (a)......................... 1.23% 10/02/23 6,089,603
3,410,000 Lloyds Banking Group PLC, 3 Mo. LIBOR + 0.80% (a)............... 1.03% 06/21/21 3,424,641
14,217,000 Lloyds Banking Group PLC........................................ 3.10% 07/06/21 14,484,415
10,000,000 Lloyds Banking Group PLC (c).................................... 2.86% 03/17/23 10,287,939
8,712,000 Macquarie Bank Ltd. (b)......................................... 6.63% 04/07/21 8,923,119
19,221,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.65% (a).................................................... 0.86% 07/26/21 19,302,766
1,500,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.92% (a).................................................... 1.18% 02/22/22 1,514,230
13,685,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.79% (a).................................................... 1.00% 07/25/22 13,804,560
10,991,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.74% (a).................................................... 0.98% 03/02/23 11,057,394
6,000,000 Mitsubishi UFJ Financial Group, Inc............................. 3.76% 07/26/23 6,501,941
3,635,000 Mitsubishi UFJ Financial Group, Inc. (c)........................ 0.85% 09/15/24 3,641,645
500,000 Mizuho Financial Group, Inc., 3 Mo. LIBOR +
1.48% (a) (b)................................................ 1.70% 04/12/21 503,284
5,000,000 Mizuho Financial Group, Inc. (b)................................ 2.63% 04/12/21 5,051,523
9,200,000 Mizuho Financial Group, Inc., 3 Mo. LIBOR +
1.14% (a).................................................... 1.39% 09/13/21 9,282,641
1,000,000 National Australia Bank Ltd..................................... 3.38% 09/20/21 1,027,450
5,000,000 National Australia Bank Ltd., 3 Mo. LIBOR +
0.41% (a) (b)................................................ 0.66% 12/13/22 5,021,294
12,820,000 National Bank of Canada (c)..................................... 0.90% 08/15/23 12,901,085
2,175,000 NatWest Markets PLC, 3 Mo. LIBOR + 1.40% (a) (b)................ 1.62% 09/29/22 2,194,595
13,980,000 Royal Bank of Canada, Global Medium-Term Note, 3 Mo.
LIBOR + 0.39% (a)............................................ 0.60% 04/30/21 14,005,670
9,000,000 Royal Bank of Canada, Global Medium-Term Note, 3 Mo.
LIBOR + 0.47% (a)............................................ 0.68% 04/29/22 9,044,797
1,875,000 Royal Bank of Canada, Global Medium-Term Note, 3 Mo.
LIBOR + 0.36% (a)............................................ 0.58% 01/17/23 1,881,353
1,042,000 Royal Bank of Canada, Medium-Term Note, 3 Mo. LIBOR
+ 0.40% (a).................................................. 0.61% 01/25/21 1,042,979
7,087,000 Santander UK Group Holdings PLC................................. 3.13% 01/08/21 7,121,219
3,900,000 Santander UK PLC................................................ 2.13% 11/03/20 3,900,000
3,850,000 Santander UK PLC................................................ 3.40% 06/01/21 3,917,947
4,800,000 Skandinaviska Enskilda Banken AB (b)............................ 2.63% 11/17/20 4,804,538
1,000,000 Skandinaviska Enskilda Banken AB................................ 2.63% 03/15/21 1,008,942
9,000,000 Skandinaviska Enskilda Banken AB, 3 Mo. LIBOR +
0.43% (a) (b)................................................ 0.71% 05/17/21 9,020,638
4,000,000 Skandinaviska Enskilda Banken AB, 3 Mo. LIBOR +
0.65% (a) (b)................................................ 0.89% 12/12/22 4,037,889
1,000,000 Societe Generale S.A., 3 Mo. LIBOR + 1.33% (a) (b).............. 1.56% 04/08/21 1,005,756
8,604,000 Standard Chartered PLC, 3 Mo. LIBOR + 1.20% (a) (b)............. 1.45% 09/10/22 8,633,173
9,975,000 Standard Chartered PLC, 3 Mo. LIBOR + 1.15% (a) (b)............. 1.37% 01/20/23 10,007,626
2,932,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
1.68% (a).................................................... 1.92% 03/09/21 2,947,995
9,500,000 Sumitomo Mitsui Financial Group, Inc............................ 2.93% 03/09/21 9,588,022
7,328,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
1.11% (a).................................................... 1.34% 07/14/21 7,381,535
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 4,674,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
1.14% (a).................................................... 1.36% 10/19/21 $ 4,719,814
11,758,000 Sumitomo Mitsui Financial Group, Inc............................ 2.44% 10/19/21 11,999,988
4,139,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
0.97% (a).................................................... 1.19% 01/11/22 4,175,811
5,000,000 Svenska Handelsbanken AB (b).................................... 0.63% 06/30/23 5,018,642
4,500,000 Svenska Handelsbanken AB, Medium-Term Note...................... 2.45% 03/30/21 4,540,569
3,500,000 Svenska Handelsbanken AB, Medium-Term Note, 3 Mo.
LIBOR + 0.47% (a)............................................ 0.73% 05/24/21 3,509,379
25,000,000 Toronto-Dominion Bank (The), Medium-Term Note, 3 Mo.
LIBOR + 0.30% (a)............................................ 0.51% 07/30/21 25,046,628
6,800,000 UBS AG/London, 3 Mo. LIBOR + 0.48% (a) (b)...................... 0.73% 12/01/20 6,800,629
11,482,000 UBS AG/London (b)............................................... 1.75% 04/21/22 11,690,421
15,681,000 UBS Group AG, 3 Mo. LIBOR + 1.53% (a) (b)....................... 1.74% 02/01/22 15,944,595
5,800,000 UBS Group AG (b) (c)............................................ 1.01% 07/30/24 5,825,560
6,000,000 UBS Group Funding Switzerland AG, 3 Mo. LIBOR +
1.78% (a) (b)................................................ 2.00% 04/14/21 6,045,012
8,261,000 Westpac Banking Corp., 3 Mo. LIBOR + 0.34% (a).................. 0.55% 01/25/21 8,266,607
8,275,000 Westpac Banking Corp............................................ 2.65% 01/25/21 8,320,703
5,000,000 Westpac Banking Corp., 3 Mo. LIBOR + 0.71% (a).................. 0.94% 06/28/22 5,046,710
7,000,000 Westpac Banking Corp., 3 Mo. LIBOR + 0.39% (a).................. 0.61% 01/13/23 7,037,284
----------------
689,558,944
----------------
BEVERAGES -- 0.1%
3,400,000 Heineken N.V. (b)............................................... 2.75% 04/01/23 3,560,360
3,561,000 Pernod Ricard S.A. (b).......................................... 5.75% 04/07/21 3,640,993
----------------
7,201,353
----------------
CHEMICALS -- 0.1%
5,575,000 Nutrien Ltd..................................................... 1.90% 05/13/23 5,755,489
----------------
DIVERSIFIED FINANCIAL SERVICES -- 0.1%
5,000,000 AerCap Ireland Capital DAC / AerCap Global Aviation
Trust........................................................ 4.50% 05/15/21 5,089,261
----------------
HEALTH CARE PRODUCTS -- 0.3%
14,880,000 DH Europe Finance II Sarl....................................... 2.05% 11/15/22 15,356,947
----------------
MISCELLANEOUS MANUFACTURING -- 0.2%
9,200,000 Siemens Financieringsmaatschappij N.V., 3 Mo. LIBOR +
0.61% (a) (b)................................................ 0.85% 03/16/22 9,257,137
----------------
OIL & GAS -- 0.7%
10,000,000 BP Capital Markets PLC, 3 Mo. LIBOR + 0.25% (a)................. 0.51% 11/24/20 10,002,158
2,000,000 BP Capital Markets PLC, 3 Mo. LIBOR + 0.87% (a)................. 1.11% 09/16/21 2,012,272
12,466,000 BP Capital Markets PLC.......................................... 2.50% 11/06/22 12,976,840
2,730,000 Canadian Natural Resources Ltd.................................. 3.45% 11/15/21 2,788,424
6,909,000 Suncor Energy, Inc.............................................. 2.80% 05/15/23 7,224,308
----------------
35,004,002
----------------
PHARMACEUTICALS -- 1.0%
13,475,000 AstraZeneca PLC................................................. 2.38% 11/16/20 13,485,989
19,937,000 Mylan N.V....................................................... 3.15% 06/15/21 20,226,842
13,406,000 Shire Acquisitions Investments Ireland DAC...................... 2.40% 09/23/21 13,624,294
2,647,000 Takeda Pharmaceutical Co. Ltd................................... 4.00% 11/26/21 2,738,690
----------------
50,075,815
----------------
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
SEMICONDUCTORS -- 0.2%
$ 8,530,000 Broadcom Corp. / Broadcom Cayman Finance Ltd.................... 2.65% 01/15/23 $ 8,874,655
----------------
TELECOMMUNICATIONS -- 0.3%
15,000,000 Telefonica Emisiones S.A........................................ 5.46% 02/16/21 15,212,944
----------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................................... 851,936,422
(Cost $848,381,640) ----------------
ASSET-BACKED SECURITIES -- 12.0%
American Credit Acceptance Receivables Trust
12,796,388 Series 2020-3, Class A (b)................................... 0.62% 10/13/23 12,803,195
25,000,000 Series 2020-4, Class A (b)................................... 0.53% 03/13/24 25,007,383
Ameriquest Mortgage Securities, Inc.
3,794 Series 2004-R9, Class M2, 1 Mo. LIBOR + 0.98% (a)............ 1.12% 10/25/34 3,799
Avis Budget Rental Car Funding AESOP LLC
4,146,667 Series 2015-2A, Class A (b).................................. 2.63% 12/20/21 4,153,651
15,815,000 Series 2016-1A, Class A (b).................................. 2.99% 06/20/22 15,953,755
8,060,000 Series 2016-2A, Class A (b).................................. 2.72% 11/20/22 8,168,568
BMW Vehicle Lease Trust
2,432,375 Series 2018-1, Class A3...................................... 3.26% 07/20/21 2,441,399
BMW Vehicle Owner Trust
552,307 Series 2018-A, Class A3...................................... 2.35% 04/25/22 554,570
California Republic Auto Receivables Trust
313,054 Series 2017-1, Class A4...................................... 2.28% 06/15/22 313,773
Canadian Pacer Auto Receivables Trust
2,413,391 Series 2018-1A, Class A3 (b)................................. 3.00% 11/19/21 2,420,996
3,287,241 Series 2019-1A, Class A2 (b)................................. 2.78% 03/21/22 3,299,402
Carmax Auto Owner Trust
327,008 Series 2017-3, Class A3...................................... 1.97% 04/15/22 328,013
15,000,000 Series 2020-3, Class A2A..................................... 0.49% 06/15/23 15,022,457
Carvana Auto Receivables Trust
2,023,104 Series 2019-4A, Class A2 (b)................................. 2.20% 07/15/22 2,029,703
Countrywide Asset-Backed Certificates
1,434,406 Series 2004-SD4, Class M1, 1 Mo. LIBOR +
0.75% (a) (b)................................................ 0.90% 12/25/34 1,436,011
Dell Equipment Finance Trust
887,159 Series 2019-2, Class A2 (b).................................. 1.95% 12/22/21 893,669
23,750,000 Series 2020-2, Class A2 (b).................................. 0.47% 10/24/22 23,800,070
DT Auto Owner Trust
14,866,898 Series 2020-3A, Class A (b).................................. 0.54% 04/15/24 14,879,348
Element Rail Leasing I LLC
669,736 Series 2014-1A, Class A1 (b)................................. 2.30% 04/19/44 671,551
Exeter Automobile Receivables Trust
16,500,000 Series 2020-3A, Class A2..................................... 0.46% 10/17/22 16,505,516
11,000,000 Series 2020-3A, Class A3..................................... 0.52% 10/16/23 11,007,174
Flagship Credit Auto Trust
32,000,000 Series 2020-4, Class A (b)................................... 0.53% 04/15/25 32,038,557
Ford Credit Auto Lease Trust
1,268,162 Series 2018-B, Class A3...................................... 3.19% 12/15/21 1,271,605
7,589,805 Series 2019-A, Class A3...................................... 2.90% 05/15/22 7,651,302
17,450,000 Series 2020-A, Class A3...................................... 1.85% 03/15/23 17,715,366
5,750,000 Series 2020-B, Class A2A..................................... 0.50% 12/15/22 5,757,751
Ford Credit Auto Owner Trust
285,610 Series 2019-A, Class A2A..................................... 2.78% 02/15/22 286,294
8,185,382 Series 2019-C, Class A2A..................................... 1.88% 07/15/22 8,232,562
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Foursight Capital Automobile Receivables Trust
$ 3,276,686 Series 2019-1, Class A2 (b).................................. 2.58% 03/15/23 $ 3,292,591
13,612,873 Series 2020-1, Class A2 (b).................................. 1.97% 09/15/23 13,737,928
GM Financial Automobile Leasing Trust
75,410 Series 2018-3, Class A3...................................... 3.18% 06/21/21 75,517
8,332,000 Series 2018-3, Class B....................................... 3.48% 07/20/22 8,385,643
5,061,315 Series 2019-1, Class A3...................................... 2.98% 12/20/21 5,095,445
639,000 Series 2019-1, Class B....................................... 3.37% 12/20/22 651,674
GSAA Home Equity Trust
764,278 Series 2005-MTR1, Class A4, 1 Mo. LIBOR +
0.37% (a)................................................. 0.52% 10/25/35 755,916
GTE Auto Receivables Trust
8,917,461 Series 2019-1, Class A2 (b).................................. 2.17% 12/15/22 8,976,855
Honda Auto Receivables Owner Trust
9,417,324 Series 2020-1, Class A2...................................... 1.63% 10/21/22 9,484,745
HPEFS Equipment Trust
11,000,000 Series 2020-1A, Class A2 (b)................................. 1.73% 02/20/30 11,093,225
Hyundai Auto Lease Securitization Trust
1,100,000 Series 2018-B, Class A4 (b).................................. 3.20% 06/15/22 1,104,537
15,250,000 Series 2020-B, Class A3 (b).................................. 0.51% 09/15/23 15,283,407
Mercedes-Benz Auto Lease Trust
10,771,974 Series 2019-B, Class A2...................................... 2.01% 12/15/21 10,805,919
15,000,000 Series 2019-B, Class A3...................................... 2.00% 10/17/22 15,218,856
Mill City Mortgage Loan Trust
2,468,767 Series 2016-1, Class A1 (b).................................. 2.50% 04/25/57 2,495,851
Nationstar Home Equity Loan Trust
1,604,768 Series 2006-B, Class AV4, 1 Mo. LIBOR + 0.28% (a)............ 0.43% 09/25/36 1,599,801
Nissan Auto Lease Trust
2,768,005 Series 2018-A, Class A3...................................... 3.25% 09/15/21 2,776,987
OSCAR US Funding Trust IX LLC
4,879,501 Series 2018-2A, Class A3 (b)................................. 3.39% 09/12/22 4,933,472
6,130,000 Series 2018-2A, Class A4 (b)................................. 3.63% 09/10/25 6,413,376
OSCAR US Funding Trust V........................................
9,748,548 Series 2016-2A, Class A4 (b)................................. 2.99% 12/15/23 9,819,835
OSCAR US Funding Trust VI LLC
5,656,974 Series 2017-1A, Class A4 (b)................................. 3.30% 05/10/24 5,732,913
OSCAR US Funding Trust VII LLC
164,362 Series 2017-2A, Class A3 (b)................................. 2.45% 12/10/21 164,543
3,580,000 Series 2017-2A, Class A4 (b)................................. 2.76% 12/10/24 3,639,595
OSCAR US Funding Trust VIII LLC
8,015,749 Series 2018-1A, Class A3 (b)................................. 3.23% 05/10/22 8,069,608
3,050,000 Series 2018-1A, Class A4 (b)................................. 3.50% 05/12/25 3,159,281
OSCAR US Funding X LLC
2,452,454 Series 2019-1A, Class A2 (b)................................. 3.10% 04/11/22 2,467,452
3,190,000 Series 2019-1A, Class A3 (b)................................. 3.18% 05/10/23 3,268,339
OSCAR US Funding XI LLC
10,483,795 Series 2019-2A, Class A2 (b)................................. 2.49% 08/10/22 10,565,997
7,600,000 Series 2019-2A, Class A3 (b)................................. 2.59% 09/11/23 7,810,953
Santander Consumer Auto Receivables Trust
1,187,216 Series 2020-AA, Class A (b).................................. 1.37% 10/15/24 1,198,592
10,500,000 Series 2020-BA, Class A3 (b)................................. 0.46% 08/15/24 10,509,914
Santander Drive Auto Receivables Trust
11,000,000 Series 2020-3, Class A2...................................... 0.46% 09/15/23 11,011,202
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Santander Retail Auto Lease Trust
$ 7,630,000 Series 2019-C, Class A4 (b).................................. 1.93% 11/20/23 $ 7,816,816
Securitized Term Auto Receivables Trust
10,585,056 Series 2017-2A, Class A4 (b)................................. 2.29% 03/25/22 10,625,963
491,148 Series 2018-1A, Class A3 (b)................................. 3.07% 01/25/22 493,883
1,249,230 Series 2018-2A, Class A3 (b)................................. 3.33% 08/25/22 1,263,251
3,900,222 Series 2019-1A, Class A3 (b)................................. 2.99% 02/27/23 3,968,557
Sierra Timeshare Receivables Funding LLC
3,646,710 Series 2016-3A, Class A (b).................................. 2.43% 10/20/33 3,668,029
Towd Point Mortgage Trust
12,115 Series 2015-1, Class AES (b)................................. 3.00% 10/25/53 12,107
260,647 Series 2015-2, Class 1A12 (b)................................ 2.75% 11/25/60 263,651
875,720 Series 2015-4, Class A1B (b)................................. 2.75% 04/25/55 880,753
12,881,845 Series 2015-5, Class A1B (b)................................. 2.75% 05/25/55 13,008,538
15,845,743 Series 2015-6, Class A1B (b)................................. 2.75% 04/25/55 16,140,565
1,914,162 Series 2016-1, Class A1B (b)................................. 2.75% 02/25/55 1,944,765
9,284,959 Series 2016-2, Class A1 (b).................................. 3.00% 08/25/55 9,554,262
2,803,423 Series 2016-3, Class A1 (b).................................. 2.25% 04/25/56 2,840,871
Verizon Owner Trust
2,750,000 Series 2018-A, Class A1A..................................... 3.23% 04/20/23 2,789,937
9,420,726 Series 2018-1A, Class A1A (b)................................ 2.82% 09/20/22 9,491,379
11,460,000 Series 2019-C, Class A1A..................................... 1.94% 04/22/24 11,729,269
29,500,000 Series 2020-B, Class A....................................... 0.47% 02/20/25 29,559,428
Westlake Automobile Receivables Trust
14,708,858 Series 2020-1A, Class A2 (b)................................. 1.44% 09/15/23 14,810,506
World Omni Auto Receivables Trust
9,499,000 Series 2019-B, Class A3...................................... 2.59% 07/15/24 9,692,992
15,000,000 Series 2020-C, Class A3...................................... 0.48% 11/17/25 15,032,469
World Omni Automobile Lease Securitization Trust
2,092,028 Series 2019-A, Class A2...................................... 2.89% 11/15/21 2,098,721
World Omni Select Auto Trust
13,500,000 Series 2020-A, Class A2...................................... 0.47% 06/17/24 13,514,488
7,000,000 Series 2020-A, Class A3...................................... 0.55% 07/15/25 7,016,074
----------------
TOTAL ASSET-BACKED SECURITIES................................................................ 622,464,683
(Cost $620,287,210) ----------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 4.4%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.6%
Federal Home Loan Mortgage Corporation
1,317,311 Series 2003-2723, Class KN................................... 5.00% 12/15/23 1,371,036
1,933,365 Series 2004-2783, Class YB................................... 5.00% 04/15/24 2,017,802
514 Series 2010-3755, Class AJ................................... 2.00% 11/15/20 514
512 Series 2010-3766, Class HE................................... 3.00% 11/15/20 512
535 Series 2010-3773, Class GK................................... 2.50% 12/15/20 535
46,588 Series 2011-3790, Class AP................................... 4.50% 01/15/37 46,806
1,270,690 Series 2012-4002, Class MA................................... 2.00% 01/15/39 1,273,518
35,930 Series 2012-4011, Class KM................................... 2.00% 03/15/22 36,122
1,759,810 Series 2013-4199, Class YV................................... 3.50% 05/15/26 1,795,880
1,278,409 Series 2014-4387, Class DE................................... 2.00% 01/15/32 1,303,926
9,459,477 Series 2018-4821, Class BC................................... 3.00% 12/15/44 9,610,051
Federal National Mortgage Association
51 Series 2008-59, Class KB..................................... 4.50% 07/25/23 51
6,484 Series 2009-14, Class EB..................................... 4.50% 03/25/24 6,671
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 5,019 Series 2009-52, Class AJ..................................... 4.00% 07/25/24 $ 5,150
1,602 Series 2010-145, Class MA.................................... 2.00% 12/25/20 1,601
841 Series 2011-13, Class AD..................................... 2.00% 07/25/21 841
1,960 Series 2011-15, Class HT..................................... 5.50% 03/25/26 1,980
10,414 Series 2011-60, Class UC..................................... 2.50% 09/25/39 10,415
3,585 Series 2011-71, Class KC..................................... 1.75% 08/25/21 3,588
7,913 Series 2011-86, Class DC..................................... 2.00% 09/25/21 7,930
3,054,849 Series 2012-6, Class E....................................... 3.00% 05/25/37 3,085,908
230,994 Series 2012-103, Class LE.................................... 1.75% 05/25/39 230,938
1,776,365 Series 2013-1, Class KC...................................... 2.00% 07/25/40 1,776,299
830,530 Series 2013-73, Class A...................................... 1.50% 06/25/30 830,203
5,914,853 Series 2013-74, Class EL..................................... 3.00% 04/25/41 6,121,886
1,756,183 Series 2013-74, Class HA..................................... 3.00% 10/25/37 1,769,228
5,450,625 Series 2014-20, Class NA..................................... 3.00% 06/25/33 5,722,389
5,677,741 Series 2015-28, Class GC..................................... 2.50% 06/25/34 5,870,274
Government National Mortgage Association
565,152 Series 2018-89, Class A...................................... 3.50% 06/20/39 568,132
25,116,521 Series 2020-144, Class GP.................................... 1.50% 09/20/50 25,595,468
14,909,811 Series 2020-144, Class LP.................................... 1.55% 09/20/50 15,211,123
----------------
84,276,777
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 2.7%
Federal Home Loan Mortgage Corporation Multifamily
Structured Pass Through Certificates
1,648,319 Series 2011-K011, Class A2................................... 4.08% 11/25/20 1,648,056
11,486,013 Series 2011-K013, Class A2................................... 3.97% 01/25/21 11,525,109
7,428,412 Series 2013-K025, Class A1................................... 1.88% 04/25/22 7,472,695
6,361,652 Series 2013-K027, Class A1................................... 1.79% 09/25/22 6,430,294
1,021,958 Series 2013-K029, Class A1................................... 2.84% 10/25/22 1,039,252
6,282,449 Series 2013-K032, Class A1................................... 3.02% 02/25/23 6,463,447
7,114,165 Series 2013-K034, Class A1................................... 2.67% 02/25/23 7,295,888
6,578,472 Series 2013-KSMC, Class A1................................... 1.95% 01/25/23 6,697,058
4,959,328 Series 2014-K036, Class A1................................... 2.78% 04/25/23 5,110,097
18,788,329 Series 2014-K715, Class A2................................... 2.86% 01/25/21 18,822,730
4,217,787 Series 2014-K716, Class A2................................... 3.13% 06/25/21 4,262,523
2,277,155 Series 2015-K718, Class A1................................... 2.38% 09/25/21 2,296,423
9,577,278 Series 2015-K720, Class A1................................... 2.32% 11/25/21 9,688,430
6,866,751 Series 2017-K727, Class A1................................... 2.63% 10/25/23 7,019,819
FREMF Mortgage Trust
3,822,000 Series 2011-K14, Class B (b) (d)............................. 5.18% 02/25/47 3,887,495
8,617,000 Series 2011-KAIV, Class B (b)................................ 4.94% 06/25/46 8,793,328
23,047,000 Series 2012-K17, Class B (b) (d)............................. 4.32% 12/25/44 23,869,010
8,195,000 Series 2014-K715, Class B (b) (d)............................ 4.00% 02/25/46 8,223,034
Government National Mortgage Association
5,633 Series 2014-28, Class A...................................... 2.00% 01/16/46 5,648
----------------
140,550,336
----------------
PASS-THROUGH SECURITIES -- 0.1%
Federal Home Loan Mortgage Corporation
103 Pool G11820.................................................. 5.50% 12/01/20 103
30 Pool G11966.................................................. 5.50% 11/01/20 30
</TABLE>
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 869 Pool G12255.................................................. 5.50% 07/01/21 $ 876
32 Pool G12673.................................................. 5.00% 09/01/21 32
10,765 Pool G13204.................................................. 6.00% 11/01/22 10,929
52 Pool G13761.................................................. 5.50% 12/01/20 52
471 Pool G13812.................................................. 5.00% 12/01/20 473
27 Pool G14030.................................................. 4.50% 12/01/20 27
4,404 Pool G14035.................................................. 5.50% 12/01/21 4,424
11 Pool G14187.................................................. 5.50% 12/01/20 11
103,360 Pool G15435.................................................. 5.00% 11/01/24 109,095
17,044 Pool G15821.................................................. 5.00% 07/01/25 17,990
46,062 Pool G15874.................................................. 5.00% 06/01/26 48,618
Federal National Mortgage Association
5 Pool 745238.................................................. 6.00% 12/01/20 5
2,598 Pool 745735.................................................. 5.00% 03/01/21 2,742
60 Pool 745749.................................................. 5.50% 03/01/21 60
23,543 Pool 745832.................................................. 6.00% 04/01/21 23,612
29 Pool 844915.................................................. 4.50% 11/01/20 29
598 Pool 847919.................................................. 5.50% 11/01/20 597
193 Pool 888932.................................................. 4.50% 11/01/22 202
1 Pool 889191.................................................. 4.50% 04/01/21 1
13 Pool 889531.................................................. 4.50% 05/01/22 13
34 Pool 889847.................................................. 4.50% 04/01/21 36
15,609 Pool 890403.................................................. 6.00% 05/01/23 15,748
137,206 Pool 901931.................................................. 6.00% 10/01/21 139,117
108,414 Pool 962078.................................................. 4.50% 03/01/23 113,677
97 Pool 995158.................................................. 4.50% 12/01/20 98
42 Pool 995886.................................................. 6.00% 04/01/21 43
7,096 Pool AD0285.................................................. 5.00% 09/01/22 7,488
645 Pool AD0402.................................................. 5.00% 02/01/23 680
2,587 Pool AE0237.................................................. 5.50% 11/01/23 2,601
4,786 Pool AE0314.................................................. 5.00% 08/01/21 5,051
26 Pool AE0792.................................................. 5.00% 12/01/20 27
18,050 Pool AE0812.................................................. 5.00% 07/01/25 19,049
92,696 Pool AL5764.................................................. 5.00% 09/01/25 97,826
91,895 Pool AL5812.................................................. 5.50% 05/01/25 93,687
37,973 Pool AL6212.................................................. 4.50% 01/01/27 39,816
107,432 Pool AL6798.................................................. 5.00% 09/01/25 113,377
277 Pool AL8539.................................................. 4.50% 01/01/27 290
494,622 Pool BM1299.................................................. 5.00% 03/01/27 521,993
5,670 Pool MA0772.................................................. 4.00% 06/01/21 6,011
244,260 Pool MA1030.................................................. 3.00% 04/01/22 255,596
Government National Mortgage Association
19,628 Pool 783524.................................................. 5.00% 09/15/24 20,702
----------------
1,672,834
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES................................... 226,499,947
(Cost $226,492,758) ----------------
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 1.3%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.3%
CIM Trust
$ 10,125,775 Series 2019-INV1, Class A2, 1 Mo. LIBOR +
1.00% (a) (b)............................................. 1.15% 02/25/49 $ 10,143,492
3,589,094 Series 2019-INV2, Class A11, 1 Mo. LIBOR +
0.95% (a) (b)............................................. 1.10% 05/25/49 3,595,363
18,075,411 Series 2019-INV3, Class A11, 1 Mo. LIBOR +
1.00% (a) (b)............................................. 1.10% 08/25/49 18,106,891
JP Morgan Mortgage Trust
14,113,027 Series 2019-7, Class A11, 1 Mo. LIBOR +
0.90% (a) (b)............................................. 1.05% 02/25/50 14,129,223
1,131,463 Series 2019-8, Class A11, 1 Mo. LIBOR +
0.85% (a) (b)............................................. 1.00% 03/25/50 1,132,778
Merrill Lynch Mortgage Investors Trust
729,623 Series 2005-A6, Class 2A3, 1 Mo. LIBOR +
0.38% (a)................................................. 0.53% 08/25/35 731,777
OBX Trust
4,854,228 Series 2019-EXP3, Class 2A1A, 1 Mo. LIBOR +
0.90% (a) (b)............................................. 1.05% 10/25/59 4,867,292
7,560,251 Series 2020-INV1, Class A11, 1 Mo. LIBOR +
0.90% (a) (b)............................................. 1.05% 12/25/49 7,580,532
Sequoia Mortgage Trust
73,782 Series 2014-3, Class A14 (b)................................. 3.00% 10/25/44 73,903
WinWater Mortgage Loan Trust
7,026,112 Series 2015-5, Class A5 (b).................................. 3.50% 08/20/45 7,060,141
----------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................. 67,421,392
(Cost $67,471,871) ----------------
U.S. GOVERNMENT NOTES -- 0.8%
40,000,000 U.S. Treasury Note.............................................. 1.50% 11/30/21 40,586,719
----------------
TOTAL U.S. GOVERNMENT NOTES.................................................................. 40,586,719
(Cost $39,966,696) ----------------
CERTIFICATES OF DEPOSIT -- 0.3%
BANKS -- 0.3%
15,000,000 Nordea Bank Abp, 3 Mo. LIBOR + 0.32% (a)........................ 0.59% 11/19/21 15,043,323
----------------
TOTAL CERTIFICATES OF DEPOSIT................................................................ 15,043,323
(Cost $15,000,000) ----------------
U.S. TREASURY BILLS -- 0.3%
15,000,000 U.S. Treasury Bill............................................. (e) 04/22/21 14,993,457
----------------
TOTAL U.S. TREASURY BILLS.................................................................... 14,993,457
(Cost $14,990,285) ----------------
TOTAL INVESTMENTS -- 100.6%.................................................................. 5,197,788,211
(Cost $5,182,559,340) (f) ----------------
NET OTHER ASSETS AND LIABILITIES -- (0.6)%................................................... (29,005,294)
----------------
NET ASSETS -- 100.0%......................................................................... $ 5,168,782,917
================
</TABLE>
Page 26 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
-----------------------------
(a) Floating or variable rate security.
(b) 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, 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, 2020, securities noted as such
amounted to $1,203,382,656 or 23.3% of net assets.
(c) Fixed-to-floating security. The interest rate shown reflects the fixed
rate in effect at October 31, 2020. At a predetermined date, the fixed
rate will change to a floating rate.
(d) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
(e) Zero coupon security.
(f) Aggregate cost for federal income tax purposes is $5,182,699,520. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$16,236,399 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$1,147,708. The net unrealized appreciation was $15,088,691. The amounts
presented are inclusive of derivative contracts.
LIBOR - London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Corporate Bonds and Notes*......................... $2,082,032,560 $ -- $2,082,032,560 $ --
Commercial Paper*.................................. 1,276,809,708 -- 1,276,809,708 --
Foreign Corporate Bonds and Notes*................. 851,936,422 -- 851,936,422 --
Asset-Backed Securities............................ 622,464,683 -- 622,464,683 --
U.S. Government Agency Mortgage-Backed
Securities...................................... 226,499,947 -- 226,499,947 --
Mortgage-Backed Securities......................... 67,421,392 -- 67,421,392 --
U.S. Government Notes.............................. 40,586,719 -- 40,586,719 --
Certificates of Deposit*........................... 15,043,323 -- 15,043,323 --
U.S. Treasury Bills................................ 14,993,457 -- 14,993,457 --
-------------- -------------- -------------- --------------
Total Investments.................................. $5,197,788,211 $ -- $5,197,788,211 $ --
============== ============== ============== ==============
</TABLE>
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 27
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $5,197,788,211
Cash...................................................................... 1,905,182
Interest receivable....................................................... 14,729,500
--------------
Total Assets........................................................... 5,214,422,893
--------------
LIABILITIES:
Payables:
Investment securities purchased ....................................... 41,541,019
Distributions to shareholders.......................................... 3,013,490
Investment advisory fees............................................... 1,085,467
--------------
Total Liabilities...................................................... 45,639,976
--------------
NET ASSETS................................................................ $5,168,782,917
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $5,169,321,663
Par value................................................................. 860,997
Accumulated distributable earnings (loss)................................. (1,399,743)
--------------
NET ASSETS................................................................ $5,168,782,917
==============
NET ASSET VALUE, per share................................................ $ 60.03
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)............................................. 86,099,724
==============
Investments, at cost...................................................... $5,182,559,340
==============
</TABLE>
Page 28 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest.................................................................. $ 89,555,675
--------------
Total investment income................................................ 89,555,675
--------------
EXPENSES:
Investment advisory fees.................................................. 22,493,150
--------------
Total expenses......................................................... 22,493,150
Less fees waived by the investment advisor............................. (3,485,866)
--------------
Net expenses........................................................... 19,007,284
--------------
NET INVESTMENT INCOME (LOSS).............................................. 70,548,391
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments................................... (13,118,451)
Net change in unrealized appreciation (depreciation) on investments....... 5,207,190
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (7,911,261)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 62,637,130
==============
</TABLE>
See Notes to Financial Statements Page 29
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2020 10/31/2019
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 70,548,391 $ 106,098,351
Net realized gain (loss).................................................. (13,118,451) (719,958)
Net change in unrealized appreciation (depreciation)...................... 5,207,190 10,123,036
-------------- --------------
Net increase (decrease) in net assets resulting from operations........... 62,637,130 115,501,429
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (71,207,363) (105,441,956)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 1,187,006,127 2,558,526,535
Cost of shares redeemed................................................... (1,075,402,505) (573,290,488)
-------------- --------------
Net increase (decrease) in net assets resulting from shareholder
transactions........................................................... 111,603,622 1,985,236,047
-------------- --------------
Total increase (decrease) in net assets................................... 103,033,389 1,995,295,520
NET ASSETS:
Beginning of period....................................................... 5,065,749,528 3,070,454,008
-------------- --------------
End of period............................................................. $5,168,782,917 $5,065,749,528
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 84,299,724 51,199,724
Shares sold............................................................... 19,850,000 42,650,000
Shares redeemed........................................................... (18,050,000) (9,550,000)
-------------- --------------
Shares outstanding, end of period......................................... 86,099,724 84,299,724
============== ==============
</TABLE>
Page 30 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2020 2019 2018 2017 2016
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 60.09 $ 59.97 $ 60.02 $ 59.93 $ 59.94
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.85 1.48 1.15 0.76 0.47
Net realized and unrealized gain (loss)................. (0.05) 0.11 (0.01) 0.12 0.09
---------- ---------- ---------- ---------- ----------
Total from investment operations........................ 0.80 1.59 1.14 0.88 0.56
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................... (0.86) (1.47) (1.19) (0.79) (0.57)
Return of capital....................................... -- -- (0.00)(a) -- --
---------- ---------- ---------- ---------- ----------
Total distributions..................................... (0.86) (1.47) (1.19) (0.79) (0.57)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......................... $ 60.03 $ 60.09 $ 59.97 $ 60.02 $ 59.93
========== ========== ========== ========== ==========
TOTAL RETURN (b)........................................ 1.34% 2.68% 1.92% 1.48% 0.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................... $5,168,783 $5,065,750 $3,070,454 $1,158,324 $ 458,413
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets........... 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of net expenses to average net assets............. 0.38% 0.39% 0.33% 0.25% 0.25%
Ratio of net investment income (loss) to average
net assets........................................... 1.41% 2.47% 2.04% 1.33% 1.06%
Portfolio turnover rate (c)............................. 73% 73% 45% 56% 115%
</TABLE>
(a) Amount represents less than $0.01 per share.
(b) 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. The total returns would have been lower if certain
fees had not been waived by the investment advisor.
(c) 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 Page 31
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Enhanced Short Maturity ETF (the "Fund"), a diversified
series of the Trust, which trades under the ticker "FTSM" on The Nasdaq Stock
Market LLC ("Nasdaq"). Unlike conventional mutual funds, the Fund issues and
redeems shares on a continuous basis, at net asset value ("NAV"), only in large
specified blocks consisting of 50,000 shares called a "Creation Unit." Creation
Units are generally issued and redeemed for cash and, in certain circumstances,
in-kind for securities in which the Fund invests, and only to and from
broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's
investment objective is to seek current income, consistent with preservation of
capital and daily liquidity. Under normal market conditions, the Fund intends to
achieve its investment objective by investing at least 80% of its net assets in
a portfolio of U.S. dollar-denominated fixed- and variable-rate debt securities,
including securities issued or guaranteed by the U.S. government or its
agencies, instrumentalities or U.S. government-sponsored entities, residential
and commercial mortgage-backed securities, asset-backed securities, U.S.
corporate bonds, fixed income securities issued by non-U.S. corporations and
governments, municipal obligations, privately issued securities and other debt
securities bearing fixed or floating interest rates. The Fund may also invest in
money market securities. The Fund may invest in investment companies, such as
ETFs, that invest primarily in debt securities. The Fund intends to limit its
investments in privately-issued, non-agency sponsored mortgage- and asset-backed
securities to 20% of its net assets. The Fund may also invest up to 20% of its
net assets in floating rate loans representing amounts borrowed by companies or
other entities from banks and other lenders. A significant portion of these
loans may be rated below investment grade or unrated. Floating rate loans held
by the Fund may be senior or subordinate obligations of the borrower and may or
may not be secured by collateral. Under normal market conditions, the Fund's
average duration is expected to be less than one year and the average maturity
of the Fund's portfolio is expected to be less than three years. 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 ("FASB")
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.
A. PORTFOLIO VALUATION
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 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 adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. 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, U.S. government securities,
mortgage-backed securities, asset-backed securities, certificates of
deposit and other debt securities are fair valued on the basis of
valuations provided by dealers who make markets in such securities or by a
third-party pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
Page 32
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Commercial paper is 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 Trust's Board of Trustees or its
delegate, 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 fundamental business data relating to the borrower/issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based
on the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the borrower/issuer, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) 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);
11) 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);
12) the borrower's/issuer's competitive position within the
industry;
13) the borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
14) 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:
o 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.
Page 33
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020
o 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.
o 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, 2020, 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.
In July 2017, the Financial Conduct Authority ("FCA") announced that it will no
longer persuade or compel banks to submit rates for the calculations of the
London Interbank Offered Rates ("LIBOR") after 2021. Further, the FCA has
subsequently stated, as recently as March 2020, that the central assumption
continues to be that firms should not rely on LIBOR being published after the
end of 2021.
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018.
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
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, 2020 and 2019 was as follows:
Distributions paid from: 2020 2019
Ordinary income................................ $ 77,424,693 $ 96,211,136
Capital gains.................................. -- --
Return of capital.............................. -- --
Page 34
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020
As of October 31, 2020, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income.................. $ (2,577)
Accumulated capital and other gain (loss)...... (16,485,857)
Net unrealized appreciation (depreciation)..... 15,088,691
D. INCOME TAXES
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 2017,
2018, 2019, and 2020 remain open to federal and state audit. As of October 31,
2020, 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, 2020, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $16,485,857.
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, 2020, 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. For the fiscal year ended October 31, 2020,
there were no tax adjustments made to accumulated distributable earnings (loss)
accounts due to differences between book and tax treatments.
E. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
F. NEW ACCOUNTING PRONOUNCEMENT
On March 30, 2017, the FASB issued Accounting Standards Update ("ASU") 2017-08
"Premium Amortization on Purchased Callable Debt Securities", which amends the
amortization period for certain purchased callable debt securities held at a
premium by shortening such period to the earliest call date. The new guidance
requires an entity to amortize the premium on a callable debt security within
its scope to the earliest call date, unless the guidance for considering
estimated prepayments is applied. If the call option is not exercised at the
earliest call date, the yield is reset to the effective yield using the payment
terms of the security. If the security has more than one call date and the
premium was amortized to a call price greater than the next call price, any
excess of the amortized cost basis over the amount repayable at the next call
date will be amortized to that date. If there are no other call dates, any
excess of the amortized cost basis over the par amount will be amortized to
maturity. Discounts on purchased callable debt securities will continue to be
amortized to the security's maturity date. The ASU 2017-08 is effective for
public business entities for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. ASU 2017-08 was adopted for
these financial statements and did not have a material impact.
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.
Page 35
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020
Pursuant to the Investment Management Agreement between the Trust and 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 with the exception of those attributable to affiliated funds,
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.
The Fund has agreed to pay First Trust an annual unitary management fee equal to
0.45% of its average daily net assets. Pursuant to two separate contractual
agreements, First Trust has agreed to waive management fees of 0.05% and 0.15%
of average daily net assets until March 1, 2022. The waiver agreement may be
terminated by action of the Trust's Board of Trustees at any time upon 60 days'
written notice by the Trust on behalf of the Fund or by the Fund's investment
advisor only after March 1, 2022. Pursuant to a contractual agreement between
the Trust, on behalf of the Fund, and First Trust, the management fees paid to
First Trust will be reduced by the portion of the management fees earned by
First Trust from the Fund for assets invested in other investment companies
advised by First Trust. This contractual agreement shall continue until the
earlier of (i) its termination at the direction of the Trust's Board of Trustees
or (ii) upon termination of the Fund's management agreement with First Trust;
however, it is expected to remain in place at least until March 1, 2021. First
Trust does not have the right to recover the fees waived that are attributable
to the assets invested in other investment companies advised by First Trust.
During the fiscal year ended October 31, 2020, the Advisor waived fees of
$3,485,866.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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 defined-outcome fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee 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 Lead Independent Trustee and Committee
Chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The costs of purchases of U.S. Government securities and non-U.S. Government
securities, excluding short-term investments, for the fiscal year ended October
31, 2020, were $390,493,452 and $2,327,771,552, respectively. The proceeds from
sales and paydowns of U.S. Government securities and non-U.S. Government
securities, excluding short-term investments, for the fiscal year ended October
31, 2020, were $423,467,474 and $1,987,028,246, respectively.
For the fiscal year ended October 31, 2020, the Fund had no in-kind
transactions.
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may increase or decrease with changes
in the Fund's portfolio. The price for each Creation Unit will equal the daily
NAV per share times the number of shares in a Creation Unit plus the fees
described above and, if applicable, any operational processing and brokerage
costs, transfer fees or stamp taxes. When Creation Units are issued for cash,
the Authorized Participant may also be assessed an amount to cover the cost of
purchasing portfolio securities, including operational processing and brokerage
costs, transfer fees, stamp taxes, and part or all of the spread between the
expected bid and offer side of the market related to such securities.
Page 36
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may increase or decrease with changes in the Fund's
portfolio. When shares are redeemed for cash, the Authorized Participant may
also be assessed an amount to cover other costs, including operational
processing and brokerage costs, transfer fees, stamp taxes and part or all of
the spread between the expected bid and offer side of the market related to
portfolio securities sold in connection with the redemption.
6. DISTRIBUTION PLAN
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 March 31, 2022.
7. INDEMNIFICATION
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.
8. OTHER MATTERS
By operation of law, the Fund now operates as a diversified open-end management
investment company as defined in Section 5(b) of the 1940 Act.
9. SUBSEQUENT EVENTS
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.
Page 37
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Enhanced Short Maturity ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2020, 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, 2020, 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.
BASIS FOR OPINION
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, 2020, 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 22, 2020
We have served as the auditor of one or more First Trust investment companies
since 2001.
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal year ended
October 31, 2020 that were properly designated by the Fund as "interest-related
dividends" or "short-term capital gain dividends," may not be subject to federal
income tax provided that the income was earned directly by such foreign
shareholders.
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended October 31, 2020, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom's
Financial Conduct Authority announced that LIBOR will cease to be available for
use after 2021. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the fund or on certain
instruments in which the fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. Any such effects of the transition
away from LIBOR, as well as other unforeseen effects, could result in losses to
the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19 pandemic may last
for an extended period of time and will continue to impact the economy for the
foreseeable future.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (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 Enhanced Short Maturity ETF (the
"Fund"). The Board approved the continuation of the Agreement for a one-year
period ending June 30, 2021 at a meeting held on June 8, 2020. 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
reasonable 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 May 11, 2020 and June 8, 2020, 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 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 fall-out 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 May
11, 2020, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the May
meeting, counsel to the Independent Trustees, on behalf of the Independent
Trustees, requested certain clarifications and supplements to the materials
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
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 8, 2020 meeting, as well as at the meeting held that day.
The Board considered supplemental information provided by the Advisor on the
operations of the Advisor and the performance of the Fund since the onset of the
COVID-19 pandemic. 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 considered the background and experience of the persons
responsible for the day-to-day management of the Fund's investments. 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 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 May 11, 2020 meeting, described to the Board
the scope of its ongoing investment in additional infrastructure and personnel
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 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 noted that the Advisor had previously agreed to waive a portion of its
unitary fee in an amount equal to 0.05% of the Fund's average daily net assets
until at least March 1, 2021 and to also reduce the unitary fee to the extent of
acquired fund fees and expenses of shares of investment companies advised by the
Advisor that are held by the Fund. The Board received and reviewed information
showing the advisory or unitary 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, after taking
into account the contractual fee waiver, was above the median total (net)
expense ratio of the peer funds in the Expense Group. With respect to the
Expense Group, the Board, at the May 11, 2020 meeting, discussed with Broadridge
its methodology for assembling peer groups and discussed with the Advisor
limitations in creating peer groups for actively-managed ETFs, including
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
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, 2019
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 for the one-, three- and
five-year periods ended December 31, 2019. The Board also noted that the Fund
outperformed the benchmark index for the one-, three- and five-year periods
ended December 31, 2019. The Board noted the Advisor's discussion of the Fund's
performance at the May 11, 2020 meeting.
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
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 and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. 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, 2019 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 fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out 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 noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out 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.
LIQUIDITY RISK MANAGEMENT PROGRAM
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund and each other fund in the First Trust Fund
Complex, other than the closed-end funds, have adopted and implemented a
liquidity risk management program (the "Program") reasonably designed to assess
and manage the funds' liquidity risk, i.e., the risk that a fund could not meet
requests to redeem shares issued by the fund without significant dilution of
remaining investors' interests in the fund. The Board of Trustees of the First
Trust Funds has appointed First Trust Advisors, L.P. (the "Advisor") as the
person designated to administer the Program, and in this capacity the Advisor
performs its duties primarily through the activities and efforts of the First
Trust Liquidity Committee.
Pursuant to the Program, the Liquidity Committee classifies the liquidity of
each fund's portfolio investments into one of the four liquidity categories
specified by Rule 22e-4: highly liquid investments, moderately liquid
investments, less liquid investments and illiquid investments. The Liquidity
Committee determines certain of the inputs for this classification process,
including reasonably anticipated trade sizes and significant investor dilution
thresholds. The Liquidity Committee also determines and periodically reviews a
highly liquid investment minimum for certain funds, monitors the funds' holdings
of assets classified as illiquid investments to seek to ensure they do not
exceed 15% of a fund's net assets and establishes policies and procedures
regarding redemptions in kind.
At the May 11, 2020 meeting of the Board of Trustees, as required by Rule 22e-4
and the Program, the Advisor provided the Board with a written report prepared
by the Advisor that addressed the operation of the Program during the period
from June 1, 2019 (the initial compliance date for certain requirements of Rule
22e-4) through the Liquidity Committee's annual meeting held on March 20, 2020
and assessed the Program's adequacy and effectiveness of implementation during
this period, including the operation of the highly liquid investment minimum for
each fund that is required under the Program to have one, and any material
changes to the Program. Note that because the Fund primarily holds assets that
are highly liquid investments, the Fund has not adopted a highly liquid
investment minimum.
As stated in the written report, during the review period, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor
concluded that each fund's investment strategy is appropriate for an open-end
fund; that the Program operated effectively in all material respects during the
review period; and that the Program is reasonably designed to assess and manage
the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
REMUNERATION
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 Enhanced Short Maturity 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, 2019, the amount of remuneration paid (or to
be paid) by First Trust in respect of the Fund is $7,757,913. This figure is
comprised of $1,486,412 paid (or to be paid) in fixed compensation and
$6,271,501 paid (or to be paid) in variable compensation. There were a total of
19 beneficiaries of the remuneration described above. Those amounts include
$1,032,165 paid (or to be paid) to senior management of First Trust and
$6,725,748 paid (or to be paid) to other employees whose professional activities
have a material impact on the risk profiles of First Trust 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.
Page 44
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 189 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 189 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 189 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 189 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 189 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 45
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 46
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2020 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 47
<PAGE>
This page intentionally left blank.
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Strategic Income
ETF (FDIV)
Annual Report
For the Year Ended
October 31, 2020
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2020
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 14
Statement of Operations...................................................... 15
Statements of Changes in Net Assets.......................................... 16
Financial Highlights......................................................... 17
Notes to Financial Statements................................................ 18
Report of Independent Registered Public Accounting Firm...................... 27
Additional Information....................................................... 28
Board of Trustees and Officers............................................... 34
Privacy Policy............................................................... 36
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or First Trust Global Portfolios Ltd. ("FTGP");
Energy Income Partners, LLC ("EIP"); Stonebridge Advisors LLC ("Stonebridge");
and/or Richard Bernstein Advisors LLC ("RBA") (each, a "Sub-Advisor" and
together, the "Sub-Advisors") and their respective representatives, taking into
account the information currently available to them. Forward-looking statements
include all statements that do not relate solely to current or historical fact.
For example, forward-looking statements include the use of words such as
"anticipate," "estimate," "intend," "expect," "believe," "plan," "may,"
"should," "would" or other words that convey uncertainty of future events or
outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Strategic Income ETF; hereinafter referred to as the
"Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and/or Sub-Advisors and their respective representatives
only as of the date hereof. We undertake no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that 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 investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor and/or Sub-Advisors are just that: informed opinions. They should not be
considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. The material risks of
investing in the Fund are spelled out in the prospectus, the statement of
additional information, and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2020
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Strategic Income ETF (the "Fund"), which contains detailed information about the
Fund for the twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that
my message this year should touch on the tone of the markets and the investing
climate rather than belabor all the news and events that brought us to this
juncture. We all know how tumultuous our lives have become over the past eight
or so months. The phrase "shelter-at-home" says it all. I would rather talk
about why I believe investors should be optimistic about where we could be
headed.
Having said that, allow me to at least acknowledge the two elephants in the
room: the coronavirus ("COVID-19") and the election. In the first 12 days of
November, we learned the following: that we likely have a new president-elect
(Joe Biden), though it may not be official for some time because it is being
contested by President Donald Trump and some of his loyal backers in the
Republican Party citing voter fraud in certain states; that we still do not know
which political party will have control of the Senate due to a couple of
run-offs in Georgia to be held on January 5, 2021; and, that it looks as though
we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either
the end of 2020 or the start of 2021, though that too is not yet official. It
could be a game-changer in the COVID-19 battle. And, we may gain access to
additional vaccines as well. The key to getting the economy back to running on
all cylinders is to fully reopen, and a vaccine is "what the doctor ordered."
With respect to the tone of the markets and investment climate, to say that I am
encouraged about what has transpired in 2020 would be an understatement. Despite
the extraordinary challenges so far this year, the S&P 500(R) Index posted a
total return of 2.77% over the first 10 months of 2020, this despite plunging
33.8% into bear market territory from February 19, 2020 through March 23, 2020,
according to Bloomberg. As impressive as that feat is, the future looks even
brighter. While Bloomberg's consensus earnings growth rate estimate for the S&P
500(R) Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022
estimates were 21.74% and 16.95%, respectively. That is a strong take on the
prospects for a rebound in Corporate America over the next 24 months. One of the
tailwinds that is providing a good deal of support to the economy and markets is
the decision by the Federal Reserve (the "Fed") to keep interest rates
artificially low for as long as need be to meet both its employment and
inflation targets. By keeping rates lower for longer, the Fed is essentially
inviting investors to assume more risk to generate higher returns. Brian
Wesbury, Chief Economist at First Trust, believes that the Fed could need until
2024 to accomplish its goals. That is a lot of runway for investors to
reposition their portfolios, if needed, and a very generous, and perhaps
unprecedented, amount of guidance from the Fed, in our opinion. Those investors
with cash on the sidelines earning next to nothing have options if they choose
to act.
We are encouraged about the prospects for the economy and the markets, but
investors should be prepared to weather some volatility until the COVID-19
pandemic is better contained. As always, we encourage investors to stay the
course!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
The primary investment objective of First Trust Strategic Income ETF (the
"Fund") is to seek risk-adjusted income. The Fund's secondary investment
objective is capital appreciation. The Fund is a multi-manager, multi-strategy
actively managed exchange-traded fund. First Trust Advisors L.P. ("First Trust"
or the "Advisor") serves as the Fund's investment advisor. The Advisor's
Investment Committee determines the Fund's strategic allocation among various
general investment categories and allocates the Fund's assets to portfolio
management teams comprised of personnel of the Advisor and/or a sub-advisor
(each, a "Management Team"), which employ their respective investment
strategies. Shares of the Fund are listed on The Nasdaq Stock Market LLC under
the ticker symbol "FDIV."
The Fund's investment categories are: (i) high yield corporate bonds, commonly
referred to as "junk" bonds, and first lien senior secured floating rate bank
loans; (ii) mortgage-related investments; (iii) preferred securities; (iv)
international sovereign bonds, including securities issued by emerging markets
countries; (v) equity securities of Energy Infrastructure Companies(1), certain
of which are master limited partnerships ("MLPs"); and (vi) dividend paying U.S.
exchange-traded equity securities and depositary receipts. The Management Teams
may utilize a related option overlay strategy and/or derivative instruments in
implementing their respective investment strategies for the Fund. Additionally,
the Management Teams may seek to gain exposure to the Fund's investment
categories directly or through investments in exchange-traded funds. The Advisor
expects that the Fund may at times invest significantly in other exchange-traded
funds, including but not limited to, other exchange-traded funds that are
advised by the Advisor; accordingly, the Fund may operate principally as a "fund
of funds," but will not necessarily operate as such at all times. The Fund seeks
to achieve its objectives by having each Management Team focus on those
securities within its respective investment category. The Fund may add or remove
investment categories or Management Teams at the discretion of the Advisor.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (8/13/14) 5 Years Ended Inception (8/13/14)
10/31/20 10/31/20 to 10/31/20 10/31/20 to 10/31/20
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV -7.19% 3.04% 2.42% 16.15% 16.02%
Market Price -7.16% 3.17% 2.44% 16.86% 16.16%
INDEX PERFORMANCE
Blended Index(2) -5.91% 2.97% 1.94% 15.77% 12.70%
Bloomberg Barclays U.S. Aggregate
Bond Index 6.19% 4.08% 3.72% 22.14% 25.53%
Russell 3000(R) Index 10.15% 11.48% 10.56% 72.21% 86.63%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the period
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of the Fund did
not trade in the secondary market until after the Fund's inception, for the
period from inception to the first day of secondary market trading in shares of
the Fund, the NAV of the Fund is used as a proxy for the secondary market
trading price to calculate market returns. NAV and market returns assume that
all distributions have been reinvested in the Fund at NAV and Market Price,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. 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. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
-----------------------------
(1) Energy Infrastructure Companies are publicly-traded MLPs or limited
liability companies that are taxed as partnerships; entities that control
MLPs, entities that own general partner interests in an MLP, or MLP
affiliates (such as I-shares or I-units); U.S. and Canadian energy yield
corporations ("yieldcos"); pipeline companies; utilities; and other
companies that are involved in operating or providing services in support
of infrastructure assets such as pipeline, power transmission,
terminalling and petroleum and natural gas storage in the petroleum,
natural gas and power generation industries.
(2) The Blended Index is equally weighted to include these six indices: the
Alerian MLP Index, Dow Jones U.S. Select Dividend Index, ICE BofA Fixed
Rate Preferred Securities Index, ICE BofA U.S. High Yield Index, Bloomberg
Barclays EM USD Aggregate Index and Bloomberg Barclays U.S. MBS Index. An
index does not charge management fees or brokerage expenses, and no such
fees or expenses were deducted from the index performance shown. Indices
are unmanaged and an investor cannot invest directly in an index. The
Blended Index returns are calculated by using the monthly return of the
six indices during each period shown above. At the beginning of each month
the six indices are rebalanced to a 16.66 percentage weighting for each
index to account for divergence from the percentage weighting that
occurred during the course of each month. The monthly returns are then
compounded for each period shown above, giving the performance of the
Blended Index for each period shown above.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
-----------------------------------------------------------
% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Exchange-Traded Funds 58.12%
Common Stocks 29.80
Master Limited Partnerships 6.74
U.S. Government Agency Mortgage-
Backed Securities 2.99
Real Estate Investment Trusts 2.30
Asset-Backed Securities 0.03
Mortgage-Backed Securities 0.02
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
First Trust Tactical High Yield ETF 15.16%
First Trust Preferred Securities and
Income ETF 12.33
First Trust Emerging Markets Local
Currency Bond ETF 11.57
First Trust Low Duration Opportunities
ETF 9.07
iShares J.P. Morgan USD Emerging Markets
Bond ETF 4.93
First Trust Institutional Preferred Securities
and Income ETF 4.12
TC PipeLines, L.P. 1.43
Enterprise Products Partners, L.P. 1.32
TC Energy Corp. 1.30
Magellan Midstream Partners, L.P. 1.26
-------
Total 62.49%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 13, 2014 - OCTOBER 31, 2020
First Trust Strategic Blended Bloomberg Barclays U.S. Russell 3000(R)
Income ETF Index Aggregate Bond Index Index
<S> <C> <C> <C> <C>
8/13/14 $10,000 $10,002 $10,003 $10,000
10/31/14 10,177 10,129 10,080 10,371
4/30/15 10,330 10,191 10,288 10,863
10/31/15 9,989 9,735 10,280 10,837
4/30/16 10,436 10,006 10,571 10,844
10/31/16 10,856 10,446 10,731 11,297
4/30/17 11,275 10,981 10,659 12,859
10/31/17 11,442 11,058 10,827 14,006
4/30/18 11,340 11,029 10,625 14,537
10/31/18 11,303 11,093 10,605 14,929
4/30/19 12,100 11,766 11,187 16,379
10/31/19 12,502 11,977 11,826 16,942
4/30/20 11,156 10,915 12,401 16,208
10/31/20 11,604 11,270 12,558 18,662
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 3
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
INVESTMENT ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the First Trust Strategic Income ETF ("FDIV" or the "Fund"). The
following serve as investment sub-advisors (each, a "Sub-Advisor") to the Fund:
First Trust Global Portfolios Ltd. ("FTGP"); Energy Income Partners, LLC
("EIP"); Stonebridge Advisors LLC ("Stonebridge"); and Richard Bernstein
Advisors LLC ("RBA"). The Advisor's Investment Committee determines the Fund's
strategic allocation among various general investment categories and allocates
the Fund's assets to portfolio management teams comprised of personnel of the
Advisor and/or a Sub-Advisor, which employs their respective investment
strategies.
ADVISOR'S INVESTMENT COMMITTEE
ADVISOR'S INVESTMENT COMMITTEE
The Advisor's Investment Committee, which determines the Fund's strategic
allocation among various general investment categories and allocates the Fund's
assets, consists of:
o DANIEL J. LINDQUIST, CHAIRMAN OF THE INVESTMENT COMMITTEE AND MANAGING
DIRECTOR OF FIRST TRUST;
o DAVID G. MCGAREL, CHIEF INVESTMENT OFFICER, CHIEF OPERATING OFFICER AND
MANAGING DIRECTOR OF FIRST TRUST;
o JON C. ERICKSON, SENIOR VICE PRESIDENT OF FIRST TRUST;
o ROGER F. TESTIN, SENIOR VICE PRESIDENT OF FIRST TRUST;
o TODD LARSON, CFA, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST
TRUST;
o JOHN GAMBLA; CAF, FRM, PRM, SENIOR PORTFOLIO MANAGER OF FIRST TRUST;
o ROB A. GUTTSCHOW, CFA, SENIOR PORTFOLIO MANAGER OF FIRST TRUST; AND
o CHRIS A. PETERSON, CFA, SENIOR VICE PRESIDENT OF FIRST TRUST.
ADVISOR PORTFOLIO MANAGERS
o WILLIAM HOUSEY, CFA, SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER OF
FIRST TRUST, LEVERAGED FINANCE TEAM;
o SCOTT D. FRIES, CFA, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST
TRUST, LEVERAGED FINANCE TEAM;
o JEREMIAH CHARLES, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST
TRUST, SECURITIZED PRODUCTS GROUP; AND
o JAMES SNYDER, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST TRUST,
SECURITIZED PRODUCTS GROUP.
SUB-ADVISOR PORTFOLIO MANAGERS
o JAMES J. MURCHIE, FOUNDER, CHIEF EXECUTIVE OFFICER, CO-PORTFOLIO MANAGER
AND PRINCIPAL OF EIP.
o EVA PAO, PORTFOLIO MANAGER AND PRINCIPAL OF EIP.
o JOHN K. TYSSELAND, PORTFOLIO MANAGER AND PRINCIPAL OF EIP.
o DEREK FULTON, CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER OF
FTGP.
o LEONARDO DACOSTA, PORTFOLIO MANAGER OF FTGP.
o ANTHONY BEEVERS, PORTFOLIO MANAGER OF FTGP.
o RICHARD BERNSTEIN, CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER OF
RBA.
o HENRY TIMMONS, CFA, DIRECTOR OF ETFS OF RBA.
o MATTHEW GRISWOLD, CFA, DIRECTOR OF INVESTMENTS OF RBA.
o SCOTT T. FLEMING, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF STONEBRIDGE.
o ROBERT WOLF, SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER OF
STONEBRIDGE.
COMMENTARY
FIRST TRUST STRATEGIC INCOME ETF
The Fund is an actively managed exchange-traded fund. The primary investment
objective of the Fund is to seek risk-adjusted income. The Fund's secondary
investment objective is capital appreciation. There is no assurance that the
Fund's investment objectives will be achieved. The Fund may not be appropriate
for all investors.
MARKET RECAP
Suffice it to say that much has changed with the state of the economy over the
past 12 months. A year ago, a top concern was that U.S. economic growth was
being tempered by the Trump Administration's aggressive use of trade tariffs
against some of the major trading partners of the U.S. The trade tariff program
was enacted in March 2018 with the initial intent of only targeting imported
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
steel and aluminum. The program, however, quickly expanded to include hundreds
of billions of dollars of other imported goods and services. The tariffs are
largely still in place as of November 2020 which means the program has been
operational for some 32 months. Throughout this period, the epicenter of the
trade conflict has clearly been between the U.S. and China. While the goal in
the Trump Administration was to grow the economy at a 3.00% or higher rate,
after his tax reform bill was signed into law in December 2017, from June 30,
2018 (first full quarter of tariffs) through December 31, 2019, real U.S. gross
domestic product ("GDP") averaged just 2.2%, according to data from the Bureau
of Economic Analysis. The tariffs trumped lower tax rates, in our opinion. In
February 2020, the White House admitted that President Donald J. Trump's stance
on trade depressed economic growth and business investment, according to
Bloomberg.
On top of the tariffs, the world was introduced to a new coronavirus in the
first quarter of 2020, known as COVID-19. Ironically, its origin was traced back
to China, the poster country for the Trump Administration's trade war. Since
most people are well aware of the evolution of the virus and its destructive
nature, attention will be given to its impact on economic growth. To put it
bluntly, COVID-19 threw the U.S. economy into recession. Real U.S. GDP growth
came in at an annualized -5.0% and -31.4% in the first and second quarters of
2020, according to the Bureau of Economic Analysis. The good news is the damage
looks like it may be limited to just those two quarters. Thanks in large part to
the trillions of dollars of fiscal and monetary stimulus provided by the U.S.
federal government, economic growth surged back by an annualized 33.1% in the
third quarter of 2020. Americans have learned to adapt to COVID-19, especially
when it comes to retail shopping. Adobe Analytics estimates that online holiday
shopping in 2020 (November and December) will surge 33% year-over-year to a
record $189 billion, according to CNBC. That equates to around two years of
e-commerce growth in just one season. Adobe noted that online sales could exceed
$200 billion if consumers receive another round of government stimulus checks or
if brick-and-mortar stores are forced to shut down due to the spread of
COVID-19. Americans are adept at adapting under pressure, in our opinion. Some
health care experts, such as the World Health Organization, are hoping for a
COVID-19 vaccine to be initially available by year-end, and then on a broader
scale by the midpoint of 2021.
If there is a silver lining from this ordeal it could be the extraordinary level
of guidance offered by the Federal Reserve (the "Fed"), which is likely
unprecedented. In September 2020, the Fed stated that it expects to hold
short-term interest rates near zero until two things happen: (1) the U.S.
unemployment rate is back to normal (around a 4.0% unemployment rate), and (2)
inflation is running at or above 2.0%. Brian Wesbury, Chief Economist at First
Trust Advisors L.P., notes that the Fed does not expect to achieve both goals
until 2024. We believe that one of the Fed's motivations in promoting a
multi-year commitment to a near zero interest rate monetary policy is to
incentivize risk-taking. By holding interest rates low, the Fed is essentially
disincentivizing saving. This suggests the Fed wants individuals to invest their
capital in risk assets and is offering valuable guidance on its monetary policy
to instill confidence in the markets, in our opinion.
PERFORMANCE ANALYSIS/FUND
The Fund generated a net asset value ("NAV") return of -7.19% for the 12-month
period ended October 31, 2020. During the same period, the Blended Index
generated a return of -5.91%. The Blended Index is equally weighted to include
these six indices: the Alerian MLP Index, Dow Jones U.S. Select Dividend Index,
ICE BofA Fixed Rate Preferred Securities Index, ICE BofA U.S. High Yield Index,
Bloomberg Barclays EM USD Aggregate Index and Bloomberg Barclays U.S. MBS Index.
The Fund invests in six investment categories which are: high-yield corporate
bonds and first lien senior secured floating-rate bank loans, mortgage-related
investments, preferred securities, international sovereign bonds, equity
securities of Energy Infrastructure Companies, and dividend-paying U.S.
exchange-traded equity securities and depositary receipts. The Fund may seek
exposure to these investment categories directly or through investment in
exchange-traded funds. The weight assigned to each investment category is
determined on a periodic basis. As of October 31, 2020, the highest-weighted
investment category was the dividend-paying U.S. exchange-traded equity
securities and the lowest-weighted investment category was mortgage-related
investments. The investment categories of mortgage-related investments,
preferred securities, and high-yield corporate bonds and floating-rate bank
loans were the only investment categories that had positive performance for the
one-year period.
The performance for the high-yield corporate bonds and floating-rate bank loans
had a positive impact on the overall performance of the Fund. Specifically
driving the bank loan high-yield bond performance within the Fund was the Fund's
de minimis exposure to the energy industry, and strong performance in the
healthcare industry. Partially offsetting these contributors were the Fund's
allocation and asset selection within the leisure industry.
Mortgage-related investments had the largest positive impact on the overall Fund
performance during the 12-month period ended October 31, 2020. Mortgages
outperformed due to the combination of declining interest rates and spread
tightening associated with the Federal Reserve purchases of the sector. Going
forward, we expect mortgage spreads to continue tightening which will improve
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
outcomes for mortgage investments. We believe that potential for improved
performance within the agency mortgage market is greatest for structure holdings
within the collateral mortgage obligation (CMOs). The portfolio maintains
investments in the CMO sector. In addition, we expect, over the near term, mild
upward pressure on interest rates, but overall that general interest rates will
remain stable and bounded by an accommodated Fed policy, which should minimize
convexity costs and improve mortgage performance. The portfolio maintains a
defensive duration but may increase risk should interest rates rise and mortgage
securities become more attractive.
In spite of volatile conditions in the market, the performance of preferred
securities had a positive impact on the overall performance of the Fund. The
preferred market began the period from a position of strength supported by solid
underlying credit fundamentals and supportive central bank policies prior to the
onset of the global pandemic. The harsh sell-off in the preferred securities
market in response to the pandemic in March 2020 was fairly quickly reversed as
rates dropped across the U.S. Treasury yield curve following the unprecedented
response of global central banks. A consequence of the flattened yield curve was
the outperformance of long duration securities, while floating rate and short
duration securities underperformed. Spread decompression between investment
grade and non-investment grade securities also occurred due to the economic
slowdown. Nonetheless, we remain confident in the outlook for preferred
securities held by the Fund, as issuer credit fundamentals are stable along with
sufficient liquidity and an increase in the availability of favorable security
structures.
The performance of international sovereign bonds had a positive impact on the
overall performance of the Fund. Over the past year, U.S. dollar denominated
emerging market debt has outperformed local currency denominated emerging market
debt primarily as emerging market currencies lagged the risk on rebound seen
since the pandemic volatility witnessed in March. The international sovereign
bond sleeve favored local currency debt over the period due to the deep
undervaluation of emerging market currencies and despite the recent lagged
performance this view is maintained. The weakening trend we have seen developing
in the U.S. Dollar has helped the outlook for emerging market currencies and any
strengthening in these currencies should act as a positive multiplier for local
currency denominated debt going forward.
The performance of the Energy Infrastructure Companies held in the Fund
detracted from the overall performance. Negative sentiment across the entire
energy sector weighed on the pipeline-related master limited partnerships
("MLPs") and C-Corporations more than offsetting the positive contributions from
regulated utilities.
The dividend-paying U.S. exchange-traded equity securities had the largest
negative impact on overall Fund performance. In terms of sectors, performance
was hurt most significantly by securities in the financials sector followed by
utilities, real estate, materials and communication services sectors to a lesser
extent, while it was helped only by industrials. In terms of industries,
detractors were led by exposure to the following: banks, thrifts & mortgage
finance, electric utilities, equity real estate investment trusts ("REITs"),
distributors and diversified telecommunication services. Industry contributors
included exposure to trading companies & distributors, hotels, restaurants &
leisure and machinery. A breakdown of performance by market-cap reveals that all
segments detracted from performance, led by small-cap holdings which dropped in
value more than those held in the large and mid-cap market-segments.
MARKET/FUND OUTLOOK
We believe that income-oriented investors have been given the green light from
the Fed to assume more risk in order to generate higher returns. Here are two
barometers reflecting optimism with respect to Corporate America:
Corporate Earnings/Revenue Growth: Bloomberg's consensus earnings growth rate
estimates for 2021 and 2022 for the S&P 500(R) Index were 22.39% and 17.06%,
respectively, as of October 30, 2020. These growth rates represent a significant
rebound from the -17.70% estimate for 2020. We believe that corporate earnings
determine the direction of stock prices over time. From 1926-2019, the S&P
500(R) Index posted an average annual total return of 10.20%, according to
Morningstar/Ibbotson Associates. The 2021 and 2022 consensus revenue (sales)
growth rate estimates for the S&P 500(R) Index were 7.89% and 6.90%,
respectively, as of October 30, 2020, according to Bloomberg. These too
represent an encouraging turnaround from the -3.49% estimate for 2020.
S&P 500 Index Cash Holdings: In the first quarter of 2020 (most recent quarter
available), preliminary data put S&P 500 Industrials (Old) cash and equivalents
at an all-time high of $1.68 trillion, according to S&P Dow Jones Indices. The
S&P 500(R) Industrials (Old) calculation does not include cash holdings from
Financials, Utilities and Transportation companies. We believe that figure
suggests that S&P 500 companies have a record amount of dry powder that could be
used to either support or increase dividends, buy back stock, pay down debt,
invest in plant and equipment or pursue mergers and acquisitions.
Page 6
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2020 (UNAUDITED)
As a shareholder of First Trust Strategic Income ETF (the "Fund"), you incur two
types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service (12b-1) fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Fund and to compare these costs with the ongoing costs
of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2020.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2020 OCTOBER 31, 2020 PERIOD (a) (b) PERIOD (b) (c)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
Actual $1,000.00 $1,040.20 0.44% $2.26
Hypothetical (5% return before expenses) $1,000.00 $1,022.92 0.44% $2.24
</TABLE>
(a) These expense ratios reflect expense waivers. See Note 3 in the Notes to
Financial Statements.
(b) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(c) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2020
through October 31, 2020), multiplied by 184/366 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
EXCHANGE-TRADED FUNDS -- 56.6%
CAPITAL MARKETS -- 56.6%
198,848 First Trust Emerging Markets Local Currency Bond ETF (a)..................................... $ 6,834,406
125,406 First Trust Institutional Preferred Securities and Income ETF (a)............................ 2,432,876
18,000 First Trust Long Duration Opportunities ETF (a).............................................. 525,330
104,000 First Trust Low Duration Opportunities ETF (a)............................................... 5,357,040
379,838 First Trust Preferred Securities and Income ETF (a).......................................... 7,281,495
189,993 First Trust Tactical High Yield ETF (a)...................................................... 8,954,370
300 iShares 7-10 Year Treasury Bond ETF.......................................................... 36,018
26,482 iShares J.P. Morgan USD Emerging Markets Bond ETF............................................ 2,913,550
---------------
TOTAL EXCHANGE-TRADED FUNDS.................................................................. 34,335,085
(Cost $34,643,212) ---------------
COMMON STOCKS -- 29.0%
AEROSPACE & DEFENSE -- 0.8%
5,786 National Presto Industries, Inc.............................................................. 480,759
---------------
BANKS -- 4.2%
25,526 Associated Banc-Corp......................................................................... 349,451
2,974 City Holding Co.............................................................................. 179,719
5,854 Horizon Bancorp, Inc......................................................................... 72,590
4,935 Independent Bank Corp........................................................................ 282,726
7,417 Independent Bank Group, Inc.................................................................. 382,569
3,542 Park National Corp........................................................................... 324,624
6,244 Prosperity Bancshares, Inc................................................................... 344,107
17,305 Simmons First National Corp., Class A........................................................ 294,012
3,311 Stock Yards Bancorp, Inc..................................................................... 126,546
4,138 Westamerica Bancorporation................................................................... 216,707
---------------
2,573,051
---------------
CHEMICALS -- 0.6%
3,869 International Flavors & Fragrances, Inc...................................................... 397,192
---------------
COMMERCIAL SERVICES & SUPPLIES -- 0.8%
45,208 Kimball International, Inc., Class B......................................................... 465,642
---------------
CONSTRUCTION & ENGINEERING -- 0.2%
1,948 Quanta Services, Inc......................................................................... 121,614
---------------
ELECTRIC UTILITIES -- 7.9%
10,784 Alliant Energy Corp.......................................................................... 596,139
2,773 American Electric Power Co., Inc............................................................. 249,376
1,793 Duke Energy Corp............................................................................. 165,153
1,267 Emera, Inc. (CAD)............................................................................ 50,545
4,824 Evergy, Inc.................................................................................. 266,285
5,085 Eversource Energy............................................................................ 443,768
2,913 Exelon Corp.................................................................................. 116,200
6,383 Fortis, Inc. (CAD)........................................................................... 252,148
7,274 Hawaiian Electric Industries, Inc............................................................ 240,333
6,294 IDACORP, Inc................................................................................. 552,173
3,189 MGE Energy, Inc.............................................................................. 207,349
4,897 NextEra Energy, Inc.......................................................................... 358,509
6,422 Otter Tail Corp.............................................................................. 246,284
3,249 Pinnacle West Capital Corp................................................................... 265,021
6,849 Portland General Electric Co................................................................. 269,166
7,687 PPL Corp..................................................................................... 211,392
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
2,899 Southern (The) Co............................................................................ $ 166,548
2,271 Xcel Energy, Inc............................................................................. 159,038
---------------
4,815,427
---------------
ELECTRICAL EQUIPMENT -- 1.6%
18,755 ABB Ltd., ADR................................................................................ 455,559
3,449 Hubbell, Inc................................................................................. 501,864
---------------
957,423
---------------
GAS UTILITIES -- 2.3%
12,913 AltaGas Ltd. (CAD)........................................................................... 163,702
4,466 Atmos Energy Corp............................................................................ 409,398
1,860 Chesapeake Utilities Corp.................................................................... 180,811
5,838 New Jersey Resources Corp.................................................................... 170,353
6,557 ONE Gas, Inc................................................................................. 452,695
---------------
1,376,959
---------------
IT SERVICES -- 1.7%
3,413 Automatic Data Processing, Inc............................................................... 539,117
5,968 Paychex, Inc................................................................................. 490,868
---------------
1,029,985
---------------
MULTI-UTILITIES -- 3.4%
1,799 ATCO Ltd., Class I (CAD)..................................................................... 50,082
2,171 Canadian Utilities Ltd., Class A (CAD)....................................................... 50,743
846 CMS Energy Corp.............................................................................. 53,577
1,994 Dominion Energy, Inc......................................................................... 160,198
1,810 DTE Energy Co................................................................................ 223,390
10,801 MDU Resources Group, Inc..................................................................... 256,632
7,567 Public Service Enterprise Group, Inc......................................................... 440,021
3,996 Sempra Energy................................................................................ 500,939
3,033 WEC Energy Group, Inc........................................................................ 304,968
---------------
2,040,550
---------------
OIL, GAS & CONSUMABLE FUELS -- 2.6%
7,112 Enbridge, Inc................................................................................ 196,007
9,036 Equitrans Midstream Corp..................................................................... 65,601
6,774 Keyera Corp. (CAD)........................................................................... 96,147
25,127 Kinder Morgan, Inc........................................................................... 299,011
976 ONEOK, Inc................................................................................... 28,304
19,499 TC Energy Corp............................................................................... 769,431
5,190 Williams (The) Cos., Inc..................................................................... 99,596
---------------
1,554,097
---------------
PHARMACEUTICALS -- 0.7%
6,894 Novo Nordisk A/S, ADR........................................................................ 440,458
---------------
THRIFTS & MORTGAGE FINANCE -- 1.8%
46,062 Meridian Bancorp, Inc........................................................................ 573,472
52,247 Northfield Bancorp, Inc...................................................................... 530,829
---------------
1,104,301
---------------
WATER UTILITIES -- 0.4%
6,031 Essential Utilities, Inc..................................................................... 248,477
---------------
TOTAL COMMON STOCKS.......................................................................... 17,605,935
(Cost $17,144,639) ---------------
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
UNITS DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
MASTER LIMITED PARTNERSHIPS -- 6.6%
CHEMICALS -- 0.4%
13,708 Westlake Chemical Partners, L.P.............................................................. $ 248,389
---------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.7%
6,938 NextEra Energy Partners, L.P. (b)............................................................ 435,706
---------------
OIL, GAS & CONSUMABLE FUELS -- 5.5%
4,652 Cheniere Energy Partners, L.P................................................................ 167,705
5,594 Energy Transfer, L.P......................................................................... 28,809
46,904 Enterprise Products Partners, L.P............................................................ 777,199
24,767 Holly Energy Partners, L.P................................................................... 283,830
20,936 Magellan Midstream Partners, L.P............................................................. 744,065
8,880 Phillips 66 Partners, L.P.................................................................... 208,414
8,701 Plains All American Pipeline, L.P............................................................ 54,381
21,676 Shell Midstream Partners, L.P................................................................ 189,665
29,912 TC PipeLines, L.P............................................................................ 842,023
---------------
3,296,091
---------------
TOTAL MASTER LIMITED PARTNERSHIPS............................................................ 3,980,186
(Cost $4,478,987) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 2.9%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.0%
Federal Home Loan Mortgage Corporation
$ 7,941 Series 1998-192, Class IO, IO, STRIPS........................ 6.50% 02/01/28 1,163
75,000 Series 2003-2669, Class LL................................... 5.50% 08/15/33 86,613
87,482 Series 2006-3114, Class GI, IO, 1 Mo. LIBOR (x) -1 +
6.60% (c)................................................. 6.45% 02/15/36 17,119
5,900 Series 2006-3200, Class PO, PO............................... (d) 08/15/36 5,640
7,264 Series 2007-3373, Class TO, PO............................... (d) 04/15/37 6,802
23,704 Series 2011-3817, Class MA................................... 4.50% 10/15/37 23,911
6,836 Series 2011-3917, Class AI, IO............................... 4.50% 07/15/26 292
935,419 Series 2016-4619, Class IB, IO............................... 4.00% 12/15/47 34,197
Federal National Mortgage Association
1,889 Series 1992-205, Class Z..................................... 7.00% 11/25/22 1,973
9,954 Series 1993-176, Class E, PO................................. (d) 08/25/23 9,910
8,717 Series 1993-247, Class 2, IO, STRIPS......................... 7.50% 10/25/23 576
48,372 Series 1997-22, Class PC..................................... 4.50% 03/18/27 51,905
4,380 Series 2002-1, Class HC...................................... 6.50% 02/25/22 4,460
61,092 Series 2003-339, Class 12, IO, STRIPS........................ 6.00% 06/25/33 10,627
11,955 Series 2003-W2, Class 1A1.................................... 6.50% 07/25/42 14,114
38,620 Series 2004-T2, Class 1PO, PO................................ (d) 11/25/43 36,680
8,284 Series 2006-125, Class FA, 1 Mo. LIBOR + 0.28% (e)........... 0.43% 01/25/37 8,287
51,257 Series 2007-32, Class KT..................................... 5.50% 04/25/37 59,581
13,470 Series 2007-42, Class AO, PO................................. (d) 05/25/37 12,610
10,861 Series 2008-44, Class PO, PO................................. (d) 05/25/38 9,879
66,705 Series 2012-409, Class C17, IO, STRIPS....................... 4.00% 11/25/41 9,131
112,463 Series 2015-14, Class IK, IO................................. 0.75% 03/25/45 10,148
16,514 Series 2015-72, Class PC..................................... 3.00% 10/25/43 16,553
Government National Mortgage Association
19,806 Series 2003-7, Class TA...................................... 4.50% 11/16/32 20,450
20,693 Series 2003-52, Class AP, PO................................. (d) 06/16/33 19,772
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 45,175 Series 2004-47, Class PD..................................... 6.00% 06/16/34 $ 50,241
2,896 Series 2004-109, Class BC.................................... 5.00% 11/20/33 2,894
6,570 Series 2005-17, Class AD..................................... 5.00% 02/20/35 7,148
10,000 Series 2010-84, Class YB..................................... 4.00% 07/20/40 10,901
41,362 Series 2010-111, Class JA.................................... 2.50% 09/16/40 42,216
24,541 Series 2013-20, Class KI, IO................................. 5.00% 01/20/43 2,844
1,734 Series 2013-31, Class TH, 1 Mo. LIBOR + 4.35% (e)............ 4.50% 08/20/39 1,737
24,289 Series 2013-67, Class PI, IO................................. 4.00% 12/16/42 2,500
NCUA Guaranteed Notes Trust
25,002 Series 2010-R3, Class 1A, 1 Mo. LIBOR + 0.56% (e)............ 0.70% 12/08/20 24,987
---------------
617,861
---------------
PASS-THROUGH SECURITIES -- 1.9%
Federal Home Loan Mortgage Corporation
57,629 Pool A47829.................................................. 4.00% 08/01/35 62,690
64,961 Pool A80290.................................................. 5.00% 11/01/35 75,038
43,730 Pool A94951.................................................. 4.00% 11/01/40 48,873
24,392 Pool A95134.................................................. 4.50% 11/01/40 27,455
22,605 Pool A97601.................................................. 4.50% 03/01/41 25,952
11,027 Pool G03523.................................................. 6.00% 11/01/37 12,971
28,579 Pool G06501.................................................. 4.00% 04/01/41 31,504
38,585 Pool G07286.................................................. 6.50% 09/01/39 45,378
82 Pool G11973.................................................. 5.50% 02/01/21 82
15,394 Pool G13124.................................................. 6.00% 12/01/22 15,908
9,139 Pool G13465.................................................. 6.00% 01/01/24 9,394
17,856 Pool G13790.................................................. 4.50% 04/01/25 18,863
20,632 Pool G13844.................................................. 4.50% 07/01/25 21,865
11,254 Pool G14184.................................................. 5.00% 07/01/25 11,878
22,998 Pool G15725.................................................. 4.50% 09/01/26 24,367
6,959 Pool O20138.................................................. 5.00% 11/01/30 7,634
26,832 Pool Q05201.................................................. 4.00% 12/01/41 29,760
Federal National Mortgage Association
77,069 Pool 724888.................................................. 5.50% 06/01/33 86,319
2,611 Pool 879398.................................................. 5.50% 02/01/21 2,622
13,103 Pool 888112.................................................. 6.50% 12/01/36 15,643
6,187 Pool 889780.................................................. 5.50% 03/01/23 6,405
52 Pool 890206.................................................. 5.50% 10/01/21 52
7,769 Pool 897936.................................................. 5.50% 08/01/21 7,843
21,064 Pool 923171.................................................. 7.50% 03/01/37 24,630
21,834 Pool 977130.................................................. 5.50% 08/01/23 22,725
10,935 Pool 983629.................................................. 4.50% 05/01/23 11,466
13,868 Pool 995400.................................................. 7.00% 06/01/23 14,366
41,745 Pool 995700.................................................. 6.50% 03/01/27 46,624
23,355 Pool AB2265.................................................. 4.00% 02/01/41 26,384
7,633 Pool AI1191.................................................. 4.50% 04/01/41 8,582
25,708 Pool AI7800.................................................. 4.50% 07/01/41 28,939
20,815 Pool AJ5299.................................................. 4.00% 11/01/41 23,514
35,958 Pool AJ5300.................................................. 4.00% 11/01/41 39,903
33,298 Pool AK3103.................................................. 4.00% 02/01/42 36,777
47,489 Pool AL1024.................................................. 4.50% 07/01/26 51,295
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 9,952 Pool AL6304.................................................. 5.50% 09/01/25 $ 10,363
44,807 Pool AU4726.................................................. 4.00% 09/01/43 49,822
Government National Mortgage Association
13,703 Pool 3500.................................................... 5.50% 01/20/34 16,266
7,625 Pool 3513.................................................... 5.00% 02/20/34 8,679
16,444 Pool 3555.................................................... 5.00% 05/20/34 18,735
43,758 Pool 3975.................................................... 5.50% 04/20/37 51,943
14,254 Pool 4230.................................................... 6.00% 09/20/23 15,011
34,301 Pool 609116.................................................. 4.50% 02/15/44 39,886
12,541 Pool MA2293.................................................. 3.50% 10/20/44 13,029
---------------
1,147,435
---------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................................... 1,765,296
(Cost $1,752,043) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS -- 2.2%
EQUITY REAL ESTATE INVESTMENT TRUSTS -- 2.2%
7,426 Agree Realty Corp............................................................................ 460,932
7,885 National Health Investors, Inc............................................................... 441,954
7,827 Realty Income Corp........................................................................... 452,870
---------------
TOTAL REAL ESTATE INVESTMENT TRUSTS.......................................................... 1,355,756
(Cost $1,440,351) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 0.0%
First Alliance Mortgage Loan Trust
$ 15,592 Series 1999-1, Class A1...................................... 7.18% 06/20/30 15,792
---------------
TOTAL ASSET-BACKED SECURITIES................................................................ 15,792
(Cost $15,592) ---------------
MORTGAGE-BACKED SECURITIES -- 0.0%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.0%
Residential Accredit Loans, Inc.
1,653 Series 2003-QS5, Class A2, 1 Mo. LIBOR (x) -1.83 +
14.76% (c)................................................ 14.48% 03/25/18 1,570
1,539 Series 2003-QS14, Class A1................................... 5.00% 07/25/18 1,538
769 Series 2003-QS20, Class CB................................... 5.00% 11/25/18 791
Structured Asset Securities Corp.
8,559 Series 2003-37A, Class 3A7 (f)............................... 3.05% 12/25/33 8,721
---------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................. 12,620
(Cost $12,544) ---------------
TOTAL INVESTMENTS -- 97.3%.................................................................... 59,070,670
(Cost $59,487,368) (g)
NET OTHER ASSETS AND LIABILITIES -- 2.7%...................................................... 1,647,987
---------------
NET ASSETS -- 100.0%.......................................................................... $ 60,718,657
===============
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
-----------------------------
(a) Investments in an affiliated fund.
(b) This security is taxed as a "C" corporation for federal income tax
purposes.
(c) Inverse floating rate security.
(d) Zero coupon security.
(e) Floating or variable rate security.
(f) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
(g) Aggregate cost for federal income tax purposes is $60,337,455. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$1,614,410 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$2,881,195. The net unrealized depreciation was $1,266,785.
ADR American Depositary Receipt.
IO Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
LIBOR London Interbank Offered Rate
PO Principal-Only Security
STRIPS Separate Trading of Registered Interest and Principal of Securities
Currency Abbreviations:
CAD Canadian Dollar
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Exchange-Traded Funds*............................ $ 34,335,085 $ 34,335,085 $ -- $ --
Common Stocks*.................................... 17,605,935 17,605,935 -- --
Master Limited Partnerships*...................... 3,980,186 3,980,186 -- --
U.S. Government Agency Mortgage-Backed
Securities..................................... 1,765,296 -- 1,765,296 --
Real Estate Investment Trusts*.................... 1,355,756 1,355,756 -- --
Asset-Backed Securities........................... 15,792 -- 15,792 --
Mortgage-Backed Securities........................ 12,620 -- 12,620 --
--------------- --------------- --------------- ---------------
Total Investments................................. $ 59,070,670 $ 57,276,962 $ 1,793,708 $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value - Unaffiliated................................... $ 27,685,153
Investments, at value - Affiliated..................................... 31,385,517
----------------
Total investments, at value............................................ 59,070,670
Cash................................................................... 901,078
Due from broker........................................................ 60,591
Foreign currency, at value............................................. 5,045
Receivables:
Capital shares sold................................................. 11,244,641
Investment securities sold.......................................... 93,176
Dividends........................................................... 81,542
Interest............................................................ 10,072
Reclaims............................................................ 2,623
----------------
Total Assets..................................................... 71,469,438
----------------
LIABILITIES:
Payables:
Investment securities purchased..................................... 10,732,740
Investment advisory fees............................................ 18,041
----------------
Total Liabilities................................................ 10,750,781
----------------
NET ASSETS............................................................. $ 60,718,657
================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 68,063,456
Par value.............................................................. 13,500
Accumulated distributable earnings (loss).............................. (7,358,299)
----------------
NET ASSETS............................................................. $ 60,718,657
================
NET ASSET VALUE, per share............................................. $ 44.98
================
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 1,350,002
================
Investments, at cost - Unaffiliated.................................... $ 27,813,515
================
Investments, at cost - Affiliated...................................... $ 31,673,853
================
Total investments, at cost............................................. $ 59,487,368
================
Foreign currency, at cost (proceeds)................................... $ 6,097
================
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends - Unaffiliated............................................... $ 904,433
Dividends - Affiliated................................................. 1,428,277
Interest............................................................... 85,872
Foreign withholding tax................................................ (13,555)
----------------
Total investment income............................................. 2,405,027
----------------
EXPENSES:
Investment advisory fees............................................... 577,708
----------------
Total expenses...................................................... 577,708
Less fees waived by the investment advisor.......................... (265,076)
----------------
Net expenses........................................................ 312,632
----------------
NET INVESTMENT INCOME (LOSS)........................................... 2,092,395
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Unaffiliated.......................................... (5,031,685)
Investments - Affiliated............................................ (1,359,644)
In-kind redemptions - Unaffiliated.................................. 147,843
In-kind redemptions - Affiliated.................................... (370,959)
Futures contracts................................................... 8,634
Foreign currency transactions....................................... 7
----------------
Net realized gain (loss)............................................... (6,605,804)
----------------
Net change in unrealized appreciation (depreciation) on:
Investments - Unaffiliated.......................................... (2,049,126)
Investments - Affiliated............................................ (686,817)
Foreign currency translation........................................ (204)
----------------
Net change in unrealized appreciation (depreciation)................... (2,736,147)
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (9,341,951)
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (7,249,556)
================
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2020 10/31/2019
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 2,092,395 $ 2,621,165
Net realized gain (loss)............................................... (6,605,804) 577,341
Net change in unrealized appreciation (depreciation)................... (2,736,147) 4,790,638
---------------- ----------------
Net increase (decrease) in net assets resulting from operations........ (7,249,556) 7,989,144
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (2,785,206) (3,409,004)
Return of capital...................................................... (88,048) --
---------------- ----------------
Total distributions to shareholders.................................... (2,873,254) (3,409,004)
---------------- ----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 11,244,641 17,620,172
Cost of shares redeemed................................................ (31,523,585) (14,583,948)
---------------- ----------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................................... (20,278,944) 3,036,224
---------------- ----------------
Total increase (decrease) in net assets................................ (30,401,754) 7,616,364
NET ASSETS:
Beginning of period.................................................... 91,120,411 83,504,047
---------------- ----------------
End of period.......................................................... $ 60,718,657 $ 91,120,411
================ ================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 1,800,002 1,750,002
Shares sold............................................................ 250,000 350,000
Shares redeemed........................................................ (700,000) (300,000)
---------------- ----------------
Shares outstanding, end of period...................................... 1,350,002 1,800,002
================ ================
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------
2020 2019 2018 2017 2016
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 50.62 $ 47.72 $ 50.68 $ 49.89 $ 47.76
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 1.46 1.63 1.69 1.56 1.60
Net realized and unrealized gain (loss) (5.07) 3.34 (2.26) 1.10 (a) 2.45
---------- ---------- ---------- ---------- ----------
Total from investment operations (3.61) 4.97 (0.57) 2.66 4.05
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (1.97) (2.07) (2.10) (1.65) (1.92)
Net realized gain -- -- -- (0.22) --
Return of capital (0.06) -- (0.29) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (2.03) (2.07) (2.39) (1.87) (1.92)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 44.98 $ 50.62 $ 47.72 $ 50.68 $ 49.89
========== ========== ========== ========== ==========
TOTAL RETURN (b) (7.19)% 10.60% (1.21)% 5.40% (a) 8.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 60,719 $ 91,120 $ 83,504 $ 96,286 $ 17,460
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average
net assets (c) 0.85% 0.85% 0.86% (d) 0.85% 0.85%
Ratio of net expenses to average
net assets (c) 0.46% 0.50% 0.50% (d) 0.52% 0.55%
Ratio of net investment income (loss) to
average net assets 3.08% 3.21% 3.40% 3.10% 3.30%
Portfolio turnover rate (e) 118% 91% 113% 119% 88%
</TABLE>
(a) The Fund received a reimbursement from the Advisor in the amount of $3,457
in connection with a trade error, which represents less than $0.01 per
share. Since the Advisor reimbursed the Fund, there was no effect on the
Fund's total return.
(b) 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. The total returns would have been lower if certain
fees had not been waived by the Advisor.
(c) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. This ratio
does not include these indirect fees and expenses.
(d) Includes excise tax. If this excise tax expense was not included, the
total and net expense ratios would have been 0.85% and 0.49%,
respectively.
(e) 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 Page 17
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Strategic Income ETF (the "Fund"), which trades under the
ticker "FDIV" on The Nasdaq Stock Market LLC ("Nasdaq"). Unlike conventional
mutual funds, the Fund issues and redeems shares on a continuous basis, at net
asset value ("NAV"), only in large specified blocks consisting of 50,000 shares
called a "Creation Unit." Creation Units are issued and redeemed in-kind for
securities in which the Fund invests and/or cash, and only to and from
broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is a multi-manager, multi-strategy actively managed exchange-traded
fund. The Fund's primary investment objective is to seek risk-adjusted income.
The Fund's secondary investment objective is capital appreciation.
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the Fund. The following serve as investment sub-advisors to the Fund:
First Trust Global Portfolios Ltd. ("FTGP"); Energy Income Partners, LLC
("EIP"); Stonebridge Advisors LLC ("Stonebridge"); and Richard Bernstein
Advisors LLC ("RBA") (each, a "Sub-Advisor" and together, the "Sub-Advisors").
The Advisor's Investment Committee determines the Fund's strategic allocation
among various general investment categories and allocates the Fund's assets to
portfolio management teams comprised of personnel of the Advisor and/or a
Sub-Advisor (each, a "Management Team"), which employ their respective
investment strategies. The Fund seeks to achieve its objectives by having each
Management Team focus on those securities within its respective investment
category. The Fund may add or remove investment categories or Management Teams
at the discretion of the Advisor.
The Fund's investment categories are: (i) high-yield corporate bonds, commonly
referred to as "junk" bonds, and first lien senior secured floating rate bank
loans; (ii) mortgage-related investments; (iii) preferred securities; (iv)
international sovereign bonds, including securities issued by emerging market
countries; (v) equity securities of Energy Infrastructure Companies(1), certain
of which are master limited partnerships ("MLPs"); and (vi) dividend paying U.S.
exchange-traded equity securities (including common stock) of companies (that
may be domiciled in or outside of the United States) and depositary receipts.
The Management Teams may utilize a related option overlay strategy and/or
derivative instruments in implementing their respective investment strategies
for the Fund. Additionally, the Management Team may seek exposure to these asset
classes directly or through investments in exchange-traded funds ("ETFs"). The
Advisor expects that the Fund may at times invest significantly in other ETFs,
including but not limited to, other ETFs that are advised by the Advisor;
accordingly, the Fund may operate principally as a "fund of funds," but will not
necessarily operate as such at all times.
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.
A. PORTFOLIO VALUATION
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.
-----------------------------
(1) Energy Infrastructure Companies are publicly-traded MLPs or limited
liability companies that are taxed as partnerships; entities that control
MLPs, entities that own general partner interests in an MLP, or MLP
affiliates (such as I-shares or I-units); U.S. and Canadian energy yield
corporations ("yieldcos"); pipeline companies; utilities; and other
companies that are involved in operating or providing services in support
of infrastructure assets such as pipeline, power transmission,
terminalling and petroleum and natural gas storage in the petroleum,
natural gas and power generation industries.
Page 18
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
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 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 Advisor's Pricing Committee in
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. All securities and other assets of the Fund
initially expressed in foreign currencies will be converted to U.S. dollars
using exchange rates in effect at the time of valuation. The Fund's investments
are valued as follows:
Corporate bonds, corporate notes, U.S. government securities,
mortgage-backed securities, asset-backed securities and other debt
securities are fair valued on the basis of valuations provided by dealers
who make markets in such securities or by a third- party pricing service
approved by the Trust's Board of Trustees, which may use the following
valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Common stocks, preferred stocks, MLPs 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 principal market for such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid 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 Trust's Board of Trustees or its
delegate, 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
Fair valuation of a debt security will be based on the consideration of all
available information, including, but not limited to, the following:
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management (for corporate debt
only);
11) 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);
12) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); and
13) other relevant factors.
Fair valuation of an equity security will be based on the consideration of all
available information, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or
the appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might
affect the value of the security.
Because foreign markets may be open on different days than the days during which
investors may transact in the shares of the 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 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:
o 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.
o 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.
o 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
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, 2020, 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.
In July 2017, the Financial Conduct Authority ("FCA") announced that it will no
longer persuade or compel banks to submit rates for the calculations of the
London Interbank Offered Rates ("LIBOR") after 2021. Further, the FCA has
subsequently stated, as recently as March 2020, that the central assumption
continues to be that firms should not rely on LIBOR being published after the
end of 2021.
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018.
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
Distributions received from the Fund's investments in 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.
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 is 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.
C. FUTURES CONTRACTS
The Fund purchases or sells (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. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are included in "Variation margin" receivable or payable 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
D. FOREIGN CURRENCY
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
included in "Net change in unrealized appreciation (depreciation) on investments
- Unaffiliated" 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 is included in "Net realized
gain (loss) on foreign currency transactions" on the Statement of Operations.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial purchase settlement date and subsequent sale
trade date is included in "Net realized gain (loss) on investments -
Unaffiliated" on the Statement of Operations.
E. INTEREST-ONLY SECURITIES
An interest-only security ("IO Security") is the interest-only portion of a
mortgage-backed security that receives some or all of the interest portion of
the underlying mortgage-backed security and little or no principal. A reference
principal value called a notional value is used to calculate the amount of
interest due to the IO Security. IO Securities are sold at a deep discount to
their notional principal amount. Generally speaking, when interest rates are
falling and prepayment rates are increasing, the value of an IO Security will
fall. Conversely, when interest rates are rising and prepayment rates are
decreasing, generally the value of an IO Security will rise. These securities,
if any, are identified on the Portfolio of Investments.
F. PRINCIPAL-ONLY SECURITIES
A principal-only security ("PO Security") is the principal-only portion of a
mortgage-backed security that does not receive any interest, is priced at a deep
discount to its redemption value and ultimately receives the redemption value.
Generally speaking, when interest rates are falling and prepayment rates are
increasing, the value of a PO Security will rise. Conversely, when interest
rates are rising and prepayment rates are decreasing, generally the value of a
PO Security will fall. These securities, if any, are identified on the Portfolio
of Investments.
G. STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security known as an IO Security and all
of the principal is distributed to holders of another type of security known as
a PO Security. These securities, if any, are identified on the Portfolio of
Investments.
H. AFFILIATED TRANSACTIONS
The Fund invests in securities of affiliated funds. Dividend income and realized
gains and losses, and change in appreciation (depreciation) from affiliated
funds are presented on the Statement of Operations. The Fund's investment
performance and risks are directly related to the investment performance and
risks of the affiliated funds.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
Amounts related to these investments at October 31, 2020 and for the fiscal year
then ended are as follows:
<TABLE>
<CAPTION>
CHANGES IN
UNREALIZED REALIZED
SHARES AT VALUE AT APPRECIATION GAIN VALUE AT DIVIDEND
SECURITY NAME 10/31/2020 10/31/2019 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2020 INCOME
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust
Emerging Markets
Local Currency
Bond ETF 198,848 $ 8,279,392 $ 4,601,982 $ (4,800,693) $ (663,414) $ (582,861) $ 6,834,406 $ 373,819
First Trust
Institutional
Preferred
Securities
and Income ETF 125,406 2,875,710 1,226,819 (1,614,554) (57,245) 2,146 2,432,876 122,265
First Trust
Long Duration
Opportunities ETF 18,000 322,299 187,383 -- 15,648 -- 525,330 13,083
First Trust
Low Duration
Opportunities ETF 104,000 3,217,919 5,106,527 (2,974,683) 11,613 (4,336) 5,357,040 91,033
First Trust
Preferred
Securities
and Income ETF 379,838 8,585,277 3,834,283 (4,931,758) (280,307) 74,000 7,281,495 373,947
First Trust
Senior Loan Fund -- -- 15,259,853 (13,743,858) -- (1,515,995) -- 154,739
First Trust
Tactical High
Yield ETF 189,993 15,842,027 9,805,263 (17,276,251) 286,888 296,443 8,954,370 299,391
--------------------------------------------------------------------------------------------------
Total Investments
in Affiliates $ 39,122,624 $ 40,022,110 $ (45,341,797) $ (686,817) $ (1,730,603) $ 31,385,517 $ 1,428,277
==================================================================================================
</TABLE>
I. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, 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.
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 significantly modified 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, 2020 and 2019 was as follows:
Distributions paid from: 2020 2019
Ordinary income............................... $ 2,785,206 $ 3,409,004
Capital gains................................. -- --
Return of capital............................. 88,048 --
As of October 31, 2020, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................. $ --
Accumulated capital and other gain (loss)..... (6,090,400)
Net unrealized appreciation (depreciation).... (1,267,899)
J. INCOME TAXES
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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
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 2017,
2018, 2019, and 2020 remain open to federal and state audit. As of October 31,
2020, 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, 2020, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $6,090,400.
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, 2020, 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, 2020, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 692,811 $ 135,918 $ (828,729)
K. EXPENSES
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 supervising 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.
The Fund and First Trust have retained the Sub-Advisors to provide
recommendations to the Advisor regarding the selection and ongoing monitoring of
the securities in the Fund's investment portfolio. First Trust executes all
transactions on behalf of the Fund, with the exception of the securities that
are selected by FTGP. EIP, an affiliate of First Trust, provides recommendations
regarding the selection of MLP securities for the Fund's investment portfolio
and provides ongoing monitoring of the MLP securities, MLP affiliate and energy
infrastructure securities in the Fund's investment portfolio selected by EIP.
EIP exercises discretion only with respect to assets of the Fund allocated to
EIP by the Advisor. FTGP, an affiliate of First Trust, selects international
sovereign debt securities for the Fund's investment portfolio and provides
ongoing monitoring of the international sovereign debt securities in the Fund's
investment portfolio selected by FTGP. RBA provides recommendations regarding
longer term investment strategies that combine top-down, macroeconomic analysis
and quantitatively-driven portfolio construction. RBA exercises discretion only
with respect to assets allocated to RBA by the Advisor. Stonebridge, an
affiliate of First Trust, provides recommendations regarding the selection and
ongoing monitoring of the preferred and hybrid securities in the Fund's
investment portfolio.
Pursuant to the Investment Management Agreement between the Trust and Advisor,
First Trust will supervise the Sub-Advisors and their management of the
investment of the Fund's assets and will pay EIP, FTGP, RBA and Stonebridge for
their services as the Fund's sub-advisors. EIP and FTGP each receive a
sub-advisory fee from First Trust equal to 40% of any remaining monthly
investment management fee paid to First Trust for the average daily net assets
allocated to the Sub-Advisor after the average Fund expenses accrued during the
most recent twelve months are subtracted from the investment management fee in a
given month. RBA and Stonebridge each receive annual sub-advisory fees equal to
0.20% of the average daily net assets on the assets of the Fund allocated to the
Sub-Advisor by First Trust. First Trust will also be responsible for the Fund's
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
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, pro rata share of fees and expenses
attributable to investments in other investment companies ("acquired fund fees
and expenses") with the exception of those attributable to affiliated Funds,
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. The Fund has agreed to pay First Trust
an annual unitary management fee equal to 0.85% of its average daily net assets.
The total of the unitary management fee, acquired fund fees and expenses, and
other excluded expenses represents the Fund's total annual operating expenses.
Pursuant to a contractual agreement between the Trust, on behalf of the Fund,
and First Trust, the management fees paid to First Trust will be reduced by the
proportional amount of the acquired fund fees and expenses of the shares of
investment companies held by the Fund so that the Fund would not bear the
indirect costs of holding them, provided that the investment companies are
advised by First Trust. This contractual agreement shall continue until the
earlier of (i) its termination at the direction of the Trust's Board of Trustees
or (ii) the termination of the Fund's management agreement with First Trust.
First Trust does not have the right to recover the fees waived that are
attributable to acquired fund fees and expenses on the shares of investment
companies advised by First Trust. During the fiscal year ended October 31, 2020,
the Advisor waived fees of $265,076.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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,
defined- outcome fund or is an index fund. Additionally, the Lead Independent
Trustee and the Chairmen of the Audit Committee, Nominating and Governance
Committee and Valuation Committee 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 Lead Independent Trustee and Committee Chairmen will rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases of U.S. Government securities and non-U.S. Government
securities, excluding short-term investments and in- kind transactions for the
fiscal year ended October 31, 2020, were $466,645 and $79,932,054, respectively.
The proceeds from sales and paydowns of U.S. Government securities and non-U.S.
Government securities, excluding short-term investments and in-kind transactions
for the fiscal year ended October 31, 2020, were $4,902,178 and $74,651,340,
respectively.
For the fiscal year ended October 31, 2020, the cost of in-kind purchases and
proceeds from in-kind sales were $3,803,623 and $25,098,676, respectively.
5. DERIVATIVE TRANSACTIONS
As of October 31, 2020, the Fund had no derivative instruments.
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, 2020, 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 $ 8,634
Net change in unrealized appreciation (depreciation) on
futures contracts --
During the fiscal year ended October 31, 2020, the notional value of futures
contracts opened and closed were $128,988 and $128,988, respectively.
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.
Page 25
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). In order to purchase Creation Units of the Fund, an
Authorized Participant must deposit (i) a designated portfolio of securities
determined by First Trust (the "Deposit Securities") and generally make or
receive a cash payment referred to as the "Cash Component," which is an amount
equal to the difference between the NAV of the Fund Shares (per Creation Unit
Aggregation) and the market value of the Deposit Securities, and/or (ii) cash in
lieu of all or a portion of the Deposit Securities. The Fund's Creation Units
are generally issued and redeemed for cash. If the Cash Component is a positive
number (i.e., the NAV per Creation Unit Aggregation exceeds the Deposit Amount),
the Authorized Participant will deliver the Cash Component. If the Cash
Component is a negative number (i.e., the NAV per Creation Unit Aggregation is
less than the Deposit Amount), the Authorized Participant will receive the Cash
Component.
Authorized Participants purchasing Creation Units must pay to BNYM, as transfer
agent, a creation transaction fee (the "Creation Transaction Fee") regardless of
the number of Creation Units purchased in the transaction. The Creation
Transaction Fee may increase or decrease with changes in the Fund's portfolio.
The price for each Creation Unit will equal the daily NAV per share times the
number of shares in a Creation Unit plus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees or
stamp taxes. When the Fund permits an Authorized Participant to substitute cash
or a different security in lieu of depositing one or more of the requisite
Deposit Securities, the Authorized Participant may also be assessed an amount to
cover the cost of purchasing the Deposit Securities and/or disposing of the
substituted securities, including operational processing and brokerage costs,
transfer fees, stamp taxes, and part or all of the spread between the expected
bid and offer side of the market related to such Deposit Securities and/or
substitute securities.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may increase or decrease with changes in the Fund's
portfolio. The Fund reserves the right to effect redemptions in cash. An
Authorized Participant may request cash redemption in lieu of securities;
however, the Fund may, in its discretion, reject any such request.
7. DISTRIBUTION PLAN
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 March 31, 2022.
8. INDEMNIFICATION
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.
9. OTHER MATTERS
By operation of law, the Fund now operates as a diversified open-end management
investment company as defined in Section 5(b) of the 1940 Act.
10. SUBSEQUENT EVENTS
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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Strategic Income ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2020, 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, 2020, 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.
BASIS FOR OPINION
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, 2020, 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 18, 2020
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
For the taxable year ended October 31, 2020, the following percentages of income
dividend 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
---------------------------- -------------------------
17.16% 21.02%
A portion of the Fund's 2020 ordinary dividends (including short-term capital
gains) paid to its shareholders during the fiscal year ended October 31, 2020,
may be eligible for the Qualified Business Income Deduction (QBI) under Internal
Revenue Code Section 199A for the aggregate dividends the Fund received from the
underlying Real Estate Investment Trusts (REITs) it invests in.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom's
Financial Conduct Authority announced that LIBOR will cease to be available for
use after 2021. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the fund or on certain
instruments in which the fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. Any such effects of the transition
away from LIBOR, as well as other unforeseen effects, could result in losses to
the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19 pandemic may last
for an extended period of time and will continue to impact the economy for the
foreseeable future.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AND
SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Advisory Agreement") between the Trust, on
behalf of First Trust Strategic Income ETF (the "Fund"), and First Trust
Advisors L.P. (the "Advisor"); the Investment Sub-Advisory Agreement (the
"Stonebridge Sub-Advisory Agreement") among the Trust, on behalf of the Fund,
the Advisor and Stonebridge Advisors LLC ("Stonebridge"); the Investment
Sub-Advisory Agreement (the "Richard Bernstein Sub-Advisory Agreement") among
the Trust, on behalf of the Fund, the Advisor and Richard Bernstein Advisors LLC
("Richard Bernstein"); the Investment Sub-Advisory Agreement (the "Energy Income
Partners Sub-Advisory Agreement") among the Trust, on behalf of the Fund, the
Advisor and Energy Income Partners, LLC ("Energy Income Partners"); and the
Investment Sub-Advisory Agreement (the "First Trust Global Sub-Advisory
Agreement") among the Trust, on behalf of the Fund, the Advisor and First Trust
Global Portfolios Ltd. ("First Trust Global"). The Stonebridge Sub-Advisory
Agreement, the Richard Bernstein Sub-Advisory Agreement, the Energy Income
Partners Sub-Advisory Agreement and the First Trust Global Sub-Advisory
Agreement are collectively referred to as the "Sub-Advisory Agreements."
Stonebridge, Richard Bernstein, Energy Income Partners and First Trust Global
are each referred to as a "Sub-Advisor" and collectively as the "Sub-Advisors."
The Sub-Advisory Agreements together with the Advisory Agreement are referred to
as the "Agreements." The Board approved the continuation of the Agreements for a
one-year period ending June 30, 2021 at a meeting held on June 8, 2020. 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 reasonable 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 May 11, 2020 and June 8, 2020, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and each 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
each Sub-Advisor to the Fund (including the relevant personnel responsible for
these services and their experience); the unitary fee rate 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
rates for the Fund as compared to fees charged to other clients of the
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
Sub-Advisors; 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 each Sub-Advisor to realize
economies of scale, if any; profitability and other financial data for the
Advisor; financial data for each Sub-Advisor; any fall-out benefits to the
Advisor and its affiliates, First Trust Portfolios L.P. ("FTP") and First Trust
Global, and the Sub-Advisors; and information on the Advisor's and each
Sub-Advisor's compliance programs. The Board reviewed initial materials with the
Advisor at the meeting held on May 11, 2020, prior to which the Independent
Trustees and their counsel met separately to discuss the information provided by
the Advisor and the Sub-Advisors. Following the May 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 8, 2020
meeting, as well as at the meeting held that day. The Board considered
supplemental information provided by the Advisor and each Sub-Advisor on the
operations of the Advisor and each Sub-Advisor, respectively, and the
performance of the Fund since the onset of the COVID-19 pandemic. The Board
applied its business judgment to determine whether the arrangements between the
Trust and the Advisor and among the Trust, the Advisor and each 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-Advisors 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-Advisors under the
Agreements. The Board considered that the Fund is an actively-managed ETF and
employs a multi-manager/multi-sleeve structure. 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 Fund, including the oversight of the
Sub-Advisors and the strategic and tactical asset allocations among internal
management teams and the Sub-Advisors performed by members of the Advisor's
Investment Committee, as well as the background and experience of the persons
responsible for such services. In addition to materials provided by the Advisor,
at the May 11, 2020 meeting, the Board received a presentation from members of
the Investment Committee discussing the services that the Investment Committee
provides to the Fund. The Board considered that Stonebridge and Richard
Bernstein act as non-discretionary managers providing model portfolio
recommendations to the Advisor, and that although First Trust Global and Energy
Income Partners act as discretionary investment advisors, the Advisor executes
the Fund's portfolio trades. The Board noted that members of the Advisor's
Mortgage Securities Team and Leveraged Finance Investment Team participate in
the management of the Fund and considered the experience of each Team and noted
the Board's prior meetings with members of each Team. The Board noted that the
Advisor oversees 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, each
Sub-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 May 11, 2020 meeting, described to the Board the scope of its ongoing
investment in additional infrastructure and personnel 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 Agreements, the Board noted
that the Fund is an actively-managed ETF and the Sub-Advisors actively manage
the Fund's investments. The Board reviewed the materials provided by each
Sub-Advisor and considered the services that each Sub-Advisor provides to the
Fund, including each Sub-Advisor's discretionary or non-discretionary
management, as applicable, of the portion of the Fund's assets allocated to it.
In considering each Sub-Advisor's services to the Fund, the Board noted the
background and experience of each Sub-Advisor's portfolio management team and
the Board's prior meetings with members of each portfolio management team. The
Board also received a presentation from representatives of Energy Income
Partners at the June 8, 2020 meeting. 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 each
Sub-Advisor under the Agreements have been and are expected to remain
satisfactory and that the Advisor and the Sub-Advisors have managed the Fund
consistent with the Fund's investment objectives, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the Advisory
Agreement for the services provided. The Board noted that the Advisor pays each
Sub-Advisor a separate sub-advisory fee 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,
acquired fund fees and expenses, 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 noted that the Advisor had previously agreed to waive its unitary fee
to the extent of acquired fund fees and expenses of shares of investment
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
companies advised by the Advisor that are held by the Fund. The Board received
and reviewed information showing the advisory or unitary 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-Advisors 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, after taking into account fee waivers, was below the median
total (net) expense ratio of the peer funds in the Expense Group. With respect
to the Expense Group, the Board, at the May 11, 2020 meeting, discussed with
Broadridge its methodology for assembling peer groups and discussed with the
Advisor limitations in creating peer groups for actively-managed ETFs and that
different business models may affect the pricing of services among ETF sponsors.
The Board 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
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, 2019
to the performance of the funds in the Performance Universe and to that of a
blended benchmark index. Based on the information provided, the Board noted that
the Fund outperformed the Performance Universe median and the blended benchmark
index for the one-, three- and five-year periods ended December 31, 2019.
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-Advisors are 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-Advisors 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 and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. 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, 2019 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 fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board noted that affiliates of the Advisor
have ownership interests in Stonebridge, Energy Income Partners and First Trust
Global and considered potential fall-out benefits to the Advisor from such
ownership interests. The Board also considered that the Advisor had identified
as a fall out 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 noted that the Advisor does not utilize soft-dollars in
connection with the Fund. The Board concluded that the character and amount of
potential fall-out benefits to the Advisor were not unreasonable.
With respect to the Stonebridge Sub-Advisory Agreement, the Board considered
Stonebridge's expenses in providing investment services to the Fund and noted
Stonebridge's hiring of additional personnel and commitment to add additional
resources if assets increase. The Board did not review the profitability of
Stonebridge with respect to the Fund. The Board noted that the Advisor pays
Stonebridge from the unitary fee, and its understanding that the Fund's
sub-advisory fee rate was the product of an arm's length negotiation. The Board
concluded that the profitability analysis for the Advisor was more relevant. The
Board considered fall-out benefits that may be realized by Stonebridge from its
relationship with the Fund, including potential fall-out benefits to Stonebridge
from the ownership interest of an affiliate of the Advisor in Stonebridge, and
noted Stonebridge's statement that its relationship with the Advisor has helped
it build relationships with Wall Street firms that have preferred and hybrid
securities trading desks, which may lead to access to those firms' research
reports and analysts. The Board noted that Stonebridge acts as non-discretionary
manager providing model portfolio recommendations to the Advisor and does not
provide trade execution services to the Fund. The Board concluded that the
character and amount of potential fall-out benefits to Stonebridge were not
unreasonable.
With respect to the Richard Bernstein Sub-Advisory Agreement, the Board
considered Richard Bernstein's statements about economies of scale. The Board
did not review the profitability of Richard Bernstein with respect to the Fund.
The Board noted that the Advisor pays Richard Bernstein from the unitary fee,
and its understanding that the Fund's sub-advisory fee rate was the product of
Page 32
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
an arm's length negotiation. The Board concluded that the profitability analysis
for the Advisor was more relevant. The Board noted the potential fall-out
benefits identified by Richard Bernstein as a result of its relationship with
the Fund and the Advisor. The Board noted that Richard Bernstein acts as
non-discretionary manager providing model portfolio recommendations to the
Advisor and does not provide trade execution services to the Fund. The Board
concluded that the character and amount of potential fall-out benefits to
Richard Bernstein were not unreasonable.
With respect to the Energy Income Partners Sub-Advisory Agreement, the Board
considered that Energy Income Partners' investment services expenses are
primarily fixed in nature, and that Energy Income Partners has made recent
investments in personnel and infrastructure and anticipates that its expenses
will continue to rise due to additions to personnel and system upgrades. The
Board did not review the profitability of Energy Income Partners with respect to
the Fund. The Board noted that the Advisor pays Energy Income Partners from the
unitary fee, and its understanding that the Fund's sub-advisory fee rate was the
product of an arm's length negotiation. The Board concluded that the
profitability analysis for the Advisor was more relevant. The Board considered
fall-out benefits that may be realized by Energy Income Partners from its
relationship with the Fund, including the potential fall-out benefits to Energy
Income Partners from the ownership interest of an affiliate of the Advisor in
Energy Income Partners. The Board noted that Energy Income Partners does not
provide trade execution services on behalf of the Fund. The Board concluded that
the character and amount of potential fall-out benefits to Energy Income
Partners were not unreasonable.
With respect to the First Trust Global Sub-Advisory Agreement, the Board
considered First Trust Global'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 did not
review the profitability of First Trust Global with respect to the Fund. The
Board concluded that the profitability analysis for the Advisor was more
relevant. The Board considered the potential fall-out benefits to First Trust
Global from being associated with the Advisor and the Fund. The Board noted that
First Trust Global does not provide trade execution services on behalf of the
Fund. The Board concluded that the character and amount of potential fall-out
benefits to First Trust Global 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.
LIQUIDITY RISK MANAGEMENT PROGRAM
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund and each other fund in the First Trust Fund
Complex, other than the closed-end funds, have adopted and implemented a
liquidity risk management program (the "Program") reasonably designed to assess
and manage the funds' liquidity risk, i.e., the risk that a fund could not meet
requests to redeem shares issued by the fund without significant dilution of
remaining investors' interests in the fund. The Board of Trustees of the First
Trust Funds has appointed First Trust Advisors, L.P. (the "Advisor") as the
person designated to administer the Program, and in this capacity the Advisor
performs its duties primarily through the activities and efforts of the First
Trust Liquidity Committee.
Pursuant to the Program, the Liquidity Committee classifies the liquidity of
each fund's portfolio investments into one of the four liquidity categories
specified by Rule 22e-4: highly liquid investments, moderately liquid
investments, less liquid investments and illiquid investments. The Liquidity
Committee determines certain of the inputs for this classification process,
including reasonably anticipated trade sizes and significant investor dilution
thresholds. The Liquidity Committee also determines and periodically reviews a
highly liquid investment minimum for certain funds, monitors the funds' holdings
of assets classified as illiquid investments to seek to ensure they do not
exceed 15% of a fund's net assets and establishes policies and procedures
regarding redemptions in kind.
At the May 11, 2020 meeting of the Board of Trustees, as required by Rule 22e-4
and the Program, the Advisor provided the Board with a written report prepared
by the Advisor that addressed the operation of the Program during the period
from June 1, 2019 (the initial compliance date for certain requirements of Rule
22e-4) through the Liquidity Committee's annual meeting held on March 20, 2020
and assessed the Program's adequacy and effectiveness of implementation during
this period, including the operation of the highly liquid investment minimum for
each fund that is required under the Program to have one, and any material
changes to the Program. Note that because the Fund primarily holds assets that
are highly liquid investments, the Fund has not adopted a highly liquid
investment minimum.
As stated in the written report, during the review period, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor
concluded that each fund's investment strategy is appropriate for an open-end
fund; that the Program operated effectively in all material respects during the
review period; and that the Program is reasonably designed to assess and manage
the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
Page 33
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 189 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 189 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 189 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 189 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 189 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 34
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 35
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2020 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 36
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISORS
Energy Income Partners, LLC
10 Wright Street
Westport, CT 06880
First Trust Global Portfolios Limited
8 Angel Court
London EC2R 7HJ
Richard Bernstein Advisors, LLC
120 West 45th Street, 36th Floor
New York, NY 10036
Stonebridge Advisors LLC
10 Westport Road, Suite C101
Wilton, CT 06897
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Low Duration Opportunities ETF (LMBS)
Annual Report
For the Year Ended
October 31, 2020
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2020
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 46
Statement of Operations...................................................... 47
Statements of Changes in Net Assets.......................................... 48
Financial Highlights......................................................... 49
Notes to Financial Statements................................................ 50
Report of Independent Registered Public Accounting Firm...................... 60
Additional Information....................................................... 61
Board of Trustees and Officers............................................... 67
Privacy Policy............................................................... 69
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Low Duration Opportunities ETF; hereinafter referred to
as the "Fund") to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that 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 investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2020
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Low Duration Opportunities ETF (the "Fund"), which contains detailed information
about the Fund for the twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that
my message this year should touch on the tone of the markets and the investing
climate rather than belabor all the news and events that brought us to this
juncture. We all know how tumultuous our lives have become over the past eight
or so months. The phrase "shelter-at-home" says it all. I would rather talk
about why I believe investors should be optimistic about where we could be
headed.
Having said that, allow me to at least acknowledge the two elephants in the
room: the coronavirus ("COVID-19") and the election. In the first 12 days of
November, we learned the following: that we likely have a new president-elect
(Joe Biden), though it may not be official for some time because it is being
contested by President Donald Trump and some of his loyal backers in the
Republican Party citing voter fraud in certain states; that we still do not know
which political party will have control of the Senate due to a couple of
run-offs in Georgia to be held on January 5, 2021; and, that it looks as though
we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either
the end of 2020 or the start of 2021, though that too is not yet official. It
could be a game-changer in the COVID-19 battle. And, we may gain access to
additional vaccines as well. The key to getting the economy back to running on
all cylinders is to fully reopen, and a vaccine is "what the doctor ordered."
With respect to the tone of the markets and investment climate, to say that I am
encouraged about what has transpired in 2020 would be an understatement. Despite
the extraordinary challenges so far this year, the S&P 500(R) Index posted a
total return of 2.77% over the first 10 months of 2020, this despite plunging
33.8% into bear market territory from February 19, 2020 through March 23, 2020,
according to Bloomberg. As impressive as that feat is, the future looks even
brighter. While Bloomberg's consensus earnings growth rate estimate for the S&P
500(R) Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022
estimates were 21.74% and 16.95%, respectively. That is a strong take on the
prospects for a rebound in Corporate America over the next 24 months. One of the
tailwinds that is providing a good deal of support to the economy and markets is
the decision by the Federal Reserve (the "Fed") to keep interest rates
artificially low for as long as need be to meet both its employment and
inflation targets. By keeping rates lower for longer, the Fed is essentially
inviting investors to assume more risk to generate higher returns. Brian
Wesbury, Chief Economist at First Trust, believes that the Fed could need until
2024 to accomplish its goals. That is a lot of runway for investors to
reposition their portfolios, if needed, and a very generous, and perhaps
unprecedented, amount of guidance from the Fed, in our opinion. Those investors
with cash on the sidelines earning next to nothing have options if they choose
to act.
We are encouraged about the prospects for the economy and the markets, but
investors should be prepared to weather some volatility until the COVID-19
pandemic is better contained. As always, we encourage investors to stay the
course!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
The primary investment objective of the First Trust Low Duration Opportunities
ETF (the "Fund") is to generate current income. The Fund's secondary investment
objective is to provide capital appreciation. The Fund is an actively managed
exchange-traded fund. First Trust Advisors L.P. ("First Trust" or the "Advisor")
serves as the advisor. James Snyder and Jeremiah Charles are the Fund's
portfolio managers and are jointly and primarily responsible for the day-to-day
management of the Fund's investment portfolio.
Under normal market conditions, the Fund will seek to achieve its investment
objectives by investing at least 60% of its net assets (including investment
borrowings) in mortgage-related debt securities and other mortgage-related
instruments. The Fund's investment categories are: (i) mortgage-related
investments, including mortgage-backed securities that may be, but are not
required to be, issued or guaranteed by the U.S. government or its agencies or
instrumentalities; (ii) U.S. government securities, including callable agency
securities, which give the issuer (the U.S. government agency) the right to
redeem the security prior to maturity, and U.S. government inflation-indexed
securities; and (iii) high yield debt, commonly referred to as "junk" debt.
Although the Fund intends to invest primarily in investment grade securities,
the Fund may invest up to 20% of its net assets (including investment
borrowings) in securities of any credit quality, including securities that are
below investment grade (as described in (iii) above), illiquid securities, and
derivative instruments. The Fund is diversified.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (11/4/14) 5 Years Ended Inception (11/4/14)
10/31/20 10/31/20 to 10/31/20 10/31/20 to 10/31/20
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 1.50% 3.15% 3.24% 16.78% 21.01%
Market Price 1.71% 3.24% 3.25% 17.30% 21.13%
INDEX PERFORMANCE
ICE BofA 1-5 Year US Treasury &
Agency Index 4.11% 2.21% 2.08% 11.53% 13.14%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the periods
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of the Fund did
not trade in the secondary market until after its inception, for the period from
inception to the first day of secondary market trading in shares of the Fund,
the NAV of the Fund is used as a proxy for the secondary market trading price to
calculate market returns. NAV and market returns assume that all distributions
have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. 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. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
-----------------------------------------------------------
% OF
FUND ALLOCATION NET ASSETS
-----------------------------------------------------------
U.S. Government Agency Mortgage-
Backed Securities 87.5%
Mortgage-Backed Securities 2.9
Asset-Backed Securities 2.2
Exchange-Traded Funds 0.0*
Money Market Funds 20.9
U.S. Government Agency Mortgage-
Backed Securities Sold Short (9.0)
Net Other Assets and Liabilities(1) (4.5)
-------
Total 100.0%
=======
-----------------------------------------------------------
% OF TOTAL LONG
FIXED-INCOME
CREDIT QUALITY(3) INVESTMENTS & CASH
-----------------------------------------------------------
Government and Agency 76.98%
AAA 0.49
AA+ 0.00**
AA 0.01
A+ 0.04
A 0.00**
BBB+ 0.03
BBB- 0.00**
BB+ 0.03
BB 0.12
B+ 0.00**
B- 0.00**
CCC 0.02
D 0.05
Not Rated 3.68
Cash and Cash Equivalents 18.55
-------
Total 100.00%
=======
* Amount is less than 0.05%.
** Amount is less than 0.01%.
-----------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS(2)
-----------------------------------------------------------
Federal National Mortgage Association,
Pool TBA, 2.50%, 12/15/50 6.51%
Federal National Mortgage Association,
Pool TBA, 2.00%, 12/15/50 4.33
Federal National Mortgage Association,
Pool TBA, 1.50%, 11/15/35 2.16
Federal National Mortgage Association,
Pool FM2500, 2.50%, 3/1/35 2.08
Federal National Mortgage Association,
Pool FM1194, 4.50%, 5/1/39 1.81
Federal Home Loan Mortgage Corporation,
Series 2017-4673, Class WZ, 3.50%,
4/15/47 1.57
Federal Home Loan Mortgage Corporation,
Series 2018-4790, Class Z,
4.00%, 5/15/48 1.55
Federal Home Loan Mortgage Corporation,
Pool SD8082, 1.50%, 10/1/50 1.55
Federal National Mortgage Association,
Pool FM1725, 2.50%, 11/01/47 1.30
Federal National Mortgage Association,
Pool BM5508, 5.00%, 2/1/49 1.22
-------
Total 24.08%
=======
-----------------------------------------------------------
WEIGHTED AVERAGE EFFECTIVE NET DURATION
-----------------------------------------------------------
October 31, 2020 1.57 Years
High - December 31, 2019 2.56 Years
Low - July 31, 2020 1.17 Years
-----------------------------
(1) Includes variation margin on futures contracts.
(2) Percentages are based on the long positions only. Money market funds and
short positions are excluded.
(3) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. 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 highest to lowest on a scale that generally ranges from AAA
to D for long-term ratings and A-1+ to C for short-term ratings.
Investment grade is defined as those issuers that have a long-term credit
rating of BBB- or higher or a short-term credit rating of A-3 or higher.
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.
U.S. Treasury and U.S. Agency mortgage-backed securities appear under
"Government and Agency". Credit ratings are subject to change.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 4, 2014 - OCTOBER 31, 2020
First Trust Low Duration ICE BofA 1-5 Year US
Opportunities ETF Treasury & Agency Index
<S> <C> <C>
11/4/14 $10,000 $10,000
4/30/15 10,236 10,097
10/31/15 10,362 10,144
4/30/16 10,725 10,256
10/31/16 11,138 10,301
4/30/17 11,186 10,279
10/31/17 11,274 10,307
4/30/18 11,294 10,205
10/31/18 11,368 10,273
4/30/19 11,635 10,578
10/31/19 11,923 10,867
4/30/20 11,990 11,290
10/31/20 12,101 11,314
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the First Trust Low Duration Opportunities ETF ("the Fund" or
"LMBS"). In this capacity, First Trust is responsible for the selection and
ongoing monitoring of the investments in the Fund's portfolio and certain other
services necessary for the management of the portfolio.
PORTFOLIO MANAGEMENT TEAM
JEREMIAH CHARLES - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER, FIRST
TRUST SECURITIZED PRODUCTS GROUP
JAMES SNYDER - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER, FIRST
TRUST SECURITIZED PRODUCTS GROUP
COMMENTARY
MARKET RECAP
The 12-month period ended October 31, 2020 began relatively calmly, being driven
primarily by policy decisions related to the trade war between the U.S. and
China. The onset of the coronavirus ("COVID-19") pandemic triggered an
unprecedented liquidity crisis across global markets, with its effects rippling
through the domestic and global economies and causing profound changes in both
bond and equity market fundamentals, risk factors and valuations. Due to the
nature of this pandemic, the reversal in monetary policy driven by the trade war
was put into overdrive. In response, the Federal Reserve (the "Fed") began a new
phase of seemingly limitless quantitative easing, and reinstated programs that
were last relied upon during the Great Recession of 2008. It also began to roll
out new programs, expanding the range of covered asset classes, and providing a
backstop to the significant dislocations and severe illiquidity that occurred.
The Fed further aided markets with emergency rate cuts totaling 150 basis points
("bps") and setting the lower bound of the Fed Funds rate at 0%. The Fed was not
alone in providing aid, as Congress stepped in with a large stimulus package to
help Americans weather coronavirus and its effects. Treasury issuance as a
result has soared to buoy government spending, however, with the aid of
quantitative easing ("QE") programs and a continued demand for safe haven
assets, Treasury yields plunged to record lows. For example, over the last year,
the 2-Year Treasury yield has declined precipitously by -137 bps to close on
October 31, 2020 at 15 bps, while the 10-Year Treasury fell 82 bps to close the
year at 87.4 bps, with the curve bull steepening. The COVID-19 panic did not
discriminate, affecting nearly every aspect of the broader spread markets,
including Agency Mortgage-Backed Securities ("MBS"), which initially saw large
spread widening moves as Agency MBS spreads widened dramatically from the low
40s Treasury Option-Adjusted Spread ("OAS"), to a wide of 136 OAS. Agency MBS
spreads tightened to close the fiscal year at 64 OAS, as the impact of Fed
programs and legislative support helped improve liquidity and greatly improved
market participants risk appetite.
PERFORMANCE ANALYSIS
During the 12-month period ended October 31, 2020, the Fund returned 1.50% on a
net asset value ("NAV") basis. Since the Fund's inception on November 4, 2014,
the Fund has returned a cumulative 21.01%, net of fees.
During the 12-month period ended October 31, 2020, the ICE BofA 1-5 Year U.S.
Treasury & Agency Index (the "Index") returned 4.11%. Since the Fund's inception
on November 4, 2014, the Index has returned 13.14% on a cumulative basis.
During the 12-month period ended October 31, 2020, the Fund underperformed the
Index by -261 bps, net of fees. Since the Fund's inception, the Fund has
outperformed the Index by 7.87%, net of fees. The Fund is structured to own a
significant percentage of the Fund in MBS, with the majority allocated to the
Agency MBS sector, whereas the benchmark is a pure treasury and agency index.
MBS, both Agency and to a greater extent, Non-Agency Residential Mortgage-Backed
Securities ("RMBS"), each experienced substantial widening during the severe
illiquidity that gripped the fixed income markets during the early stages of the
COVID-19 pandemic unfolding. As American markets digested the rapid pace of
lockdowns, uncertainties on future economic health, and the Fed's rapidly
evolving market support, treasury yields plunged, in an outright flight to
quality. This was detrimental to the Fund in terms of matching the benchmark's
performance, due to the negative convexity associated with mortgage securities
as well as the Fund's longstanding utilization of treasury future hedges to
prudently manage interest rate risk. As the year progressed and the Fed
continued to unveil the ever-broadening scope of its market support, coupled
with legislative initiatives, risk assets staged a dramatic comeback that has
persisted into the close of the fiscal year. As such, valuations on both
Non-Agency RMBS and Agency MBS have improved, which helped the Fund to recover
from its NAV low which was posted on March 25, 2020. Since the NAV low, the Fund
has outperformed its 1-5 Year Treasury benchmark by nearly 200 bps.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
MARKET OUTLOOK
The Fed has deployed emergency rate cuts, large scale QE, unprecedented lending
programs and has signaled it plans to be highly accommodative for some time to
come. We believe this will keep the front end of the yield curve anchored in
place in the near term, with any rate volatility centralized in the longer
maturity segments of the yield curve. We do expect consumer and overall economic
data to continue to recover, with the recovery likely to accelerate on the back
of any potential additional stimulus package, as well as any positive
developments in COVID-19 treatment and vaccines to combat the pandemic. On the
other side of that, a rapid acceleration of the pandemic, and corresponding
enhanced large-scale restrictions or lockdowns could be quite detrimental to our
growth forecast. Over the near term, we expect no rise in inflation, but given
the surge in the money supply and dollar weakness, we could see inflationary
pressure build over the medium term. We remain positive on MBS spread valuations
over the longer term and believe there is additional capacity for spread
tightening to occur. Lastly, while we do generally expect interest rate
volatility to remain somewhat muted due to ongoing fiscal and monetary programs
deployed to assist in fighting the virus, chiefly quantitative easing and the
potential for a yield curve control type program by the Fed, we are mindful that
volatility could spike around the U.S. elections in November 2020.
Given our outlook on the broader bond markets, we plan to continue to actively
manage the Fund versus the Index from a duration standpoint, especially after
the dramatic declines in Treasury yields to such uneconomic levels. To the
extent the curve sees a large bear steepening, likely due to inflation, supply
or volatility, we will look to take advantage of higher longer maturity yields.
Across the mortgage sector, prepayments remain extremely elevated due to low
interest rates and mortgage buybacks. As such, we continue to favor select, call
protected MBS interest only securities, loan balance specified pools, Agency
Commercial Mortgage-Backed Securities, locked out Collateralized Mortgage
Obligation structures and select TBA hedges. Our goal is simple. Lock in longer,
more certain mortgage cashflow in government guaranteed sectors, with little to
no credit loss risk, protecting for a strategic period the yield, income,
dividend and spread for the Fund's shareholders. Over time, we expect others
will need those same characteristics and those bonds will become dearer and
perform well. Going forward, we are extremely positive on the Fund's future
performance as its securities represent attractive value relative to the
corporate, generic mortgage and treasury sectors, in our view. We continue to
maintain exceptional liquidity within a difficult environment allowing us the
ability to take advantage of opportunities should they arise in Non-Agency RMBS
and Non-Agency Commercial Mortgage-Backed Securities.
Page 6
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2020 (UNAUDITED)
As a shareholder of First Trust Low Duration Opportunities ETF (the "Fund"), you
incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service (12b-1) fees, if any, and
other Fund expenses. This Example is intended to help you understand your
ongoing costs of investing in the Fund and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2020.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX MONTH SIX MONTH
MAY 1, 2020 OCTOBER 31, 2020 PERIOD (a) PERIOD (a) (b)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
Actual $1,000.00 $1,009.30 0.65% $3.28
Hypothetical (5% return before expenses) $1,000.00 $1,021.87 0.65% $3.30
</TABLE>
(a) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2020
through October 31, 2020), multiplied by 184/366 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 87.5%
ASSET-BACKED SECURITIES -- 0.0%
Fannie Mae Grantor Trust
$ 290,149 Series 2002-T7, Class A1, 1 Mo. LIBOR + 0.11% (a)............ 0.26% 07/25/32 $ 283,662
----------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 30.5%
Federal Home Loan Mortgage Corporation
21,971 Series 1992-133, Class B, IO, STRIPS......................... 8.50% 06/01/22 949
21,708 Series 1992-1206, Class IB, 1 Mo. LIBOR + 0.83% (a).......... 0.98% 03/15/22 21,684
10,112 Series 1993-1498, Class I, 1 Mo. LIBOR + 1.15% (a)........... 1.30% 04/15/23 10,191
8,321 Series 1993-1552, Class I, 10 Yr. Constant Maturity Treasury
Rate - 0.65% (a).......................................... 0.04% 08/15/23 8,199
81,237 Series 1993-1579, Class PM................................... 6.70% 09/15/23 86,354
67,306 Series 1993-1630, Class PK................................... 6.00% 11/15/23 71,311
4,552 Series 1993-1643, Class PK................................... 6.50% 12/15/23 4,786
200,194 Series 1994-1710, Class G, 1 Mo. LIBOR + 1.50% (a)........... 1.65% 04/15/24 203,111
1,662 Series 1998-2089, Class PJ, IO............................... 7.00% 10/15/28 169
7,853 Series 1998-2102, Class Z.................................... 6.00% 12/15/28 8,887
727,763 Series 1999-21, Class A, 1 Mo. LIBOR + 0.18% (a)............. 0.33% 10/25/29 724,787
1,564 Series 2001-2365, Class LO, PO............................... (b) 09/15/31 1,561
180,865 Series 2002-48, Class 1A (c)................................. 4.80% 07/25/33 202,127
49,408 Series 2002-2405, Class BF................................... 7.00% 03/25/24 52,366
150,747 Series 2002-2410, Class OG................................... 6.38% 02/15/32 190,586
133,374 Series 2002-2427, Class GE................................... 6.00% 03/15/32 157,502
233,885 Series 2002-2437, Class SA, IO,
1 Mo. LIBOR (x) -1 + 7.90% (d)............................ 7.75% 01/15/29 36,509
14,946 Series 2003-58, Class 2A..................................... 6.50% 09/25/43 17,389
283,922 Series 2003-2557, Class HL................................... 5.30% 01/15/33 328,636
154,824 Series 2003-2564, Class AC................................... 5.50% 02/15/33 177,290
442,203 Series 2003-2574, Class PE................................... 5.50% 02/15/33 515,236
188,915 Series 2003-2577, Class LI, IO............................... 5.50% 02/15/33 29,623
1,484,000 Series 2003-2581, Class LL................................... 5.25% 03/15/33 1,640,314
264,742 Series 2003-2586, Class TG................................... 5.50% 03/15/23 273,620
67,628 Series 2003-2597, Class AE................................... 5.50% 04/15/33 73,371
1,832,000 Series 2003-2613, Class LL................................... 5.00% 05/15/33 2,043,746
237,469 Series 2003-2626, Class ZW................................... 5.00% 06/15/33 273,381
517,682 Series 2003-2626, Class ZX................................... 5.00% 06/15/33 640,062
106,000 Series 2003-2669, Class LL................................... 5.50% 08/15/33 122,414
38,000 Series 2003-2676, Class LL................................... 5.50% 09/15/33 42,407
572,056 Series 2004-2771, Class NL................................... 6.00% 03/15/34 672,546
465,868 Series 2004-2793, Class PE................................... 5.00% 05/15/34 540,598
1,174,603 Series 2004-2801, Class SE, IO,
1 Mo. LIBOR (x) -1 + 7.05% (d)............................ 6.90% 07/15/32 216,747
206,204 Series 2004-2835, Class QY, IO,
1 Mo. LIBOR (x) -1 + 7.90% (d)............................ 7.75% 12/15/32 39,535
162,439 Series 2004-2890, Class ZA................................... 5.00% 11/15/34 187,368
561,218 Series 2004-2891, Class ZA................................... 6.50% 11/15/34 829,126
408,087 Series 2004-2907, Class DZ................................... 4.00% 12/15/34 443,192
1,682,477 Series 2005-233, Class 12, IO, STRIPS........................ 5.00% 09/15/35 312,294
1,282,463 Series 2005-234, Class IO, IO, STRIPS........................ 4.50% 10/01/35 196,971
678,000 Series 2005-2973, Class GE................................... 5.50% 05/15/35 847,828
149,193 Series 2005-3031, Class BI, IO,
1 Mo. LIBOR (x) -1 + 6.69% (d)............................ 6.54% 08/15/35 35,216
3,419,240 Series 2005-3054, Class ZW................................... 6.00% 10/15/35 3,938,072
20,404 Series 2005-3074, Class ZH................................... 5.50% 11/15/35 28,234
396,122 Series 2006-238, Class 8, IO, STRIPS......................... 5.00% 04/15/36 68,417
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 339,498 Series 2006-243, Class 11, IO, STRIPS (e).................... 7.00% 08/15/36 $ 74,902
433,666 Series 2006-3114, Class GI, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 6.45% 02/15/36 84,864
62,078 Series 2006-3117, Class ZU................................... 6.00% 02/15/36 92,554
35,726 Series 2006-3150, Class DZ................................... 5.50% 05/15/36 41,624
2,224,328 Series 2006-3174, Class LF,
1 Mo. LIBOR + 0.35% (a)................................... 0.50% 05/15/36 2,231,791
2,505,149 Series 2006-3196, Class ZK................................... 6.50% 04/15/32 3,498,836
1,959,663 Series 2006-3210, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 6.45% 09/15/36 410,074
573,010 Series 2006-3223, Class FC, 1 Mo. LIBOR + 0.55% (a).......... 0.70% 04/15/32 578,470
201,150 Series 2006-3245, Class PO, PO............................... (b) 11/15/36 194,261
1,216,269 Series 2007-3262, Class KS, IO,
1 Mo. LIBOR (x) -1 + 6.41% (d)............................ 6.26% 01/15/37 161,200
38,690 Series 2007-3274, Class B.................................... 6.00% 02/15/37 43,785
311,990 Series 2007-3322, Class NF,
1 Mo. LIBOR (x) 2,566.67 - 16,683.33%, 0.00% Floor (a).... 0.00% 05/15/37 301,271
48,768 Series 2007-3340, Class PF, 1 Mo. LIBOR + 0.30% (a).......... 0.45% 07/15/37 48,935
70,051 Series 2007-3349, Class MY................................... 5.50% 07/15/37 81,459
180,952 Series 2007-3360, Class CB................................... 5.50% 08/15/37 206,544
1,293,819 Series 2007-3370, Class FM, 1 Mo. LIBOR + 0.62% (a).......... 0.77% 10/15/47 1,315,665
111,636 Series 2007-3380, Class FS, 1 Mo. LIBOR + 0.35% (a).......... 0.50% 11/15/36 112,153
431,039 Series 2008-3406, Class B.................................... 6.00% 01/15/38 491,242
110,981 Series 2008-3413, Class B.................................... 5.50% 04/15/37 125,313
343,255 Series 2008-3420, Class AZ................................... 5.50% 02/15/38 397,129
184,366 Series 2008-3448, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (d)............................ 5.90% 05/15/38 13,936
3,767,598 Series 2009-3522, Class SE, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 04/15/39 742,627
36,939 Series 2009-3523, Class SD,
1 Mo. LIBOR (x) -2.75 + 19.66% (d)........................ 9.25% 06/15/36 51,721
1,146,713 Series 2009-3542, Class ZP................................... 5.00% 06/15/39 1,415,362
177,000 Series 2009-3550, Class LL................................... 4.50% 07/15/39 207,568
698,292 Series 2009-3563, Class ZP................................... 5.00% 08/15/39 893,045
2,498,407 Series 2009-3572, Class JS, IO,
1 Mo. LIBOR (x) -1 + 6.80% (d)............................ 6.65% 09/15/39 414,007
31,159 Series 2009-3585, Class QZ................................... 5.00% 08/15/39 41,978
168,736 Series 2009-3587, Class FX, 1 Mo. LIBOR (a).................. 0.15% 12/15/37 156,337
796,493 Series 2009-3593, Class F, 1 Mo. LIBOR + 0.50% (a)........... 0.66% 03/15/36 799,374
2,090,367 Series 2009-3605, Class NC................................... 5.50% 06/15/37 2,415,893
500,000 Series 2010-3622, Class PB................................... 5.00% 01/15/40 582,177
621,640 Series 2010-3632, Class BS,
1 Mo. LIBOR (x) -3.33 + 17.50% (d)........................ 17.01% 02/15/40 912,324
214 Series 2010-3637, Class LJ................................... 3.50% 02/15/25 214
107,000 Series 2010-3645, Class WD................................... 4.50% 02/15/40 119,990
661,000 Series 2010-3667, Class PL................................... 5.00% 05/15/40 748,429
22,149 Series 2010-3688, Class HI, IO............................... 5.00% 11/15/21 246
96,576 Series 2010-3699, Class FD, 1 Mo. LIBOR + 0.60% (a).......... 0.75% 07/15/40 97,658
1,578,258 Series 2010-3704, Class ED................................... 4.00% 12/15/36 1,647,195
400,000 Series 2010-3714, Class PB................................... 4.75% 08/15/40 491,669
5,586 Series 2010-3716, Class PC................................... 2.50% 04/15/38 5,609
132,866 Series 2010-3726, Class BI, IO............................... 6.00% 07/15/30 49
804,963 Series 2010-3735, Class IK, IO............................... 3.50% 10/15/25 38,480
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 128,893 Series 2010-3735, Class JI, IO............................... 4.50% 10/15/30 $ 14,877
9,662 Series 2010-3739, Class MB................................... 4.00% 06/15/37 9,692
453,438 Series 2010-3740, Class SC, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 10/15/40 83,833
15,075 Series 2010-3755, Class AI, IO (f)........................... 3.50% 11/15/20 1
215,435 Series 2010-3764, Class QA................................... 4.00% 10/15/29 216,347
77,765 Series 2010-3770, Class GZ................................... 4.50% 10/15/40 109,791
2,463 Series 2010-3775, Class LD................................... 3.00% 12/15/20 2,462
7,157 Series 2010-3775, Class LI, IO (f)........................... 3.50% 12/15/20 0
312,000 Series 2010-3780, Class AV................................... 4.00% 04/15/31 344,860
134,659 Series 2011-3795, Class ED................................... 3.00% 10/15/39 138,444
600,000 Series 2011-3796, Class PB................................... 5.00% 01/15/41 730,361
318,793 Series 2011-3819, Class ZQ................................... 6.00% 04/15/36 379,121
3,411,907 Series 2011-3820, Class GZ................................... 5.00% 03/15/41 4,170,822
300,000 Series 2011-3820, Class NC................................... 4.50% 03/15/41 352,887
67,845 Series 2011-3827, Class BM................................... 5.50% 08/15/39 68,258
153,801 Series 2011-3828, Class SY,
1 Mo. LIBOR (x) -3 + 13.20% (d)........................... 12.75% 02/15/41 261,392
1,404,736 Series 2011-3841, Class JZ................................... 5.00% 04/15/41 1,631,353
103,547 Series 2011-3842, Class BS,
1 Mo. LIBOR (x) -5 + 22.75% (d)........................... 22.00% 04/15/41 238,701
300,000 Series 2011-3844, Class PC................................... 5.00% 04/15/41 368,885
1,055,647 Series 2011-3852, Class SW, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 05/15/41 161,469
3,071,544 Series 2011-3860, Class PZ................................... 5.00% 05/15/41 3,698,758
525,000 Series 2011-3890, Class ME................................... 5.00% 07/15/41 645,486
1,387,000 Series 2011-3895, Class PW................................... 4.50% 07/15/41 1,608,493
1,717,010 Series 2011-3925, Class ZD................................... 4.50% 09/15/41 2,179,775
841,433 Series 2011-3926, Class SH, IO,
1 Mo. LIBOR (x) -1 + 6.55% (d)............................ 6.40% 05/15/40 60,796
2,359,613 Series 2011-3935, Class HZ................................... 4.50% 10/15/41 3,007,525
181,775 Series 2011-3935, Class LI, IO............................... 3.00% 10/15/21 1,406
15,136,174 Series 2011-3954, Class GS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 11/15/41 3,184,279
623,067 Series 2011-3956, Class KI, IO............................... 3.00% 11/15/21 6,728
170,953 Series 2011-3960, Class BU................................... 3.50% 02/15/30 172,096
213,327 Series 2011-3968, Class AI, IO (f)........................... 3.00% 12/15/21 2,298
720,893 Series 2012-267, Class S5, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 08/15/42 151,255
21,597,116 Series 2012-272, Class PO, PO, STRIPS........................ (b) 08/15/42 20,338,576
16,670,580 Series 2012-276, Class S5, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 09/15/42 3,129,747
84,495 Series 2012-278, Class F1, STRIPS,
1 Mo. LIBOR + 0.45% (a)................................... 0.60% 09/15/42 85,427
531,352 Series 2012-3994, Class AI, IO............................... 3.00% 02/15/22 6,477
823,799 Series 2012-3999, Class WA (e)............................... 5.39% 08/15/40 945,877
1,878,000 Series 2012-4000, Class PY................................... 4.50% 02/15/42 2,210,787
182,482 Series 2012-4002, Class DE................................... 2.50% 03/15/30 182,681
59,000 Series 2012-4012, Class GC................................... 3.50% 06/15/40 62,416
33,547 Series 2012-4015, Class KB................................... 1.75% 05/15/41 34,338
663,226 Series 2012-4021, Class IP, IO............................... 3.00% 03/15/27 34,759
1,051,974 Series 2012-4026, Class GZ................................... 4.50% 04/15/42 1,356,132
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 1,297,624 Series 2012-4030, Class IL, IO............................... 3.50% 04/15/27 $ 80,217
138,248 Series 2012-4038, Class CS,
1 Mo. LIBOR (x) -3 + 12.00% (d)........................... 11.55% 04/15/42 165,022
1,048,644 Series 2012-4048, Class FJ, 1 Mo. LIBOR + 0.40% (a).......... 0.56% 07/15/37 1,049,122
2,304,220 Series 2012-4054, Class AI, IO............................... 3.00% 04/15/27 133,624
32,081,297 Series 2012-4057, Class ZA................................... 4.00% 06/15/42 36,346,609
4,014,266 Series 2012-4057, Class ZC................................... 3.50% 06/15/42 4,340,618
2,306,416 Series 2012-4077, Class TS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 05/15/41 414,996
613,924 Series 2012-4090, Class YZ................................... 4.50% 08/15/42 821,107
49,702 Series 2012-4097, Class ES, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 08/15/42 10,065
4,769,265 Series 2012-4097, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (d)............................ 5.90% 08/15/42 1,035,887
2,447,000 Series 2012-4098, Class PE................................... 4.00% 08/15/42 2,841,685
489,552 Series 2012-4103, Class HI, IO............................... 3.00% 09/15/27 32,129
59,326 Series 2012-4116, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.15% (d)............................ 6.00% 10/15/42 11,492
2,534,135 Series 2012-4121, Class HI, IO............................... 3.50% 10/15/27 183,624
2,395,373 Series 2012-4132, Class AI, IO............................... 4.00% 10/15/42 373,816
633,906 Series 2012-4136, Class TU, IO,
1 Mo. LIBOR (x) -22.50 + 139.50%, 4.50% Cap (d)........... 4.50% 08/15/42 115,535
573,486 Series 2012-4145, Class YI, IO............................... 3.00% 12/15/27 36,178
526,432 Series 2013-299, Class S1, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 01/15/43 85,694
627,559 Series 2013-303, Class C2, IO, STRIPS........................ 3.50% 01/15/28 47,062
9,723,499 Series 2013-303, Class C12, IO, STRIPS....................... 4.00% 12/15/32 1,047,548
22,150,202 Series 2013-303, Class C33, IO, STRIPS....................... 4.50% 01/15/43 3,529,154
5,632,730 Series 2013-304, Class C19, IO, STRIPS....................... 5.00% 06/15/42 1,170,359
524,027 Series 2013-304, Class C37, IO, STRIPS....................... 3.50% 12/15/27 28,580
2,528,371 Series 2013-304, Class C40, IO, STRIPS....................... 3.50% 09/15/26 128,190
20,752,946 Series 2013-311, Class PO, PO, STRIPS........................ (b) 08/15/43 19,212,245
3,016,885 Series 2013-4151, Class DI, IO............................... 3.50% 11/15/31 174,174
5,566,629 Series 2013-4154, Class IB, IO............................... 3.50% 01/15/28 412,458
14,309,871 Series 2013-4170, Class CO, PO............................... (b) 11/15/32 13,907,333
905,000 Series 2013-4176, Class HE................................... 4.00% 03/15/43 1,075,469
732,650 Series 2013-4177, Class GL................................... 3.00% 03/15/33 817,674
2,216,262 Series 2013-4184, Class GZ................................... 3.00% 03/15/43 2,204,933
6,425,784 Series 2013-4193, Class AI, IO............................... 3.00% 04/15/28 452,861
826,035 Series 2013-4193, Class PB................................... 4.00% 04/15/43 1,022,027
17,010,948 Series 2013-4194, Class GI, IO............................... 4.00% 04/15/43 2,483,573
4,733,446 Series 2013-4203, Class US,
1 Mo. LIBOR (x) -1.50 + 6.00% (d)......................... 5.78% 05/15/33 5,267,039
500,000 Series 2013-4211, Class PB................................... 3.00% 05/15/43 560,349
1,742,306 Series 2013-4213, Class MZ................................... 4.00% 06/15/43 1,977,193
355,282 Series 2013-4226, Class NS,
1 Mo. LIBOR (x) -3 + 10.50% (d)........................... 10.05% 01/15/43 441,571
505,058 Series 2013-4239, Class IO, IO............................... 3.50% 06/15/27 31,821
1,450,000 Series 2013-4247, Class AY................................... 4.50% 09/15/43 1,821,901
877,343 Series 2013-4261, Class GS,
1 Mo. LIBOR (x) -2.75 + 10.98% (d)........................ 10.57% 01/15/41 1,194,729
940,105 Series 2013-4265, Class IB, IO............................... 4.50% 12/15/24 51,859
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 200,295 Series 2014-4300, Class IM, IO............................... 3.00% 03/15/37 $ 9,302
1,188,447 Series 2014-4314, Class CI, IO............................... 6.00% 03/15/44 278,429
1,256,697 Series 2014-4316, Class XZ................................... 4.50% 03/15/44 1,485,963
115,917 Series 2014-4318, Class CI, IO............................... 4.00% 03/15/22 1,035
14,252,638 Series 2014-4329, Class VZ................................... 4.00% 04/15/44 15,848,934
501,673 Series 2014-4332, Class PO, PO............................... (b) 01/15/33 500,835
5,491,945 Series 2014-4347, Class YT................................... 3.50% 06/15/44 5,987,966
15,279,103 Series 2014-4375, Class MZ................................... 3.50% 08/15/44 17,318,268
5,655,058 Series 2014-4387, Class IE, IO............................... 2.50% 11/15/28 321,866
30,053,273 Series 2015-4483, Class ZX................................... 4.15% 06/15/44 34,790,390
1,003,761 Series 2015-4503, Class MI, IO............................... 5.00% 08/15/45 197,350
874,082 Series 2015-4512, Class W (c) (e)............................ 5.40% 05/15/38 998,610
152,094 Series 2015-4520, Class AI, IO............................... 3.50% 10/15/35 14,998
546,513 Series 2015-4522, Class JZ................................... 2.00% 01/15/45 575,184
17,339,886 Series 2015-4532, Class ZX................................... 4.00% 09/15/45 20,033,900
257,983 Series 2016-4546, Class PZ................................... 4.00% 12/15/45 326,876
436,701 Series 2016-4546, Class ZT................................... 4.00% 01/15/46 552,431
134,048 Series 2016-4568, Class MZ................................... 4.00% 04/15/46 169,412
17,559,933 Series 2016-4570, Class ST, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 04/15/46 4,101,419
6,808,236 Series 2016-4572, Class LI, IO............................... 4.00% 08/15/45 959,380
13,717,649 Series 2016-4582, Class GZ................................... 3.75% 03/15/52 15,740,377
31,691,384 Series 2016-4585, Class DS, IO,
1 Mo. LIBOR (x) -1 +6.00% (d)............................. 5.85% 05/15/46 7,642,010
6,580,892 Series 2016-4587, Class ZH, steps up 07/15/21 to 4.00% (g)... 3.75% 03/15/44 7,776,977
2,579,780 Series 2016-4591, Class GI, IO............................... 4.00% 12/15/44 344,365
1,393,932 Series 2016-4596, Class FL, 1 Mo. LIBOR + 0.50% (a).......... 0.66% 11/15/41 1,408,465
771,702 Series 2016-4600, Class WT................................... 3.50% 07/15/36 924,053
324,867 Series 2016-4605, Class KS,
1 Mo. LIBOR (x) -1.57 + 4.71% (d)......................... 4.48% 08/15/43 355,642
856,834 Series 2016-4609, Class YI, IO............................... 4.00% 04/15/54 32,382
457,549 Series 2016-4613, Class AF, 1 Mo. LIBOR + 1.10% (a).......... 1.25% 11/15/37 464,740
1,223,979 Series 2016-4615, Class GT,
1 Mo. LIBOR (x) -4 + 16.00%, 4.00% Cap (d)................ 4.00% 10/15/42 1,240,261
22,301,055 Series 2016-4619, Class IB, IO............................... 4.00% 12/15/47 815,273
3,350,647 Series 2016-4641, Class DI, IO............................... 5.00% 05/15/41 506,230
8,478,445 Series 2017-4649, Class AZ................................... 3.50% 05/15/46 9,459,711
1,173,000 Series 2017-4650, Class JH................................... 3.00% 01/15/47 1,313,337
10,509,527 Series 2017-4660, Class PO, PO............................... (b) 01/15/33 9,197,637
84,344,133 Series 2017-4673, Class WZ................................... 3.50% 04/15/47 92,660,136
600,000 Series 2017-4681, Class JY................................... 2.50% 05/15/47 640,601
11,268,310 Series 2017-4682, Class KZ................................... 3.50% 09/15/46 12,521,235
6,465,163 Series 2018-4774, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.20% (d)............................ 6.05% 04/15/48 1,046,928
22,173,409 Series 2018-4778, Class DZ................................... 4.00% 04/15/48 25,195,538
2,556,214 Series 2018-4780, Class VA................................... 4.00% 05/15/29 2,728,932
6,261,926 Series 2018-4780, Class Z.................................... 4.00% 01/15/48 7,191,744
5,397,855 Series 2018-4790, Class IO, IO............................... 4.50% 05/15/48 896,107
84,471,696 Series 2018-4790, Class Z.................................... 4.00% 05/15/48 91,731,337
9,924,000 Series 2018-4826, Class ME................................... 3.50% 09/15/48 10,712,313
3,517,000 Series 2018-4833, Class PY................................... 4.00% 10/15/48 3,890,049
11,344,771 Series 2018-4851, Class PO, PO............................... (b) 08/15/57 9,799,441
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 6,674,285 Series 2018-4855, Class AZ................................... 4.00% 08/15/48 $ 7,366,050
10,367,570 Series 2018-4857, Class ZB................................... 4.50% 01/15/49 11,609,661
26,126,000 Series 2018-4858, Class EK................................... 4.00% 01/15/49 28,047,567
3,013,099 Series 2019-4872, Class BZ................................... 4.00% 04/15/49 3,671,026
15,820,314 Series 2019-4894, Class PZ................................... 4.00% 07/15/49 17,098,376
11,956,731 Series 2019-4910, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (d)............................ 5.90% 06/15/49 2,083,490
21,462,881 Series 2019-4938, Class BS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 12/25/49 2,899,532
19,357,178 Series 2019-4943, Class NS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 01/25/50 3,138,753
71,091,689 Series 2020-4973, Class IK, IO............................... 5.00% 05/25/50 12,282,696
2,515,155 Series 2020-4974, Class IA, IO............................... 3.50% 12/25/49 798,810
9,608,042 Series 2020-4988, Class IJ, IO............................... 4.50% 12/15/47 1,630,337
11,075,801 Series 2020-5000, Class ZE................................... 1.00% 07/25/50 10,979,970
13,558,241 Series 2020-5013, Class HI, IO............................... 5.00% 03/25/40 2,350,531
6,750,562 Series 2020-5013, Class IQ, IO............................... 3.50% 09/25/50 1,244,537
33,291,468 Series 2020-5013, Class QI, IO............................... 3.50% 09/25/50 6,330,066
29,186,598 Series 2020-5034, Class IO, IO (e)........................... 2.79% 10/15/45 1,623,504
19,015,782 Series 2020-BM8449, Class WA................................. 4.00% 05/01/50 20,395,169
Federal National Mortgage Association
94,330 Series 1992-38, Class GZ..................................... 7.50% 07/25/22 98,470
15 Series 1992-44, Class ZQ..................................... 8.00% 07/25/22 15
3,078 Series 1992-185, Class ZB.................................... 7.00% 10/25/22 3,212
540 Series 1993-3, Class K....................................... 7.00% 02/25/23 560
7,469 Series 1993-39, Class Z...................................... 7.50% 04/25/23 7,859
920 Series 1993-46, Class FH, 7 Yr. Constant Maturity Treasury
Rate - 0.20% (a).......................................... 0.26% 04/25/23 912
105,184 Series 1993-169, Class L..................................... 6.50% 09/25/23 111,820
32,102 Series 1993-171, Class SB, 10 Yr. Constant Maturity Treasury
Rate (x) -2.17 + 21.99% (d)............................... 20.54% 09/25/23 38,080
25,317 Series 1993-214, Class 2, IO, STRIPS......................... 7.50% 03/25/23 1,623
284,532 Series 1993-222, Class 2, IO, STRIPS......................... 7.00% 06/25/23 19,236
14,740 Series 1993-230, Class FA, 1 Mo. LIBOR + 0.60% (a)........... 0.75% 12/25/23 14,670
140,552 Series 1994-61, Class FG, 1 Mo. LIBOR + 1.50% (a)............ 1.65% 04/25/24 142,515
41,532 Series 1996-51, Class AY, IO................................. 7.00% 12/18/26 5,346
89,317 Series 1998-37, Class VZ..................................... 6.00% 06/17/28 94,670
534,697 Series 2000-45, Class SD, IO,
1 Mo. LIBOR (x) -1 + 7.95% (d)............................ 7.80% 12/18/30 67,509
159 Series 2001-8, Class SE, IO, 1 Mo. LIBOR (x) -1 +
1 Mo. LIBOR (x) -1 + 8.60% (d)............................ 8.45% 02/17/31 2
93,589 Series 2001-34, Class SR, IO,
1 Mo. LIBOR (x) -1 + 8.10% (d)............................ 7.95% 08/18/31 8,995
2,946 Series 2001-42, Class SB,
1 Mo. LIBOR (x) -16 + 128.00%, 8.50% Cap (d).............. 8.50% 09/25/31 3,350
165,218 Series 2001-46, Class F, 1 Mo. LIBOR + 0.40% (a)............. 0.55% 09/18/31 165,608
8,804 Series 2002-22, Class G...................................... 6.50% 04/25/32 10,453
98,923 Series 2002-30, Class Z...................................... 6.00% 05/25/32 116,077
67,335 Series 2002-80, Class CZ..................................... 4.50% 09/25/32 81,537
109,805 Series 2002-320, Class 2, IO, STRIPS......................... 7.00% 04/25/32 23,351
110,294 Series 2002-323, Class 6, IO, STRIPS......................... 6.00% 01/25/32 20,549
278,924 Series 2002-324, Class 2, IO, STRIPS......................... 6.50% 07/25/32 50,798
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 33,229 Series 2003-14, Class AT..................................... 4.00% 03/25/33 $ 34,987
84,750 Series 2003-21, Class OA..................................... 4.00% 03/25/33 91,280
106,052 Series 2003-32, Class UI, IO................................. 6.00% 05/25/33 20,156
487,508 Series 2003-45, Class JB..................................... 5.50% 06/25/33 565,050
40,908 Series 2003-52, Class NA..................................... 4.00% 06/25/23 41,524
3,891,675 Series 2003-61, Class MZ..................................... 5.00% 08/25/33 4,318,180
19,853 Series 2003-63, Class F1, 1 Mo. LIBOR + 0.30% (a)............ 0.45% 11/25/27 19,828
1,800,929 Series 2003-63, Class IP, IO................................. 6.00% 07/25/33 337,155
355,000 Series 2003-71, Class NH..................................... 4.29% 08/25/33 423,846
485,014 Series 2003-75, Class GI, IO................................. 5.00% 08/25/23 13,097
172,506 Series 2003-109, Class YB.................................... 6.00% 11/25/33 204,495
173,735 Series 2003-339, Class 12, IO, STRIPS........................ 6.00% 06/25/33 30,221
359,298 Series 2003-343, Class 2, IO, STRIPS......................... 4.50% 10/25/33 48,229
310,036 Series 2003-345, Class 14, IO, STRIPS........................ 6.00% 03/25/34 58,819
57,012 Series 2003-348, Class 17, IO, STRIPS........................ 7.50% 12/25/33 11,790
83,709 Series 2003-348, Class 18, IO, STRIPS (e).................... 7.50% 12/25/33 18,099
91,977 Series 2003-W3, Class 2A5.................................... 5.36% 06/25/42 106,356
882,018 Series 2003-W6, Class 1A41................................... 5.40% 10/25/42 1,013,863
33,284 Series 2003-W10, Class 1A4................................... 4.51% 06/25/43 37,391
573,100 Series 2003-W12, Class 1A8................................... 4.55% 06/25/43 638,891
272,288 Series 2004-10, Class ZB..................................... 6.00% 02/25/34 316,753
881,556 Series 2004-18, Class EZ..................................... 6.00% 04/25/34 1,042,162
321,243 Series 2004-25, Class LC..................................... 5.50% 04/25/34 377,317
346,471 Series 2004-25, Class UC..................................... 5.50% 04/25/34 411,082
39,568 Series 2004-28, Class ZH..................................... 5.50% 05/25/34 54,213
610,039 Series 2004-60, Class AC..................................... 5.50% 04/25/34 699,312
12,109 Series 2004-W9, Class 1A3.................................... 6.05% 02/25/44 14,032
1,385,899 Series 2004-W10, Class A6.................................... 5.75% 08/25/34 1,589,224
2,516,422 Series 2005-2, Class S, IO, 1 Mo. LIBOR (x) -1 + 6.60% (d)... 6.45% 02/25/35 492,857
494,657 Series 2005-2, Class TB, IO,
1 Mo. LIBOR (x) -1 + 5.90%, 0.40% Cap (d)................. 0.40% 07/25/33 5,477
54,403 Series 2005-29, Class ZT..................................... 5.00% 04/25/35 69,884
111,351 Series 2005-40, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.70% (d)............................ 6.55% 05/25/35 21,141
271,659 Series 2005-52, Class TZ..................................... 6.50% 06/25/35 404,329
990,903 Series 2005-57, Class KZ..................................... 6.00% 07/25/35 1,320,285
12,278 Series 2005-67, Class SC,
1 Mo. LIBOR (x) -2.15 + 14.41% (d)........................ 14.08% 08/25/35 16,631
58,550 Series 2005-79, Class NS, IO,
1 Mo. LIBOR (x) -1 + 6.09% (d)............................ 5.94% 09/25/35 11,409
6,032,851 Series 2005-86, Class WZ..................................... 5.50% 10/25/35 6,884,339
18,306 Series 2005-87, Class SC,
1 Mo. LIBOR (x) -1.67 + 13.83% (d)........................ 13.58% 10/25/35 26,247
32,093 Series 2005-90, Class ES,
1 Mo. LIBOR (x) -2.50 + 16.88% (d)........................ 16.50% 10/25/35 45,750
51,536 Series 2005-95, Class WZ..................................... 6.00% 11/25/35 78,057
42,828 Series 2005-102, Class DS,
1 Mo. LIBOR (x) -2.75 + 19.80% (d)........................ 19.39% 11/25/35 56,197
636,025 Series 2005-104, Class UE.................................... 5.50% 12/25/35 741,247
177,114 Series 2005-359, Class 6, IO, STRIPS......................... 5.00% 11/25/35 25,739
506,297 Series 2005-359, Class 12, IO, STRIPS........................ 5.50% 10/25/35 97,012
142,299 Series 2005-362, Class 13, IO, STRIPS........................ 6.00% 08/25/35 29,729
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 81,428 Series 2005-W1, Class 1A2.................................... 6.50% 10/25/44 $ 97,736
39,823 Series 2006-5, Class 2A2 (c)................................. 3.24% 02/25/35 42,431
32,009,337 Series 2006-5, Class N2, IO (c).............................. 0.00% 02/25/35 320
75,969 Series 2006-15, Class IS, IO,
1 Mo. LIBOR (x) -1 + 6.58% (d)............................ 6.43% 03/25/36 16,074
1,668,033 Series 2006-20, Class PI, IO,
1 Mo. LIBOR (x) -1 + 6.68% (d)............................ 6.53% 11/25/30 205,887
23,817 Series 2006-31, Class PZ..................................... 6.00% 05/25/36 36,189
63,811 Series 2006-42, Class CF, 1 Mo. LIBOR + 0.45% (a)............ 0.60% 06/25/36 64,336
1,985,388 Series 2006-42, Class EI, IO,
1 Mo. LIBOR (x) -1 + 6.55% (d)............................ 6.40% 06/25/36 353,534
525,931 Series 2006-59, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.57% (d)............................ 6.42% 07/25/36 93,507
706,234 Series 2006-80, Class PH..................................... 6.00% 08/25/36 834,617
94,779 Series 2006-85, Class MZ..................................... 6.50% 09/25/36 110,723
2,606,792 Series 2006-110, Class PI, IO................................ 5.50% 11/25/36 514,245
2,757,777 Series 2006-116, Class ES, IO,
1 Mo. LIBOR (x) -1 + 6.65% (d)............................ 6.50% 12/25/36 564,591
236,085 Series 2006-117, Class GF, 1 Mo. LIBOR + 0.35% (a)........... 0.50% 12/25/36 237,220
2,688,185 Series 2006-118, Class A1, 1 Mo. LIBOR + 0.06% (a)........... 0.21% 12/25/36 2,673,151
1,368 Series 2006-126, Class DZ.................................... 5.50% 01/25/37 1,461
1,455 Series 2006-378, Class 31, IO, STRIPS (f).................... 4.50% 06/25/21 2
313,274 Series 2007-7, Class KA...................................... 5.75% 08/25/36 392,727
35,017 Series 2007-25, Class FB, 1 Mo. LIBOR + 0.33% (a)............ 0.48% 04/25/37 35,179
895,258 Series 2007-28, Class ZA..................................... 6.00% 04/25/37 1,012,979
60,586 Series 2007-32, Class KT..................................... 5.50% 04/25/37 70,425
787,073 Series 2007-57, Class ZG..................................... 4.75% 06/25/37 960,469
511,737 Series 2007-60, Class ZS..................................... 4.75% 07/25/37 670,763
505,051 Series 2007-68, Class AE..................................... 6.50% 07/25/37 644,939
473,391 Series 2007-116, Class PB.................................... 5.50% 08/25/35 554,521
167,838 Series 2007-117, Class MD.................................... 5.50% 07/25/37 182,255
4,778,041 Series 2007-W10, Class 3A (c)................................ 3.36% 06/25/47 5,083,814
119,942 Series 2008-3, Class FZ, 1 Mo. LIBOR + 0.55% (a)............. 0.70% 02/25/38 115,684
18,892 Series 2008-8, Class ZA...................................... 5.00% 02/25/38 22,722
4,959 Series 2008-16, Class AB..................................... 5.50% 12/25/37 4,982
17,606 Series 2008-17, Class IP, IO (f)............................. 6.50% 02/25/38 2,244
296,686 Series 2008-65, Class PE..................................... 5.75% 08/25/38 346,300
1,014,018 Series 2008-389, Class 4, IO, STRIPS......................... 6.00% 03/25/38 182,203
16,586 Series 2009-10, Class AB..................................... 5.00% 03/25/24 17,236
1,108,235 Series 2009-11, Class PI, IO................................. 5.50% 03/25/36 215,583
15,046 Series 2009-14, Class BS, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 6.10% 03/25/24 418
1,054,433 Series 2009-37, Class NZ..................................... 5.71% 02/25/37 1,398,065
56,998 Series 2009-47, Class PE..................................... 4.00% 07/25/39 58,095
4,400,000 Series 2009-50, Class GX..................................... 5.00% 07/25/39 5,445,480
736,853 Series 2009-64, Class ZD..................................... 8.00% 08/25/39 923,400
126,863 Series 2009-69, Class PO, PO................................. (b) 09/25/39 118,710
3,842,845 Series 2009-85, Class J...................................... 4.50% 10/25/39 4,327,389
306,359 Series 2009-91, Class HL..................................... 5.00% 11/25/39 333,662
97,000 Series 2009-92, Class DB..................................... 5.00% 11/25/39 119,555
732,283 Series 2009-103, Class PZ.................................... 6.00% 12/25/39 1,063,355
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 286,073 Series 2009-106, Class SN, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 6.10% 01/25/40 $ 53,183
254,483 Series 2009-109, Class PZ.................................... 4.50% 01/25/40 311,346
88,525 Series 2009-115, Class HZ.................................... 5.00% 01/25/40 94,612
1,631,704 Series 2009-397, Class 2, IO, STRIPS......................... 5.00% 09/25/39 275,644
405,207 Series 2009-398, Class C13, IO, STRIPS....................... 4.00% 06/25/24 19,051
1,350,000 Series 2010-2, Class LC...................................... 5.00% 02/25/40 1,620,651
183,136 Series 2010-3, Class DZ...................................... 4.50% 02/25/40 227,189
233,387 Series 2010-21, Class KO, PO................................. (b) 03/25/40 221,757
500,000 Series 2010-35, Class EP..................................... 5.50% 04/25/40 633,273
520,322 Series 2010-35, Class SJ,
1 Mo. LIBOR (x) -3.33 + 17.67% (d)........................ 17.17% 04/25/40 727,824
400,000 Series 2010-38, Class KC..................................... 4.50% 04/25/40 458,456
496,000 Series 2010-45, Class WB..................................... 5.00% 05/25/40 570,260
49,577 Series 2010-49, Class SC, 1 Mo. LIBOR (x) -2 + 12.66% (d).... 12.36% 03/25/40 67,249
515,281 Series 2010-68, Class BI, IO................................. 5.50% 07/25/50 106,677
52,724 Series 2010-75, Class MT (c)................................. 2.21% 12/25/39 55,172
531,463 Series 2010-110, Class KI, IO................................ 5.50% 10/25/25 25,170
253,800 Series 2010-115, Class PO, PO................................ (b) 04/25/40 242,969
361,961 Series 2010-129, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 11/25/40 46,591
2,821,000 Series 2010-142, Class DL.................................... 4.00% 12/25/40 3,375,882
86 Series 2010-145, Class PE.................................... 3.25% 10/25/24 86
2,502,048 Series 2010-147, Class KS, IO,
1 Mo. LIBOR (x) -1 + 5.95% (d)............................ 5.80% 01/25/41 317,657
345,809 Series 2011-9, Class AZ...................................... 5.00% 05/25/40 384,564
1,507,000 Series 2011-10, Class AY..................................... 6.00% 02/25/41 2,088,166
2,043 Series 2011-17, Class CD..................................... 2.00% 03/25/21 2,044
16,346 Series 2011-17, Class CJ..................................... 2.75% 03/25/21 16,353
209,363 Series 2011-30, Class LS, IO (e)............................. 2.93% 04/25/41 14,324
120,984 Series 2011-30, Class ZB..................................... 5.00% 04/25/41 147,701
515,545 Series 2011-47, Class AI, IO................................. 5.50% 01/25/40 4,603
312,139 Series 2011-52, Class GB..................................... 5.00% 06/25/41 359,760
101,638 Series 2011-60, Class OA, PO................................. (b) 08/25/39 94,123
4,504 Series 2011-72, Class TI, IO (f)............................. 4.00% 09/25/40 9
2,566,649 Series 2011-73, Class PI, IO................................. 4.50% 05/25/41 186,624
348,681 Series 2011-74, Class TQ, IO,
1 Mo. LIBOR (x) -6.43 + 55.93%, 4.50% Cap (d)............. 4.50% 12/25/33 41,745
39,853 Series 2011-75, Class BL..................................... 3.50% 08/25/21 40,088
75,274 Series 2011-86, Class DI, IO................................. 3.50% 09/25/21 816
2,342,183 Series 2011-87, Class YI, IO................................. 5.00% 09/25/41 435,192
4,241,556 Series 2011-101, Class EI, IO................................ 3.50% 10/25/26 202,162
750,000 Series 2011-105, Class MB.................................... 4.00% 10/25/41 890,748
1,641,991 Series 2011-111, Class PZ.................................... 4.50% 11/25/41 2,091,310
10,276 Series 2011-113, Class GA.................................... 2.00% 11/25/21 10,315
789,665 Series 2011-118, Class IC, IO................................ 3.50% 11/25/21 7,661
7,242,718 Series 2011-123, Class JS, IO,
1 Mo. LIBOR (x) -1 + 6.65% (d)............................ 6.50% 03/25/41 1,222,236
12,230,119 Series 2011-123, Class ZP.................................... 4.50% 12/25/41 14,551,080
520,688 Series 2011-137, Class AI, IO (f)............................ 3.00% 01/25/22 5,856
802,199 Series 2011-145, Class IO, IO................................ 3.00% 01/25/22 8,911
252,597 Series 2012-8, Class TI, IO.................................. 3.00% 10/25/21 2,371
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 12,721,771 Series 2012-15, Class PZ..................................... 4.00% 03/25/42 $ 14,803,127
1,634,081 Series 2012-28, Class PT..................................... 4.00% 03/25/42 1,816,580
776,952 Series 2012-39, Class PB..................................... 4.25% 04/25/42 950,124
188,156 Series 2012-52, Class BZ..................................... 4.00% 05/25/42 198,160
1,287,473 Series 2012-53, Class CI, IO................................. 3.00% 05/25/22 18,229
1,087,658 Series 2012-65, Class IO, IO................................. 5.50% 07/25/40 206,569
273,379 Series 2012-66, Class DI, IO................................. 3.50% 06/25/27 18,124
72,100 Series 2012-79, Class QA..................................... 2.00% 03/25/42 72,250
936,567 Series 2012-101, Class AI, IO................................ 3.00% 06/25/27 44,598
6,582,127 Series 2012-103, Class HI, IO................................ 3.00% 09/25/27 370,576
338,048 Series 2012-111, Class B..................................... 7.00% 10/25/42 407,543
3,926,604 Series 2012-118, Class DI, IO................................ 3.50% 01/25/40 175,250
292,879 Series 2012-118, Class IB, IO................................ 3.50% 11/25/42 42,031
16,002,539 Series 2012-122, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 11/25/42 3,107,362
435,138 Series 2012-133, Class KO, PO................................ (b) 12/25/42 317,813
1,669,561 Series 2012-134, Class GI, IO................................ 4.50% 03/25/29 51,206
730,717 Series 2012-138, Class MA.................................... 1.00% 12/25/42 726,111
2,668,342 Series 2012-146, Class QA.................................... 1.00% 01/25/43 2,601,130
482,815 Series 2012-409, Class 49, IO, STRIPS (e).................... 3.50% 11/25/41 59,724
674,921 Series 2012-409, Class 53, IO, STRIPS (e).................... 3.50% 04/25/42 84,605
1,832,427 Series 2012-409, Class C17, IO, STRIPS....................... 4.00% 11/25/41 250,837
690,000 Series 2013-10, Class HQ..................................... 2.50% 02/25/43 687,029
716,416 Series 2013-13, Class IK, IO................................. 2.50% 03/25/28 35,879
138,181 Series 2013-22, Class TS,
1 Mo. LIBOR (x) -1.50 + 6.08% (d)......................... 5.85% 03/25/43 149,313
47,813 Series 2013-23, Class ZB..................................... 3.00% 03/25/43 46,389
13,529,743 Series 2013-33, Class UZ..................................... 3.50% 04/25/43 15,316,087
750,000 Series 2013-41, Class DB..................................... 3.00% 05/25/43 826,179
1,748,616 Series 2013-43, Class IX, IO................................. 4.00% 05/25/43 337,043
572,583 Series 2013-51, Class PI, IO................................. 3.00% 11/25/32 49,910
834,638 Series 2013-52, Class MD..................................... 1.25% 06/25/43 828,206
7,970,895 Series 2013-54, Class LI, IO................................. 7.00% 11/25/34 1,720,529
1,014,312 Series 2013-55, Class AI, IO................................. 3.00% 06/25/33 99,815
5,611,785 Series 2013-67, Class IL, IO................................. 6.50% 07/25/43 1,120,101
124,573 Series 2013-70, Class JZ..................................... 3.00% 07/25/43 137,666
220,593 Series 2013-75, Class FC, 1 Mo. LIBOR + 0.25% (a)............ 0.40% 07/25/42 221,075
256,068 Series 2013-94, Class CA..................................... 3.50% 08/25/38 258,519
98,612 Series 2013-103, Class IO, IO................................ 3.50% 03/25/38 3,013
379,979 Series 2013-105, Class BN.................................... 4.00% 05/25/43 441,612
286,339 Series 2013-105, Class KO, PO................................ (b) 10/25/43 275,643
195,852 Series 2013-106, Class KN.................................... 3.00% 10/25/43 214,930
414,972 Series 2013-128, Class PO, PO................................ (b) 12/25/43 385,428
1,003,000 Series 2013-130, Class QY.................................... 4.50% 06/25/41 1,229,293
3,645,369 Series 2013-417, Class C21, IO, STRIPS....................... 4.00% 12/25/42 602,084
6,590,321 Series 2013-418, Class C1, IO, STRIPS........................ 3.50% 08/25/43 893,631
197,261 Series 2014-29, Class GI, IO................................. 3.00% 05/25/29 12,140
6,235,555 Series 2014-44, Class NI, IO................................. 4.50% 08/25/29 349,273
1,126,293 Series 2014-46, Class KA (e)................................. 5.36% 08/25/44 1,293,743
260,675 Series 2014-68, Class GI, IO................................. 4.50% 10/25/43 27,325
555,798 Series 2014-82, Class GZ..................................... 4.00% 12/25/44 687,667
1,470,461 Series 2014-84, Class LI, IO................................. 3.50% 12/25/26 71,219
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 152,830 Series 2014-91, Class PB..................................... 3.00% 02/25/38 $ 153,102
875,000 Series 2015-16, Class MY..................................... 3.50% 04/25/45 1,045,260
8,000,000 Series 2015-19, Class JB..................................... 3.50% 04/25/45 9,124,864
328,745 Series 2015-38, Class GI, IO................................. 3.00% 09/25/43 14,953
16,116,897 Series 2015-40, Class AI, IO................................. 6.00% 05/25/37 3,381,304
1,806,644 Series 2015-76, Class BI, IO................................. 4.00% 10/25/39 119,045
10,598,200 Series 2015-80, Class HZ..................................... 3.50% 11/25/45 11,576,175
338,239 Series 2015-93, Class KI, IO................................. 3.00% 09/25/44 20,718
5,526,288 Series 2015-97, Class AI, IO................................. 4.00% 09/25/41 295,703
5,367,554 Series 2016-2, Class EZ...................................... 2.50% 02/25/46 5,631,601
27,289,644 Series 2016-40, Class MS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 07/25/46 6,481,318
11,635,439 Series 2016-44, Class Z...................................... 3.50% 07/25/46 12,811,796
12,029,183 Series 2016-62, Class SB, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 09/25/46 2,183,848
1,203,471 Series 2016-71, Class NI, IO................................. 3.50% 04/25/46 161,482
9,409,751 Series 2016-73, Class PI, IO................................. 3.00% 08/25/46 990,150
527,324 Series 2016-74, Class HI, IO................................. 3.50% 10/25/46 80,402
529,302 Series 2016-84, Class DF, 1 Mo. LIBOR + 0.42% (a)............ 0.58% 11/25/46 529,414
1,352,126 Series 2016-87, Class AF, 1 Mo. LIBOR + 0.40% (a)............ 0.56% 11/25/46 1,348,914
14,110,063 Series 2017-18, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.05% (d)............................ 5.90% 03/25/47 3,204,425
597,364 Series 2017-46, Class BY..................................... 3.00% 06/25/47 657,393
8,567,831 Series 2017-49, Class ZJ..................................... 4.00% 07/25/57 10,459,111
11,549,170 Series 2017-50, Class BZ..................................... 3.00% 07/25/47 12,796,408
30,048,364 Series 2017-54, Class IG, IO................................. 4.00% 07/25/47 3,961,682
12,515,600 Series 2017-65, Class SA, IO,
1 Mo. LIBOR (x) -1 + 5.90%, 5.00% Cap (d)................. 5.00% 09/25/47 1,844,162
3,786,852 Series 2017-84, Class ZK..................................... 3.50% 10/25/57 4,391,729
6,027,649 Series 2017-87, Class GI, IO................................. 4.00% 06/25/44 952,990
1,997,973 Series 2017-87, Class ZA..................................... 4.00% 11/25/57 2,442,088
2,422,736 Series 2018-17, Class Z...................................... 3.50% 03/25/48 2,880,306
28,731,694 Series 2018-76, Class ZL..................................... 4.00% 10/25/58 34,440,995
12,557,063 Series 2018-86, Class DL..................................... 3.50% 12/25/48 13,678,472
8,484,224 Series 2018-92, Class DA..................................... 3.50% 11/25/46 8,773,724
3,957,386 Series 2018-92, Class DB..................................... 3.50% 01/25/49 4,335,926
5,689,513 Series 2018-94, Class AZ..................................... 4.00% 01/25/49 6,383,291
18,008,665 Series 2019-8, Class DY...................................... 3.50% 03/25/49 19,069,581
18,690,413 Series 2019-12, Class HY..................................... 3.50% 04/25/59 21,954,353
7,662,224 Series 2019-17, Class GZ..................................... 4.00% 11/25/56 9,321,709
13,844,501 Series 2019-21, Class BL..................................... 4.00% 05/25/59 17,052,419
24,725,397 Series 2019-26, Class GA..................................... 3.50% 06/25/49 26,322,069
11,852,118 Series 2019-27, Class HA..................................... 3.00% 06/25/49 12,381,661
15,141,793 Series 2019-29, Class HT..................................... 3.00% 06/25/49 15,844,974
16,310,245 Series 2019-34, Class JA..................................... 3.00% 07/25/49 17,186,954
28,365,773 Series 2019-34, Class LA..................................... 3.00% 07/25/49 30,143,376
12,009,138 Series 2019-37, Class A...................................... 3.00% 07/25/49 12,635,321
23,479,939 Series 2019-41, Class SN, IO,
1 Mo. LIBOR (x) -1 + 6.05% (d)............................ 5.90% 08/25/49 4,360,525
7,805,000 Series 2019-45, Class BU..................................... 3.00% 08/25/49 8,688,723
28,726,580 Series 2019-57, Class JA..................................... 2.50% 10/25/49 29,627,460
16,616,467 Series 2019-59, Class PT..................................... 2.50% 10/25/49 17,231,666
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 25,241,185 Series 2019-66, Class C...................................... 3.00% 11/25/49 $ 26,579,872
47,678,843 Series 2019-68, Class KP..................................... 2.50% 11/25/49 50,635,313
37,208,104 Series 2019-70, Class WA, PO................................. (b) 11/25/42 34,338,429
23,839,665 Series 2020-1, Class LA...................................... 4.00% 02/25/60 29,847,280
37,277,462 Series 2020-9, Class SJ, IO, 1 Mo. LIBOR (x) -1 + 6.00% (d).. 5.85% 02/25/50 4,957,094
11,969,763 Series 2020-20, Class KI, IO................................. 4.00% 03/25/50 4,190,127
55,723,040 Series 2020-34, Class AI, IO................................. 3.50% 06/25/35 5,546,816
20,937,306 Series 2020-37, Class QI, IO................................. 4.50% 06/25/50 3,674,453
6,703,057 Series 2020-44, Class QZ..................................... 1.00% 07/25/50 6,627,449
6,881,074 Series 2020-44, Class ZQ..................................... 0.75% 07/25/50 6,780,751
7,820,410 Series 2020-66, Class IC, IO................................. 6.00% 10/25/47 1,675,926
64,261,551 Series 2020-74, Class IQ, IO................................. 6.00% 10/25/50 14,445,155
Government National Mortgage Association
30,276 Series 2001-60, Class PZ..................................... 6.00% 12/20/31 30,273
174,444 Series 2002-72, Class ZB..................................... 6.00% 10/20/32 176,421
305,467 Series 2002-75, Class PJ..................................... 5.50% 11/20/32 316,125
260,800 Series 2003-4, Class MZ...................................... 5.50% 01/20/33 282,786
373,035 Series 2003-11, Class SM, IO,
1 Mo. LIBOR (x) -1 + 7.70% (d)............................ 7.55% 02/16/33 1,195
466,736 Series 2003-18, Class PG..................................... 5.50% 03/20/33 512,627
1,364,377 Series 2003-35, Class TZ..................................... 5.75% 04/16/33 1,460,722
223,966 Series 2003-42, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 6.45% 07/16/31 3,709
1,001,120 Series 2003-42, Class SH, IO,
1 Mo. LIBOR (x) -1 + 6.55% (d)............................ 6.40% 05/20/33 15,787
115,960 Series 2003-62, Class MZ..................................... 5.50% 07/20/33 135,508
273,596 Series 2003-84, Class Z...................................... 5.50% 10/20/33 311,428
148,433 Series 2004-37, Class B...................................... 6.00% 04/17/34 170,703
489,508 Series 2004-49, Class MZ..................................... 6.00% 06/20/34 586,292
62,060 Series 2004-68, Class ZC..................................... 6.00% 08/20/34 71,184
76,105 Series 2004-71, Class ST,
1 Mo. LIBOR (x) -6.25 + 44.50%, 7.00% Cap (d)............. 7.00% 09/20/34 83,666
126,933 Series 2004-83, Class AK, 1 Mo. LIBOR (x) -3 + 16.49% (d).... 16.05% 10/16/34 167,324
586,615 Series 2004-88, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 10/16/34 79,442
54,113 Series 2004-92, Class AK, 1 Mo. LIBOR (x) -3 + 16.50% (d).... 16.06% 11/16/34 76,359
1,545,535 Series 2004-92, Class BZ..................................... 5.50% 11/16/34 1,780,094
220,344 Series 2004-105, Class JZ.................................... 5.00% 12/20/34 254,695
243,323 Series 2004-105, Class KA.................................... 5.00% 12/16/34 271,709
5,440 Series 2004-109, Class BC.................................... 5.00% 11/20/33 5,437
219,430 Series 2005-3, Class JZ...................................... 5.00% 01/16/35 242,412
219,430 Series 2005-3, Class KZ...................................... 5.00% 01/16/35 252,253
24,589 Series 2005-7, Class AJ, 1 Mo. LIBOR (x) -4 + 22.00% (d)..... 21.42% 02/16/35 39,591
112,948 Series 2005-7, Class KA,
1 Mo. LIBOR (x) -2.81 + 18.95% (d)........................ 18.54% 12/17/34 126,669
311,343 Series 2005-7, Class MA,
1 Mo. LIBOR (x) -2.81 + 18.95% (d)........................ 18.54% 12/17/34 380,724
209,111 Series 2005-33, Class AY..................................... 5.50% 04/16/35 236,658
169,417 Series 2005-41, Class PA..................................... 4.00% 05/20/35 185,871
407,204 Series 2005-44, Class IO, IO................................. 5.50% 07/20/35 49,149
3,606,948 Series 2005-78, Class ZA..................................... 5.00% 10/16/35 4,067,382
317,409 Series 2005-93, Class PO, PO................................. (b) 06/20/35 312,520
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 589,771 Series 2006-17, Class TW..................................... 6.00% 04/20/36 $ 684,059
500,000 Series 2006-38, Class OH..................................... 6.50% 08/20/36 620,514
176,219 Series 2006-61, Class ZA..................................... 5.00% 11/20/36 199,648
408,653 Series 2007-16, Class OZ........
1 Mo. LIBOR (x) -1 + 6.20% (d)............................ 6.05% 05/20/37 29,981
152,332 Series 2007-41, Class OL, PO................................. (b) 07/20/37 147,944
276,098 Series 2007-42, Class SB, IO,
1 Mo. LIBOR (x) -1 + 6.75% (d)............................ 6.60% 07/20/37 47,342
142,488 Series 2007-68, Class NA..................................... 5.00% 11/20/37 159,614
874,132 Series 2007-71, Class ZD..................................... 6.00% 11/20/37 987,981
149,295 Series 2007-81, Class FZ, 1 Mo. LIBOR + 0.35% (a)............ 0.50% 12/20/37 149,645
127,412 Series 2008-16, Class PO, PO................................. (b) 02/20/38 121,072
9,345 Series 2008-20, Class PO, PO................................. (b) 09/20/37 9,309
14,562 Series 2008-29, Class PO, PO................................. (b) 02/17/33 14,394
127,960 Series 2008-33, Class XS, IO,
1 Mo. LIBOR (x) -1 + 7.70% (d)............................ 7.55% 04/16/38 23,833
734,802 Series 2008-47, Class ML..................................... 5.25% 06/16/38 841,598
187,500 Series 2008-54, Class PE..................................... 5.00% 06/20/38 217,637
601,038 Series 2008-71, Class JI, IO................................. 6.00% 04/20/38 66,715
105,913 Series 2009-10, Class PA..................................... 4.50% 12/20/38 111,482
167,383 Series 2009-14, Class KI, IO................................. 6.50% 03/20/39 29,438
54,923 Series 2009-14, Class KS, IO,
1 Mo. LIBOR (x) -1 + 6.30% (d)............................ 6.15% 03/20/39 8,066
130,114 Series 2009-25, Class SE, IO,
1 Mo. LIBOR (x) -1 + 7.60% (d)............................ 7.45% 09/20/38 21,807
2,474,663 Series 2009-29, Class PC..................................... 7.00% 05/20/39 3,243,906
374,525 Series 2009-32, Class SZ..................................... 5.50% 05/16/39 461,014
490,717 Series 2009-42, Class BI, IO................................. 6.00% 06/20/39 62,747
3,732,542 Series 2009-57, Class VB..................................... 5.00% 06/16/39 4,387,057
896,670 Series 2009-61, Class OW, PO................................. (b) 11/16/35 859,533
244,014 Series 2009-61, Class PZ..................................... 7.50% 08/20/39 348,252
13,310,422 Series 2009-61, Class WQ, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 6.10% 11/16/35 2,659,534
975,489 Series 2009-69, Class ZB..................................... 6.00% 08/20/39 1,131,470
1,107,440 Series 2009-72, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 6.10% 08/16/39 196,513
455,000 Series 2009-75, Class JN..................................... 5.50% 09/16/39 563,078
22,458 Series 2009-76, Class PC..................................... 4.00% 03/16/39 22,521
562,154 Series 2009-78, Class KZ..................................... 5.50% 09/16/39 720,232
155,079 Series 2009-79, Class OK, PO................................. (b) 11/16/37 148,607
132,271 Series 2009-81, Class TZ..................................... 5.50% 09/20/39 167,541
1,176,772 Series 2009-87, Class EI, IO................................. 5.50% 08/20/39 123,564
69,000 Series 2009-94, Class AL..................................... 5.00% 10/20/39 82,198
267,595 Series 2009-106, Class DZ.................................... 5.50% 11/20/39 339,843
5,919,453 Series 2009-106, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 04/20/36 1,058,279
45,509 Series 2009-106, Class WZ.................................... 5.50% 11/16/39 58,719
137,322 Series 2009-116, Class MS, IO,
1 Mo. LIBOR (x) -1 + 6.50% (d)............................ 6.35% 11/16/38 1,926
732,000 Series 2009-126, Class LB.................................... 5.00% 12/20/39 895,832
46,198 Series 2010-4, Class WA...................................... 3.00% 01/16/40 48,563
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 56,532 Series 2010-7, Class BC...................................... 4.00% 09/16/24 $ 56,978
60,369 Series 2010-11, Class HE..................................... 4.00% 04/20/39 61,189
804 Series 2010-14, Class AO, PO................................. (b) 12/20/32 804
1,544,155 Series 2010-14, Class BV, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 6.10% 02/16/40 248,217
602,306 Series 2010-42, Class CO, PO................................. (b) 06/16/39 601,190
2,505,036 Series 2010-46, Class FC, 1 Mo. LIBOR + 0.80% (a)............ 0.95% 03/20/35 2,542,347
825,105 Series 2010-59, Class ZD..................................... 6.50% 05/20/40 1,172,093
1,741,058 Series 2010-85, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 6.45% 07/20/37 209,500
87,000 Series 2010-116, Class BM.................................... 4.50% 09/16/40 107,307
2,421,368 Series 2010-116, Class JB.................................... 5.00% 06/16/40 2,771,158
27,313 Series 2010-129, Class PQ.................................... 3.00% 04/20/39 27,316
1,119,948 Series 2010-157, Class OP, PO................................ (b) 12/20/40 1,064,127
283,955 Series 2010-166, Class DI, IO................................ 4.50% 02/20/39 17,909
141,513 Series 2011-4, Class PZ...................................... 5.00% 01/20/41 167,565
1,012,291 Series 2011-19, Class MI, IO................................. 5.00% 06/16/40 27,723
771,202 Series 2011-35, Class BP..................................... 4.50% 03/16/41 913,025
390,931 Series 2011-48, Class LI, IO................................. 5.50% 01/16/41 65,275
9,068,588 Series 2011-61, Class WS, IO,
1 Mo. LIBOR (x) -1 + 6.47% (d)............................ 6.32% 02/20/38 1,817,987
95,503 Series 2011-63, Class BI, IO (f)............................. 6.00% 02/20/38 8,410
890,433 Series 2011-71, Class ZC..................................... 5.50% 07/16/34 1,006,439
2,372,736 Series 2011-81, Class IC, IO,
1 Mo. LIBOR (x) -1 + 6.72%, 0.62% Cap (d)................. 0.62% 07/20/35 35,371
797,718 Series 2011-112, Class IP, IO (f)............................ 0.50% 08/16/26 13
239,265 Series 2011-129, Class CL.................................... 5.00% 03/20/41 272,801
14,103 Series 2011-136, Class GB.................................... 2.50% 05/20/40 14,493
236,520 Series 2011-137, Class WA (e)................................ 5.57% 07/20/40 277,798
331,181 Series 2011-146, Class EI, IO................................ 5.00% 11/16/41 66,564
67,773 Series 2011-151, Class TB, IO,
1 Mo. LIBOR (x) -70 + 465.50%, 3.50% Cap (d).............. 3.50% 04/20/41 4,310
1,672,120 Series 2012-10, Class LI, IO................................. 3.50% 07/20/40 33,674
3,427,921 Series 2012-18, Class IA, IO,
1 Mo. LIBOR (x) -1 + 6.68%, 0.58% Cap (d)................. 0.58% 07/20/39 35,536
1,466,813 Series 2012-48, Class MI, IO................................. 5.00% 04/16/42 281,805
12,208,493 Series 2012-84, Class QS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 07/16/42 2,111,697
6,711,842 Series 2012-84, Class SJ,
1 Mo. LIBOR (x) -0.57 + 2.51% (d)......................... 2.43% 07/16/42 6,675,654
251,623 Series 2012-108, Class KB.................................... 2.75% 09/16/42 279,773
2,070,679 Series 2012-143, Class IB, IO................................ 3.50% 12/20/39 18,104
7,424,303 Series 2012-143, Class TI, IO................................ 3.00% 12/16/27 509,142
2,616,509 Series 2012-149, Class PC (e)................................ 6.31% 12/20/42 3,092,651
20,730,302 Series 2013-4, Class IC, IO.................................. 4.00% 09/20/42 3,897,125
116,444 Series 2013-5, Class IA, IO.................................. 3.50% 10/16/42 14,316
1,263,712 Series 2013-10, Class DI, IO................................. 3.50% 09/20/42 135,784
286,308 Series 2013-20, Class KI, IO................................. 5.00% 01/20/43 33,179
2,223,000 Series 2013-20, Class QM..................................... 2.63% 02/16/43 2,367,953
2,141,300 Series 2013-22, Class IO, IO................................. 3.00% 02/20/43 261,104
5,953,634 Series 2013-23, Class IP, IO................................. 3.50% 08/20/42 748,025
3,272,370 Series 2013-53, Class OI, IO................................. 3.50% 04/20/43 325,386
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 2,809,788 Series 2013-69, Class AI, IO................................. 3.50% 05/20/43 $ 398,248
346,624 Series 2013-69, Class PI, IO................................. 5.00% 05/20/43 41,668
953,680 Series 2013-70, Class PM..................................... 2.50% 05/20/43 981,723
4,629,000 Series 2013-91, Class PB..................................... 3.50% 09/20/42 4,921,665
1,456,028 Series 2013-130, Class WS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 09/20/43 290,505
5,984,748 Series 2013-170, Class IG, IO................................ 5.50% 11/16/43 775,540
688,000 Series 2013-183, Class PB.................................... 4.50% 12/20/43 811,358
44,500 Series 2013-188, Class CF, 1 Mo. LIBOR + 0.45% (a)........... 0.60% 03/20/43 44,542
5,107,765 Series 2014-6, Class IJ, IO.................................. 4.50% 06/16/43 344,469
20,072,267 Series 2014-30, Class EA (e)................................. 1.92% 02/16/44 20,603,736
5,072,694 Series 2014-43, Class Z...................................... 4.00% 03/20/44 6,236,163
4,609,127 Series 2014-44, Class IC, IO................................. 3.00% 04/20/28 311,393
10,747,335 Series 2014-44, Class ID, IO (c) (e)......................... 0.33% 03/16/44 102,334
46,656 Series 2014-91, Class JI, IO................................. 4.50% 01/20/40 2,744
541,215 Series 2014-94, Class Z...................................... 4.50% 01/20/44 714,407
4,902,540 Series 2014-99, Class HI, IO................................. 4.50% 06/20/44 659,432
6,754,703 Series 2014-115, Class QI, IO................................ 3.00% 03/20/29 349,082
4,224,693 Series 2014-116, Class SB, IO,
1 Mo. LIBOR (x) -1 + 5.60% (d)............................ 5.45% 08/20/44 800,059
2,831,332 Series 2014-118, Class TV, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 6.10% 05/20/44 502,132
844,174 Series 2014-178, Class LT.................................... 2.00% 11/20/43 850,421
6,768,678 Series 2015-3, Class ZD...................................... 4.00% 01/20/45 8,010,936
16,158,408 Series 2015-40, Class IO, IO................................. 4.00% 03/20/45 2,412,460
8,107,917 Series 2015-66, Class LI, IO................................. 5.00% 05/16/45 976,581
54,526 Series 2015-95, Class IK, IO (e) (f)......................... 1.33% 05/16/37 1,130
15,963,857 Series 2015-99, Class EI, IO................................. 5.50% 07/16/45 3,283,729
16,866,196 Series 2015-119, Class TI, IO................................ 3.50% 05/20/41 419,783
15,609,210 Series 2015-124, Class DI, IO................................ 3.50% 01/20/38 868,827
393,149 Series 2015-137, Class WA (c) (e)............................ 5.50% 01/20/38 462,772
842,061 Series 2015-138, Class MI, IO................................ 4.50% 08/20/44 96,048
196,540 Series 2015-151, Class KW (e)................................ 5.68% 04/20/34 217,038
3,476,663 Series 2015-162, Class ZG.................................... 4.00% 11/20/45 4,256,373
6,190,641 Series 2015-168, Class GI, IO................................ 5.50% 02/16/33 1,050,339
184,012 Series 2016-16, Class KZ..................................... 3.00% 02/16/46 197,512
344,298 Series 2016-55, Class PB (e)................................. 5.96% 03/20/31 375,849
1,693,801 Series 2016-69, Class WI, IO................................. 4.50% 05/20/46 372,844
5,062,214 Series 2016-75, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 5.85% 05/20/40 753,331
1,066,579 Series 2016-78, Class UI, IO................................. 4.00% 06/20/46 116,518
4,712,973 Series 2016-89, Class HI, IO................................. 3.50% 07/20/46 710,414
516,517 Series 2016-99, Class JA (e)................................. 5.53% 11/20/45 605,624
961,266 Series 2016-109, Class ZM.................................... 3.50% 08/20/36 1,088,283
10,165,405 Series 2016-111, Class PI, IO................................ 3.50% 06/20/45 1,051,466
1,180,075 Series 2016-118, Class GI, IO................................ 4.50% 02/16/40 171,629
12,532,543 Series 2016-120, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 09/20/46 3,175,671
464,000 Series 2016-141, Class PC.................................... 5.00% 10/20/46 599,747
310,014 Series 2016-145, Class LZ.................................... 3.00% 10/20/46 310,063
1,121,773 Series 2016-154, Class WF, 1 Mo. LIBOR + 0.40% (a)........... 0.55% 11/20/45 1,121,005
12,705,291 Series 2016-156, Class ZM.................................... 3.50% 11/20/46 13,590,478
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 303,000 Series 2016-160, Class LE.................................... 2.50% 11/20/46 $ 308,652
301,989 Series 2016-167, Class KI, IO................................ 6.00% 12/16/46 54,420
3,626,953 Series 2017-12, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 5.95% 01/20/47 724,053
877,673 Series 2017-17, Class KZ..................................... 4.50% 02/20/47 1,126,628
6,499,622 Series 2017-32, Class DI, IO................................. 5.50% 05/20/35 1,335,518
3,972,837 Series 2017-32, Class IB, IO................................. 5.00% 02/16/47 528,694
5,779,863 Series 2017-33, Class PZ..................................... 3.00% 02/20/47 6,092,353
7,208,049 Series 2017-56, Class BI, IO................................. 6.00% 04/16/47 1,422,172
15,473,931 Series 2017-57, Class IO, IO................................. 5.00% 04/20/47 2,785,662
22,175,784 Series 2017-104, Class LT.................................... 3.00% 07/20/47 24,390,883
5,017,006 Series 2017-113, Class IE, IO................................ 5.50% 07/20/47 900,491
7,779,595 Series 2017-117, Class ZN.................................... 3.00% 08/20/47 8,660,563
11,823,223 Series 2017-122, Class CZ.................................... 3.00% 08/20/47 13,261,827
7,877,053 Series 2017-130, Class LS, IO,
1 Mo. LIBOR (x) -1 + 6.20% (d)............................ 6.05% 08/16/47 1,415,804
7,874,242 Series 2017-133, Class JI, IO................................ 7.00% 06/20/41 1,510,962
11,034,612 Series 2017-134, Class AZ.................................... 3.00% 09/20/47 12,384,596
8,547,124 Series 2017-177, Class DI, IO................................ 4.50% 11/16/47 1,387,466
15,812,843 Series 2017-179, Class IN, IO................................ 5.00% 07/20/44 4,311,421
6,268,994 Series 2017-186, Class TI, IO,
1 Mo. LIBOR (x) -1 + 6.50%, 0.50% Cap (d)................. 0.50% 05/20/40 66,102
870,545 Series 2018-44, Class Z...................................... 2.50% 09/20/47 889,367
3,385,088 Series 2018-53, Class VA..................................... 3.50% 07/20/29 3,664,994
5,098,258 Series 2018-78, Class EZ..................................... 3.00% 04/20/48 5,409,658
8,274,968 Series 2018-79, Class IO, IO................................. 5.00% 06/20/48 1,380,058
2,179,611 Series 2018-89, Class A...................................... 3.50% 06/20/39 2,191,106
12,391,052 Series 2018-97, Class DZ..................................... 3.50% 07/20/48 14,373,944
9,742,638 Series 2018-131, Class IA, IO................................ 5.00% 04/20/44 1,302,253
10,000,000 Series 2018-134, Class KB.................................... 3.50% 10/20/48 10,793,536
10,556,000 Series 2018-155, Class KD.................................... 4.00% 11/20/48 11,542,323
10,908,217 Series 2018-160, Class GY.................................... 4.50% 11/20/48 11,938,673
5,677,452 Series 2019-6, Class EI, IO.................................. 5.00% 09/20/39 755,934
11,890,020 Series 2019-15, Class MZ..................................... 4.50% 02/20/49 13,187,223
12,488,006 Series 2019-18, Class TP..................................... 3.50% 02/20/49 13,619,562
1,751,181 Series 2019-27, Class DI, IO................................. 5.50% 01/20/40 282,179
3,291,919 Series 2019-35, Class BZ..................................... 3.50% 03/20/49 4,066,015
5,190,883 Series 2019-45, Class ZB..................................... 3.50% 04/20/49 6,091,262
1,731,974 Series 2019-98, Class UZ..................................... 2.50% 08/20/49 1,729,074
29,002,211 Series 2020-31, Class IO, IO................................. 6.50% 03/20/50 5,352,080
21,825,479 Series 2020-62, Class IA, IO................................. 5.50% 05/20/50 4,468,588
3,000,000 Series 2020-62, Class IC, IO................................. 2.50% 01/20/50 807,071
14,014,801 Series 2020-62, Class WI, IO................................. 2.50% 08/20/49 3,800,448
7,097,422 Series 2020-84, Class IM, IO................................. 2.50% 05/20/50 2,149,550
19,759,118 Series 2020-84, Class IO, IO................................. 2.50% 04/20/50 5,969,832
38,981,465 Series 2020-104, Class AI, IO................................ 3.00% 07/20/50 5,335,280
1,265,279 Series 2020-122, Class BN.................................... 1.00% 08/16/50 1,231,983
4,469,042 Series 2020-127, Class ZL.................................... 1.50% 08/20/50 4,401,068
32,968,836 Series 2020-129, Class IO, IO................................ 2.50% 09/20/50 3,510,169
105,888,975 Series 2020-129, Class IU, IO................................ 2.50% 09/20/50 11,913,738
22,094,370 Series 2020-144, Class IK, IO................................ 2.50% 09/20/50 2,648,607
67,710,118 Series 2020-146, Class CI, IO................................ 2.50% 10/20/50 8,178,113
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 51,000,000 Series 2020-162, Class NI, IO................................ 2.50% 10/20/50 $ 5,853,047
Vendee Mortgage Trust
2,767,810 Series 2003-2, Class Z....................................... 5.00% 05/15/33 3,187,384
15,742 Series 2010-1, Class DA...................................... 4.25% 02/15/35 16,004
8,055,847 Series 2010-1, Class DZ...................................... 4.25% 04/15/40 9,013,221
13,226,737 Series 2011-1, Class DZ...................................... 3.75% 09/15/46 14,434,809
24,621,265 Series 2011-2, Class DZ...................................... 3.75% 10/15/41 27,502,004
----------------
1,952,992,960
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 10.1%
Federal National Mortgage Association
99,948,271 Series 2019-M24, Class XA, IO (e)............................ 1.28% 03/25/29 8,989,458
Federal Home Loan Mortgage Corporation Multiclass Certificates
50,000,000 Series 2020-RR06, Class BX, IO (e)........................... 1.84% 05/27/33 7,951,101
47,500,000 Series 2020-RR09, Class BX, IO (e)........................... 2.20% 02/27/29 7,548,047
96,907,000 Series 2020-RR10, Class X, IO (e)............................ 2.01% 12/27/27 11,088,821
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates
86,834,320 Series 2011-K016, Class X1, IO (c)........................... 1.48% 10/25/21 659,802
58,338,922 Series 2012-K019, Class X1, IO (c)........................... 1.59% 03/25/22 1,029,163
64,512,468 Series 2012-K020, Class X1, IO (c)........................... 1.36% 05/25/22 1,086,835
122,116,634 Series 2013-K030, Class X1, IO (c)........................... 0.17% 04/25/23 458,939
78,085,983 Series 2014-K036, Class X1, IO (c)........................... 0.72% 10/25/23 1,479,917
4,938,979 Series 2014-K714, Class X3, IO (c)........................... 1.98% 01/25/42 604
94,380,859 Series 2015-K721, Class X1, IO (c)........................... 0.32% 08/25/22 481,871
242,163,569 Series 2016-KIR1, Class X, IO (c)............................ 1.06% 03/25/26 11,721,056
4,310,000 Series 2017-K153, Class A3................................... 3.12% 10/25/31 4,952,574
282,498,065 Series 2018-K086, Class X1, IO (c)........................... 0.24% 11/25/28 5,510,181
8,000,000 Series 2018-K156, Class A3................................... 3.70% 06/25/33 9,661,198
189,425,845 Series 2018-K156, Class X1, IO (c)........................... 0.07% 06/25/33 2,010,263
352,736,875 Series 2018-K158, Class X1, IO (c)........................... 0.07% 10/25/33 4,219,156
113,704,599 Series 2018-K159, Class X1, IO (c)........................... 0.11% 11/25/33 1,660,167
28,658,093 Series 2019-K1510, Class X1, IO (c).......................... 0.48% 01/25/34 1,418,899
123,158,383 Series 2019-K1511, Class X1, IO (c).......................... 0.78% 03/25/34 9,440,139
15,000,000 Series 2019-K1512, Class A3.................................. 3.06% 04/25/34 17,367,387
158,845,832 Series 2019-K1512, Class X1, IO (c).......................... 0.91% 04/25/34 14,021,782
57,700,653 Series 2019-K1513, Class X1, IO (c).......................... 0.86% 08/25/34 4,896,956
20,035,000 Series 2019-K1514, Class A2.................................. 2.86% 10/25/34 22,797,450
152,852,802 Series 2019-K1514, Class X1, IO (c).......................... 0.58% 10/25/34 9,580,386
40,594,043 Series 2019-K094, Class X1, IO (c)........................... 0.88% 06/25/29 2,691,040
56,904,823 Series 2019-K099, Class X1, IO (c)........................... 0.89% 09/25/29 3,866,381
57,790,000 Series 2019-K099, Class XAM, IO (c).......................... 1.14% 09/25/29 5,347,835
69,896,837 Series 2019-K101, Class X1, IO (e)........................... 0.84% 10/25/29 4,547,726
72,454,864 Series 2019-K102, Class X1, IO (e)........................... 0.83% 10/25/29 4,682,338
64,993,000 Series 2019-K102, Class XAM, IO (e).......................... 1.08% 10/25/29 5,771,947
92,446,421 Series 2019-K103, Class X1, IO (c)........................... 0.64% 11/25/29 4,714,832
59,029,000 Series 2019-K103, Class XAM, IO (c).......................... 0.89% 11/25/29 4,417,536
104,308,983 Series 2019-K734, Class X1, IO (c)........................... 0.65% 02/25/26 3,077,636
68,018,000 Series 2019-K734, Class XAM, IO (c).......................... 0.42% 02/25/26 1,525,929
42,660,513 Series 2019-K735, Class X1, IO (c)........................... 0.96% 05/25/26 2,011,140
117,034,893 Series 2019-K736, Class X1, IO (c)........................... 1.31% 07/25/26 7,281,057
76,981,384 Series 2020-K1515, Class X1, IO (c).......................... 1.51% 02/25/35 12,259,124
52,317,980 Series 2020-K1516, Class X1, IO (c).......................... 1.51% 05/25/35 8,802,249
64,494,701 Series 2020-K1517, Class X1, IO (c).......................... 1.33% 07/25/35 9,396,710
</TABLE>
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates (Continued)
$ 85,190,073 Series 2020-K104, Class X1, IO (c)........................... 1.13% 01/25/30 $ 7,499,044
107,053,018 Series 2020-K110, Class X1, IO (c)........................... 1.70% 04/25/30 14,290,133
75,287,375 Series 2020-K112, Class X1, IO (c)........................... 1.43% 05/25/30 8,803,458
29,090,000 Series 2020-K112, Class XAM, IO (c).......................... 1.66% 05/25/30 4,135,635
60,000,000 Series 2020-K113, Class XAM, IO (c).......................... 1.69% 06/25/30 8,212,296
34,000,000 Series 2020-K114, Class XAM, IO (c).......................... 1.34% 06/25/30 3,936,938
45,168,850 Series 2020-K115, Class X1, IO (c)........................... 1.33% 06/25/30 4,930,912
55,537,412 Series 2020-K115, Class XAM, IO (c).......................... 1.55% 07/25/30 7,374,924
16,498,023 Series 2020-K116, Class X1, IO (c)........................... 1.43% 07/25/30 1,905,223
41,000,000 Series 2020-K116, Class XAM, IO (c).......................... 1.60% 08/25/30 5,696,237
34,990,815 Series 2020-K118, Class X1, IO (c)........................... 1.06% 09/25/30 2,817,516
24,322,615 Series 2020-K118, Class XAM, IO (c).......................... 1.26% 09/25/30 2,515,430
75,959,663 Series 2020-K737, Class X1, IO (e)........................... 0.64% 10/25/26 2,519,833
136,093,306 Series 2020-K739, Class X1, IO (c)........................... 1.29% 09/25/27 10,000,000
40,072,531 Series 2020-K739, Class XAM, IO (c).......................... 1.61% 09/25/27 4,000,000
FREMF Mortgage Trust
7,590,000 Series 2011-K14, Class B (c) (h)............................. 5.18% 02/25/47 7,720,064
3,000,000 Series 2011-K15, Class B (c) (h)............................. 4.96% 08/25/44 3,077,313
11,771,000 Series 2014-K715, Class B (c) (h)............................ 4.00% 02/25/46 11,811,267
2,260,829 Series 2015-K721, Class B (c) (h)............................ 3.57% 11/25/47 2,357,687
Government National Mortgage Association
3,336,917 Series 2011-31, Class Z (e).................................. 3.79% 09/16/52 3,664,874
17,972,659 Series 2012-120, Class Z (e)................................. 2.52% 01/16/55 17,685,510
12,649,638 Series 2012-125, Class Z (e)................................. 2.34% 05/16/53 11,862,771
324,618 Series 2013-32, Class A...................................... 1.90% 06/16/36 325,502
532,000 Series 2013-57, Class D (e).................................. 2.35% 06/16/46 547,400
100,000 Series 2013-74, Class AG (c)................................. 2.83% 12/16/53 104,583
18,132 Series 2013-194, Class AE (e)................................ 2.75% 11/16/44 18,924
23,000,000 Series 2014-153, Class D (e)................................. 3.00% 04/16/56 24,628,644
15,362,214 Series 2015-30, Class DZ..................................... 2.95% 05/16/55 16,028,286
53,536,938 Series 2015-30, Class IO, IO (e)............................. 0.90% 07/16/56 2,639,398
14,435,123 Series 2015-70, Class IO, IO (e)............................. 0.79% 12/16/49 524,497
43,447,657 Series 2015-107, Class IO, IO (e)............................ 0.75% 03/16/57 1,542,535
5,352,978 Series 2015-125, Class VA (e)................................ 2.70% 05/16/35 5,633,453
37,055,461 Series 2016-2, Class IO, IO (e).............................. 0.81% 04/16/57 1,893,808
2,500,000 Series 2016-7, Class B....................................... 2.80% 07/16/57 2,708,117
25,576,677 Series 2016-11, Class IO, IO (e)............................. 0.87% 01/16/56 1,335,312
20,989,652 Series 2016-26, Class IO, IO (e)............................. 0.88% 02/16/58 1,064,677
79,103,539 Series 2016-28, Class IO, IO (e)............................. 0.87% 12/16/57 4,167,238
70,780,525 Series 2016-34, Class IO, IO (e)............................. 1.01% 01/16/58 4,631,325
55,694,805 Series 2016-35, Class IO, IO (e)............................. 0.83% 03/16/58 3,087,414
27,160,180 Series 2016-36, Class IO, IO (e)............................. 0.80% 08/16/57 1,428,256
43,866,257 Series 2016-50, Class IO, IO (e)............................. 0.94% 08/16/57 2,365,747
30,447,643 Series 2016-52, Class IO, IO (e)............................. 0.86% 03/16/58 1,543,714
99,330,940 Series 2016-64, Class IO, IO (e)............................. 0.95% 12/16/57 5,542,666
4,404,309 Series 2016-110, Class VA.................................... 2.10% 01/16/38 4,486,910
31,712,475 Series 2016-113, Class IO, IO (e)............................ 1.16% 02/16/58 2,303,918
19,476,439 Series 2016-127, Class IO, IO (e)............................ 0.92% 05/16/58 1,148,964
186,421,128 Series 2016-131, Class IO, IO (e)............................ 0.92% 08/16/58 11,983,057
132,084,735 Series 2016-133, Class IO, IO (e)............................ 0.98% 12/16/57 7,934,594
86,834,591 Series 2016-143, Class IO, IO................................ 0.89% 10/16/56 5,614,403
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
Government National Mortgage Association (Continued)
$ 35,873,818 Series 2016-152, Class IO, IO (c)............................ 0.83% 08/15/58 $ 2,091,264
65,160,238 Series 2016-158, Class IO, IO (e)............................ 0.85% 06/16/58 3,563,744
133,355,316 Series 2016-166, Class IO, IO (e)............................ 1.00% 04/16/58 8,576,507
76,280,305 Series 2017-7, Class IO, IO (e).............................. 0.83% 12/16/58 4,426,699
3,942,870 Series 2017-35, Class Z (e).................................. 2.50% 05/16/59 3,787,218
4,405,906 Series 2017-44, Class B...................................... 2.60% 04/17/50 4,456,988
7,020,000 Series 2017-76, Class B...................................... 2.60% 12/16/56 7,259,244
7,390,000 Series 2017-90, Class B...................................... 2.75% 12/16/57 7,778,296
4,780,000 Series 2017-106, Class AE.................................... 2.60% 12/16/56 4,950,414
104,694,807 Series 2017-126, Class IO, IO (c) (e)........................ 0.78% 08/16/59 6,552,262
22,426,641 Series 2018-2, Class IO, IO (e).............................. 0.73% 12/16/59 1,268,516
16,488,047 Series 2018-123, Class Z..................................... 2.50% 06/16/60 16,143,530
9,036,915 Series 2018-150, Class Z..................................... 3.20% 02/16/60 9,456,192
12,589,780 Series 2018-170, Class Z..................................... 2.50% 11/16/60 12,808,591
17,422,501 Series 2019-7, Class Z....................................... 2.50% 01/16/61 16,831,561
1,780,409 Series 2019-104, Class Z..................................... 2.80% 05/16/61 1,805,596
2,312,918 Series 2019-113, Class Z..................................... 3.00% 06/16/61 2,395,165
1,526,680 Series 2019-122, Class Z..................................... 3.00% 07/16/61 1,632,408
4,622,855 Series 2019-139, Class Z (e)................................. 2.90% 11/16/61 4,853,157
5,113,632 Series 2020-12, Class Z (e).................................. 3.00% 11/16/61 5,366,338
10,200,000 Series 2020-143, Class B..................................... 2.00% 03/16/62 10,224,988
6,700,000 Series 2020-161, Class B..................................... 2.00% 08/16/62 6,193,353
----------------
644,898,070
----------------
PASS-THROUGH SECURITIES -- 46.9%
Federal Home Loan Mortgage Corporation
2,793,166 Pool 760043, 5 Yr. Constant Maturity Treasury Rate +
1.39% (a)................................................. 2.95% 12/01/48 2,907,316
7,376,579 Pool 840359, 12 Mo. LIBOR + 1.63% (a)........................ 3.08% 06/01/46 7,690,925
140,565 Pool A19763.................................................. 5.00% 04/01/34 161,451
56,553 Pool A47333.................................................. 5.00% 10/01/35 65,224
537,290 Pool A47828.................................................. 3.50% 08/01/35 571,130
321,570 Pool A47829.................................................. 4.00% 08/01/35 349,812
274,921 Pool A47937.................................................. 5.50% 08/01/35 323,468
114,523 Pool A48972.................................................. 5.50% 05/01/36 133,244
85,742 Pool A54675.................................................. 5.50% 01/01/36 100,132
190,888 Pool A65324.................................................. 5.50% 09/01/37 216,156
60,062 Pool A86143.................................................. 5.00% 05/01/39 69,161
23,955 Pool A90319.................................................. 5.00% 12/01/39 27,684
348,031 Pool A92197.................................................. 5.00% 05/01/40 402,187
9,597 Pool A93093.................................................. 4.50% 07/01/40 10,799
13,535 Pool A93891.................................................. 4.00% 09/01/40 15,292
19,989 Pool A94729.................................................. 4.00% 11/01/40 22,588
68,111 Pool A94843.................................................. 4.00% 11/01/40 76,876
289,188 Pool A95441.................................................. 4.00% 12/01/40 323,554
28,965 Pool A95653.................................................. 4.00% 12/01/40 32,724
47,071 Pool A95728.................................................. 4.00% 12/01/40 53,167
64,578 Pool A96380.................................................. 4.00% 01/01/41 71,200
173,850 Pool A97294.................................................. 4.00% 02/01/41 191,493
751,740 Pool B70791.................................................. 4.00% 06/01/39 812,008
4,940 Pool C01310.................................................. 6.50% 03/01/32 5,627
15,188 Pool C01574.................................................. 5.00% 06/01/33 17,525
17,514 Pool C03458.................................................. 5.00% 02/01/40 20,239
60,452 Pool C03949.................................................. 3.50% 05/01/42 66,845
</TABLE>
Page 26 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 143,328 Pool C04269.................................................. 3.00% 10/01/42 $ 155,378
262,210 Pool C91167.................................................. 5.00% 04/01/28 290,120
194,568 Pool C91353.................................................. 3.50% 01/01/31 206,279
410,832 Pool C91366.................................................. 4.50% 04/01/31 453,103
31,460 Pool C91482.................................................. 3.50% 07/01/32 33,971
26,380 Pool E02883.................................................. 4.00% 04/01/26 28,031
23,342 Pool G01443.................................................. 6.50% 08/01/32 26,355
58,379 Pool G01737.................................................. 5.00% 12/01/34 67,380
31,842 Pool G01840.................................................. 5.00% 07/01/35 36,739
365,436 Pool G02017.................................................. 5.00% 12/01/35 422,805
70,273 Pool G03072.................................................. 5.00% 11/01/36 81,038
361,150 Pool G04593.................................................. 5.50% 01/01/37 421,293
34,756 Pool G04632.................................................. 5.00% 11/01/36 40,102
164,333 Pool G04814.................................................. 5.50% 10/01/38 190,794
62,515 Pool G04913.................................................. 5.00% 03/01/38 72,181
37,435 Pool G05173.................................................. 4.50% 11/01/31 40,880
504,056 Pool G05275.................................................. 5.50% 02/01/39 582,693
103,635 Pool G05449.................................................. 4.50% 05/01/39 116,547
397,617 Pool G05792.................................................. 4.50% 02/01/40 447,048
327,547 Pool G05927.................................................. 4.50% 07/01/40 370,838
25,942 Pool G06252.................................................. 4.00% 02/01/41 28,606
494,804 Pool G06359.................................................. 4.00% 02/01/41 545,569
77,402 Pool G06501.................................................. 4.00% 04/01/41 85,324
288,560 Pool G06583.................................................. 5.00% 06/01/41 338,933
140,343 Pool G06687.................................................. 5.00% 07/01/41 162,173
79,873 Pool G06739.................................................. 4.50% 09/01/41 89,710
425,063 Pool G07025.................................................. 5.00% 02/01/42 490,263
641,228 Pool G07100.................................................. 5.50% 07/01/40 742,885
13,321 Pool G07219.................................................. 5.00% 10/01/41 15,182
78,008 Pool G07266.................................................. 4.00% 12/01/42 86,091
518,971 Pool G07329.................................................. 4.00% 01/01/43 572,750
567,101 Pool G07683.................................................. 4.00% 03/01/44 625,750
525,946 Pool G07806.................................................. 5.00% 06/01/41 606,581
3,005 Pool G08113.................................................. 6.50% 02/01/36 3,446
2,705,771 Pool G08854.................................................. 5.00% 12/01/48 2,971,190
25 Pool G11833.................................................. 5.00% 11/01/20 26
20 Pool G11880.................................................. 5.00% 12/01/20 20
23,425 Pool G12312.................................................. 6.00% 09/01/21 23,749
15,169 Pool G12797.................................................. 6.50% 02/01/22 15,332
49,029 Pool G12959.................................................. 6.50% 10/01/22 50,662
2,150 Pool G12978.................................................. 5.50% 12/01/22 2,222
2 Pool G13044.................................................. 4.50% 06/01/21 2
129 Pool G13581.................................................. 5.50% 11/01/21 130
34,063 Pool G13623.................................................. 4.50% 08/01/24 36,136
36,947 Pool G13625.................................................. 5.50% 01/01/24 38,517
68,298 Pool G13733.................................................. 5.00% 11/01/24 72,921
65,867 Pool G14088.................................................. 4.00% 02/01/26 69,899
96,577 Pool G14106.................................................. 6.00% 10/01/24 100,743
24,692 Pool G14167.................................................. 5.50% 07/01/23 25,626
46,027 Pool G14233.................................................. 6.00% 01/01/24 46,976
670,284 Pool G14348.................................................. 4.00% 10/01/26 710,887
27,809 Pool G14376.................................................. 4.00% 09/01/25 29,488
</TABLE>
See Notes to Financial Statements Page 27
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 35,942 Pool G14676.................................................. 4.50% 09/01/26 $ 38,062
164,599 Pool G14995.................................................. 5.50% 12/01/24 169,699
39,892 Pool G15019.................................................. 4.50% 07/01/26 41,834
34,756 Pool G15039.................................................. 4.50% 09/01/26 36,914
35,429 Pool G15725.................................................. 4.50% 09/01/26 37,538
4,648 Pool G15821.................................................. 5.00% 07/01/25 4,906
158,099 Pool G15949.................................................. 4.00% 01/01/29 167,679
89,360 Pool G15957.................................................. 5.50% 12/01/24 91,716
2,696 Pool G18100.................................................. 5.00% 02/01/21 2,845
218,971 Pool G18264.................................................. 5.00% 07/01/23 231,122
191,552 Pool G18287.................................................. 5.50% 12/01/23 202,100
66,398 Pool G18306.................................................. 4.50% 04/01/24 69,831
13,816 Pool G60020.................................................. 4.50% 12/01/43 15,496
646,236 Pool G60114.................................................. 5.50% 06/01/41 758,293
1,040,714 Pool G60168.................................................. 4.50% 07/01/45 1,145,773
359,016 Pool G60194.................................................. 3.50% 08/01/45 395,586
340,697 Pool G60737.................................................. 4.50% 08/01/42 383,100
958,919 Pool G60762.................................................. 5.00% 07/01/41 1,105,780
378,082 Pool G60808.................................................. 3.00% 10/01/46 405,303
4,401,098 Pool G60921.................................................. 4.50% 02/01/47 4,797,171
14,914,825 Pool G60940.................................................. 4.00% 09/01/46 16,405,914
5,656,667 Pool G61160.................................................. 4.50% 11/01/45 6,311,090
11,199 Pool H09034.................................................. 5.50% 05/01/37 12,377
1,623 Pool J03523.................................................. 5.00% 09/01/21 1,713
24,966 Pool J05364.................................................. 6.00% 08/01/22 25,704
160,220 Pool J09465.................................................. 4.00% 04/01/24 169,892
65,412 Pool J09504.................................................. 4.00% 04/01/24 69,361
21,419 Pool J09798.................................................. 4.00% 05/01/24 22,712
50,311 Pool J10623.................................................. 4.00% 09/01/24 53,348
589,322 Pool J10827.................................................. 4.50% 10/01/24 625,898
228,192 Pool N70075.................................................. 5.00% 01/01/35 251,634
388,628 Pool N70081.................................................. 5.50% 07/01/38 441,045
53,675 Pool O20138.................................................. 5.00% 11/01/30 58,877
867,997 Pool Q00841.................................................. 4.50% 05/01/41 976,119
102,021 Pool Q03139.................................................. 4.00% 09/01/41 113,291
36,904 Pool Q04031.................................................. 4.00% 10/01/41 42,120
29,699 Pool Q04905.................................................. 4.00% 12/01/41 33,896
48,648 Pool Q05035.................................................. 4.00% 12/01/41 53,704
51,996 Pool Q05173.................................................. 4.00% 12/01/41 59,345
41,663 Pool Q05181.................................................. 4.00% 12/01/41 47,551
28,988 Pool Q05445.................................................. 4.00% 01/01/42 33,085
110,882 Pool Q07189.................................................. 4.00% 04/01/42 122,397
35,849 Pool Q07479.................................................. 3.50% 04/01/42 39,235
135,912 Pool Q11791.................................................. 3.50% 10/01/42 148,753
81,261 Pool Q11836.................................................. 3.50% 10/01/42 90,553
584,882 Pool Q14034.................................................. 3.50% 12/01/42 660,660
2,405,126 Pool Q43309.................................................. 4.00% 09/01/46 2,750,413
5,194,748 Pool Q45763.................................................. 4.00% 01/01/47 5,745,501
3,311,548 Pool Q50564.................................................. 4.50% 09/01/47 3,581,757
10,583,574 Pool Q53219.................................................. 4.50% 12/01/47 11,875,891
6,622,309 Pool Q53875.................................................. 4.00% 01/01/48 7,285,866
738,477 Pool Q54651.................................................. 4.50% 03/01/48 830,194
</TABLE>
Page 28 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 1,434,733 Pool Q55037.................................................. 4.50% 04/01/48 $ 1,668,690
11,134,655 Pool Q55152.................................................. 4.50% 04/01/48 12,150,471
5,447,668 Pool Q55606.................................................. 4.00% 04/01/48 6,054,292
4,058,379 Pool Q56260.................................................. 5.00% 05/01/48 4,607,619
5,698,451 Pool Q58363.................................................. 5.00% 09/01/48 6,262,857
4,407,197 Pool Q58483.................................................. 4.50% 09/01/48 4,762,429
4,106,732 Pool Q61217.................................................. 4.00% 01/01/49 4,536,419
14,938,715 Pool Q63173.................................................. 4.00% 04/01/49 16,183,327
14,187,976 Pool QA2693.................................................. 4.00% 09/01/49 16,212,030
6,477,487 Pool QA3965.................................................. 4.00% 10/01/49 7,161,417
8,187,777 Pool QA4774.................................................. 4.00% 11/01/49 9,041,454
14,002,814 Pool QA5778.................................................. 3.50% 01/01/50 14,977,672
17,416,297 Pool QA7078.................................................. 3.50% 01/01/50 18,740,728
3,744,442 Pool QB4340.................................................. 3.00% 10/01/50 3,965,327
4,427,625 Pool QN2804.................................................. 1.50% 07/01/35 4,523,902
421,615 Pool QN3055.................................................. 1.50% 08/01/35 430,784
26,038,419 Pool RA1624.................................................. 4.00% 08/01/49 28,575,995
33,413,383 Pool RA2415.................................................. 3.00% 04/01/50 34,960,738
7,505,635 Pool SB8044.................................................. 2.00% 05/01/35 7,790,263
46,048,492 Pool SB8068.................................................. 1.50% 10/01/35 47,049,867
89,999,999 Pool SD8082.................................................. 1.50% 10/01/50 91,620,753
60,000,000 Pool SD8104.................................................. 1.50% 11/01/50 60,456,781
479,834 Pool U50165.................................................. 4.00% 05/01/32 518,036
2,411,773 Pool U59020.................................................. 4.00% 06/01/35 2,599,160
2,276,099 Pool U64762.................................................. 4.50% 10/01/45 2,523,875
9,428,734 Pool U69020.................................................. 5.00% 07/01/44 10,604,685
10,700,055 Pool U69040.................................................. 4.00% 05/01/45 11,761,361
5,487,508 Pool U69041.................................................. 5.00% 11/01/43 6,153,413
25,470,359 Pool U69055.................................................. 4.50% 10/01/47 28,241,510
14,083,664 Pool U69060.................................................. 4.50% 06/01/47 15,613,617
3,619,574 Pool U79023.................................................. 3.50% 10/01/28 3,837,677
175,273 Pool U80068.................................................. 3.50% 10/01/32 188,835
100,017 Pool U80212.................................................. 3.50% 02/01/33 107,762
136,591 Pool U90245.................................................. 3.50% 10/01/42 148,862
38,794 Pool U90291.................................................. 4.00% 10/01/42 42,255
625,631 Pool U90316.................................................. 4.00% 10/01/42 687,985
553,009 Pool U90490.................................................. 4.00% 06/01/42 607,876
1,560,282 Pool U90690.................................................. 3.50% 06/01/42 1,698,787
19,468 Pool U90932.................................................. 3.00% 02/01/43 21,083
157,123 Pool U90975.................................................. 4.00% 06/01/42 171,654
473,765 Pool U91254.................................................. 4.00% 04/01/43 521,231
1,539,763 Pool U91619.................................................. 4.00% 06/01/43 1,692,992
51,384 Pool U92272.................................................. 4.50% 12/01/43 57,431
708,359 Pool U92432.................................................. 4.00% 02/01/44 779,585
44,423 Pool U95137.................................................. 4.00% 08/01/43 48,888
158,540 Pool U99045.................................................. 3.50% 03/01/43 172,569
202,502 Pool U99084.................................................. 4.50% 02/01/44 226,455
94,184 Pool U99091.................................................. 4.50% 03/01/44 105,240
251,291 Pool U99096.................................................. 4.50% 05/01/44 280,785
3,057,861 Pool U99134.................................................. 4.00% 01/01/46 3,362,047
6,832,751 Pool U99184.................................................. 4.00% 08/01/43 7,500,420
589,774 Pool V80910.................................................. 4.00% 12/01/43 648,419
</TABLE>
See Notes to Financial Statements Page 29
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 14,067,419 Pool ZM4944.................................................. 4.00% 11/01/47 $ 15,554,952
3,810,329 Pool ZM6088.................................................. 4.50% 04/01/48 4,131,857
2,023,348 Pool ZS2492.................................................. 6.50% 04/01/35 2,412,054
Federal National Mortgage Association
63,793 Pool 190371.................................................. 6.50% 07/01/36 74,485
23,886 Pool 254636.................................................. 5.00% 02/01/33 27,357
37,517 Pool 255190.................................................. 5.50% 05/01/34 44,250
24,444 Pool 255984.................................................. 4.50% 11/01/25 26,377
151,622 Pool 256181.................................................. 5.50% 03/01/36 165,054
448,667 Pool 256576.................................................. 5.50% 01/01/37 492,938
24,592 Pool 256808.................................................. 5.50% 07/01/37 28,213
89,646 Pool 256936.................................................. 6.00% 10/01/37 101,236
74,326 Pool 545759.................................................. 6.50% 07/01/32 87,151
16,986 Pool 555851.................................................. 6.50% 01/01/33 19,375
299,506 Pool 683246.................................................. 5.50% 02/01/33 351,227
230,470 Pool 725014.................................................. 5.50% 12/01/33 271,862
365,168 Pool 734922.................................................. 4.50% 09/01/33 407,896
502,645 Pool 735415.................................................. 6.50% 12/01/32 589,175
4,702 Pool 745875.................................................. 6.50% 09/01/36 5,681
47,374 Pool 747097.................................................. 6.00% 10/01/29 51,927
454,638 Pool 788149.................................................. 5.50% 05/01/33 516,663
250,579 Pool 812741.................................................. 5.50% 02/01/35 283,664
375,739 Pool 827948.................................................. 5.50% 05/01/35 424,888
347,139 Pool 850000.................................................. 5.50% 01/01/36 403,793
68,177 Pool 871039.................................................. 5.50% 02/01/37 77,669
1,488,136 Pool 879015.................................................. 4.00% 10/01/35 1,624,314
175,500 Pool 888001.................................................. 5.50% 10/01/36 206,056
137,895 Pool 888163.................................................. 7.00% 12/01/33 165,894
15,524 Pool 888435.................................................. 5.50% 06/01/22 15,865
454,706 Pool 889610.................................................. 5.50% 06/01/38 527,723
353,813 Pool 889834.................................................. 5.00% 12/01/35 408,284
15,913 Pool 890149.................................................. 6.50% 10/01/38 18,498
37,802 Pool 890231.................................................. 5.00% 07/01/25 39,930
38,300 Pool 890314.................................................. 5.50% 12/01/22 39,390
11,792 Pool 890378.................................................. 6.00% 05/01/24 12,344
1,100,772 Pool 890556.................................................. 4.50% 10/01/43 1,281,870
303,169 Pool 890561.................................................. 4.50% 01/01/27 318,072
979,760 Pool 890736.................................................. 5.00% 07/01/30 1,102,441
206,601 Pool 905917.................................................. 5.50% 01/01/37 242,017
73,300 Pool 922386.................................................. 5.50% 01/01/37 76,933
14,831 Pool 930562.................................................. 5.00% 02/01/39 17,195
159,685 Pool 931808.................................................. 5.50% 08/01/39 184,835
192,519 Pool 953115.................................................. 5.50% 11/01/38 214,325
78,523 Pool 962556.................................................. 5.00% 04/01/23 82,868
36,495 Pool 973561.................................................. 5.00% 03/01/23 38,515
60,440 Pool 976871.................................................. 6.50% 08/01/36 68,956
58,905 Pool 995002.................................................. 5.00% 07/01/37 67,865
19,340 Pool 995097.................................................. 6.50% 10/01/37 22,727
117,840 Pool 995149.................................................. 6.50% 10/01/38 139,394
47,233 Pool 995228.................................................. 6.50% 11/01/38 55,936
110,746 Pool 995252.................................................. 5.00% 12/01/23 116,874
45,647 Pool 995259.................................................. 6.50% 11/01/23 47,908
</TABLE>
Page 30 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 155,915 Pool AA0916.................................................. 5.00% 08/01/37 $ 179,576
121,930 Pool AA3303.................................................. 5.50% 06/01/38 140,698
621,600 Pool AB0460.................................................. 5.50% 02/01/37 718,826
250,166 Pool AB0731.................................................. 4.00% 06/01/39 275,364
68,029 Pool AB1953.................................................. 4.00% 12/01/40 76,050
54,976 Pool AB2092.................................................. 4.00% 01/01/41 61,262
36,696 Pool AB2133.................................................. 4.00% 01/01/26 38,926
167,605 Pool AB2265.................................................. 4.00% 02/01/41 189,339
25,905 Pool AB2467.................................................. 4.50% 03/01/41 29,388
1,151,325 Pool AB2506.................................................. 5.00% 03/01/41 1,321,619
1,524,176 Pool AB2959.................................................. 4.50% 07/01/40 1,673,924
115,366 Pool AB5174.................................................. 3.50% 05/01/42 127,446
127,658 Pool AB5919.................................................. 3.00% 08/01/42 140,701
76,814 Pool AB6632.................................................. 3.50% 10/01/42 83,018
263,503 Pool AB6671.................................................. 3.00% 10/01/42 289,359
321,968 Pool AB7765.................................................. 3.00% 02/01/43 353,559
224,799 Pool AB7859.................................................. 3.50% 02/01/43 248,494
1,604,092 Pool AB8289.................................................. 4.50% 04/01/42 1,794,490
555,682 Pool AB8676.................................................. 3.50% 05/01/42 597,983
99,058 Pool AB9382.................................................. 4.00% 05/01/43 111,110
865,301 Pool AB9551.................................................. 3.00% 06/01/43 950,215
266,278 Pool AB9615.................................................. 4.00% 06/01/33 287,788
61,423 Pool AB9959.................................................. 4.00% 07/01/43 68,297
40,619 Pool AC1232.................................................. 5.00% 07/01/24 43,107
92,739 Pool AC3236.................................................. 5.00% 09/01/39 107,066
270,614 Pool AC3267.................................................. 5.50% 09/01/39 314,567
194,415 Pool AD0889.................................................. 6.00% 09/01/24 202,439
580,622 Pool AD4317.................................................. 4.00% 04/01/40 639,992
17,631 Pool AD5222.................................................. 4.50% 05/01/30 19,192
103,890 Pool AD5583.................................................. 5.00% 04/01/40 115,683
137,401 Pool AD6369.................................................. 4.50% 05/01/40 154,614
74,476 Pool AD6938.................................................. 4.50% 06/01/40 84,029
130,710 Pool AD7110.................................................. 5.00% 07/01/40 143,816
81,964 Pool AD7137.................................................. 5.50% 07/01/40 97,450
30,543 Pool AD8526.................................................. 4.50% 08/01/40 34,353
292,283 Pool AE0137.................................................. 4.50% 03/01/36 321,745
25,085 Pool AE0383.................................................. 4.50% 09/01/25 26,641
104,523 Pool AE4476.................................................. 4.00% 03/01/41 115,002
142,997 Pool AE7005.................................................. 4.00% 10/01/40 157,359
4,557,831 Pool AE7733.................................................. 5.00% 11/01/40 5,340,121
32,552 Pool AE9284.................................................. 4.00% 11/01/40 35,785
520,540 Pool AE9959.................................................. 5.00% 03/01/41 592,535
22,621 Pool AH0057.................................................. 4.50% 02/01/41 25,460
406,857 Pool AH0943.................................................. 4.00% 12/01/40 451,153
522,056 Pool AH0979.................................................. 3.50% 01/01/41 549,847
281,455 Pool AH1089.................................................. 4.00% 11/01/40 309,363
136,145 Pool AH1141.................................................. 4.50% 12/01/40 153,191
138,725 Pool AH4404.................................................. 4.00% 01/01/41 152,922
91,132 Pool AH7204.................................................. 4.00% 03/01/41 100,156
46,236 Pool AI1190.................................................. 4.50% 04/01/41 52,017
64,526 Pool AI1969.................................................. 4.50% 05/01/41 72,633
349,983 Pool AI4268.................................................. 5.00% 06/01/41 402,343
</TABLE>
See Notes to Financial Statements Page 31
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 9,622,661 Pool AI5614.................................................. 5.00% 07/01/41 $ 11,116,575
239,739 Pool AI6093.................................................. 4.50% 06/01/31 264,332
64,237 Pool AI6503.................................................. 5.00% 11/01/39 70,687
34,660 Pool AI6581.................................................. 4.50% 07/01/41 39,016
26,159 Pool AI7800.................................................. 4.50% 07/01/41 29,447
152,542 Pool AI8779.................................................. 4.00% 11/01/41 168,218
382,953 Pool AI9114.................................................. 4.00% 06/01/42 424,035
2,003,334 Pool AI9124.................................................. 4.00% 08/01/42 2,218,244
1,164,288 Pool AI9158.................................................. 6.50% 01/01/41 1,464,569
1,796,900 Pool AJ2311.................................................. 5.00% 10/01/41 2,024,516
24,997 Pool AJ4756.................................................. 4.00% 10/01/41 28,523
36,067 Pool AJ5424.................................................. 4.00% 11/01/41 41,153
19,973 Pool AJ5736.................................................. 4.00% 12/01/41 22,789
26,029 Pool AJ6061.................................................. 4.00% 12/01/41 29,700
28,557 Pool AJ7538.................................................. 4.00% 01/01/42 32,612
34,888 Pool AJ8104.................................................. 4.00% 12/01/41 39,808
14,283 Pool AJ8203.................................................. 4.50% 01/01/42 16,078
26,943 Pool AJ8341.................................................. 4.00% 12/01/41 30,743
23,242 Pool AJ8369.................................................. 4.00% 01/01/42 26,520
40,426 Pool AJ8436.................................................. 4.00% 12/01/41 46,128
21,543 Pool AJ9162.................................................. 4.00% 01/01/42 24,574
882,670 Pool AJ9332.................................................. 4.00% 01/01/42 979,681
42,723 Pool AK0543.................................................. 4.00% 01/01/42 48,748
1,191,233 Pool AK0765.................................................. 4.00% 03/01/42 1,309,215
30,617 Pool AK1827.................................................. 4.00% 01/01/42 34,924
198,588 Pool AK4520.................................................. 4.00% 03/01/42 219,060
167,914 Pool AK5555.................................................. 4.00% 04/01/42 185,310
17,160 Pool AL0147.................................................. 4.00% 04/01/41 19,381
112,990 Pool AL0212.................................................. 5.50% 02/01/38 133,194
279,778 Pool AL0241.................................................. 4.00% 04/01/41 308,707
26,032 Pool AL0399.................................................. 6.00% 08/01/24 26,939
12,628 Pool AL0446.................................................. 6.00% 05/01/24 13,063
43,727 Pool AL0815.................................................. 4.00% 09/01/41 49,894
14,615 Pool AL1195.................................................. 6.00% 09/01/23 15,222
531,641 Pool AL1850.................................................. 5.50% 07/01/40 621,305
37,732 Pool AL1948.................................................. 4.00% 01/01/42 41,871
34,069 Pool AL1953.................................................. 4.50% 01/01/27 35,761
100,949 Pool AL2142.................................................. 6.50% 09/01/38 118,502
508,988 Pool AL2551.................................................. 3.50% 10/01/42 562,637
83,998 Pool AL2589.................................................. 5.50% 05/01/25 86,249
89,087 Pool AL2892.................................................. 3.50% 12/01/42 98,202
677,862 Pool AL3093.................................................. 3.50% 02/01/43 754,488
24,563 Pool AL3154.................................................. 3.00% 02/01/43 27,078
1,923,575 Pool AL4703.................................................. 3.50% 12/01/28 2,012,678
7,655,168 Pool AL4741.................................................. 4.50% 01/01/44 8,550,322
20,903 Pool AL4962.................................................. 6.00% 05/01/24 21,901
148,217 Pool AL5616.................................................. 5.50% 09/01/41 172,384
817,064 Pool AL5760.................................................. 4.00% 09/01/43 907,693
657,391 Pool AL5890.................................................. 4.50% 03/01/43 742,754
503,729 Pool AL6031.................................................. 4.00% 10/01/44 564,882
18,291 Pool AL6057.................................................. 6.00% 08/01/24 18,458
64,214 Pool AL6449.................................................. 4.50% 01/01/27 68,188
</TABLE>
Page 32 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 3,128,053 Pool AL6513.................................................. 5.00% 07/01/44 $ 3,513,164
190,606 Pool AL6948.................................................. 5.00% 09/01/25 201,154
117,712 Pool AL7046.................................................. 3.50% 06/01/45 130,066
4,982,844 Pool AL7162, 12 Mo. LIBOR + 1.72% (a)........................ 2.89% 09/01/42 5,209,514
322,703 Pool AL7231.................................................. 3.50% 08/01/45 356,572
585,411 Pool AL7449.................................................. 8.50% 12/01/37 724,416
740,225 Pool AL7637.................................................. 5.00% 01/01/42 815,849
2,389,458 Pool AL7905.................................................. 4.50% 03/01/34 2,632,568
127,922 Pool AL8139.................................................. 4.00% 02/01/32 136,337
10,084,559 Pool AL8263.................................................. 4.50% 02/01/44 11,265,336
84,594 Pool AL8353.................................................. 3.50% 08/01/44 93,451
8,181,919 Pool AL8640, 12 Mo. LIBOR + 1.80% (a)........................ 3.37% 12/01/41 8,584,175
4,672,246 Pool AL8652.................................................. 5.00% 07/01/44 5,383,860
529,519 Pool AL9143.................................................. 3.50% 09/01/36 577,491
170,656 Pool AL9226.................................................. 5.50% 12/01/41 201,852
1,605,665 Pool AL9777.................................................. 4.50% 01/01/47 1,769,375
5,085,571 Pool AO3529.................................................. 4.00% 06/01/42 5,590,033
1,599,615 Pool AO5527.................................................. 4.00% 07/01/42 1,744,270
1,573,368 Pool AO8106.................................................. 4.00% 08/01/42 1,730,620
516,310 Pool AO8167.................................................. 4.00% 09/01/42 564,518
200,108 Pool AP1197.................................................. 3.50% 09/01/42 218,645
888,198 Pool AP2109.................................................. 4.00% 08/01/32 959,211
101,588 Pool AP5113.................................................. 4.00% 09/01/42 112,867
291,500 Pool AP7963.................................................. 4.00% 09/01/42 330,159
2,480,193 Pool AQ0411.................................................. 3.50% 10/01/42 2,734,149
1,004,373 Pool AQ0535.................................................. 3.00% 11/01/42 1,098,304
743,588 Pool AQ1534.................................................. 3.50% 10/01/32 801,134
835,872 Pool AQ1584.................................................. 4.00% 11/01/42 956,680
582,107 Pool AQ1607.................................................. 3.50% 11/01/32 627,146
473,895 Pool AQ3310.................................................. 4.00% 11/01/42 521,135
1,589,683 Pool AQ4086.................................................. 4.00% 06/01/43 1,747,455
66,741 Pool AQ9715.................................................. 3.00% 01/01/43 72,289
454,027 Pool AQ9999.................................................. 3.00% 02/01/43 491,772
1,824,043 Pool AR7582.................................................. 3.50% 03/01/33 1,956,511
320,079 Pool AR7961.................................................. 3.50% 03/01/33 344,932
3,778,034 Pool AS1719.................................................. 5.00% 02/01/44 4,429,415
549,045 Pool AS5236.................................................. 4.00% 05/01/45 594,926
982,371 Pool AS5515.................................................. 3.50% 06/01/30 1,041,266
299,200 Pool AS5635.................................................. 3.00% 08/01/45 331,670
883,175 Pool AS7211.................................................. 3.00% 04/01/46 949,019
1,640,059 Pool AS7537.................................................. 3.00% 07/01/46 1,818,133
6,647,884 Pool AS8548.................................................. 3.50% 12/01/46 7,211,624
1,011,563 Pool AS9244.................................................. 4.50% 08/01/39 1,130,401
500,819 Pool AS9990.................................................. 4.50% 07/01/47 543,299
189,608 Pool AS9994.................................................. 4.50% 04/01/47 207,007
107,631 Pool AT0332.................................................. 3.00% 04/01/43 111,860
682,577 Pool AT1747.................................................. 3.00% 04/01/43 752,481
683,871 Pool AT3892.................................................. 3.00% 06/01/43 744,545
295,927 Pool AT4180.................................................. 3.50% 05/01/33 317,426
121,375 Pool AT5915.................................................. 4.00% 06/01/43 133,423
725,817 Pool AT6303.................................................. 4.00% 06/01/43 830,475
44,145 Pool AT6306.................................................. 4.00% 06/01/43 49,965
</TABLE>
See Notes to Financial Statements Page 33
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 142,631 Pool AU5787.................................................. 4.50% 09/01/43 $ 163,625
737,168 Pool AU6278.................................................. 5.00% 11/01/43 824,243
194,721 Pool AY0013.................................................. 4.50% 01/01/45 217,999
796,563 Pool BA4113.................................................. 3.00% 04/01/46 863,291
1,430,286 Pool BD4509, 12 Mo. LIBOR + 1.67% (a)........................ 2.73% 01/01/44 1,494,095
1,630,804 Pool BD4533, 12 Mo. LIBOR + 1.66% (a)........................ 2.70% 09/01/44 1,695,077
213,446 Pool BD8660, 1 Yr. Constant Maturity Treasury Rate +
1.67% (a)................................................. 2.47% 12/01/45 215,490
15,554,962 Pool BE2973.................................................. 4.00% 01/01/47 17,199,616
588,619 Pool BE3631.................................................. 4.50% 05/01/47 640,748
2,418,525 Pool BH2633.................................................. 5.00% 08/01/47 2,696,275
30,024 Pool BH9428.................................................. 4.50% 09/01/47 32,559
15,999,006 Pool BJ1637.................................................. 3.50% 11/01/47 17,618,154
73,844 Pool BJ5781.................................................. 4.50% 04/01/48 81,745
243,656 Pool BJ6232.................................................. 5.00% 04/01/48 268,643
17,075 Pool BJ6234.................................................. 5.00% 05/01/48 18,777
1,027,984 Pool BJ9100.................................................. 4.50% 02/01/48 1,186,778
881,210 Pool BJ9111.................................................. 4.50% 03/01/48 1,024,620
1,674,082 Pool BJ9124.................................................. 4.50% 04/01/48 1,946,484
937,466 Pool BK0922.................................................. 4.50% 07/01/48 1,014,243
22,750,054 Pool BK4769.................................................. 5.00% 08/01/48 25,119,028
542,072 Pool BK4851.................................................. 5.00% 05/01/48 599,190
28,732 Pool BK7173.................................................. 5.00% 06/01/48 31,623
895,244 Pool BK7797.................................................. 5.00% 07/01/48 985,771
6,266,158 Pool BK8883.................................................. 5.00% 09/01/48 7,088,834
3,065,441 Pool BK9563.................................................. 4.50% 12/01/48 3,330,125
6,670,930 Pool BK9599.................................................. 5.00% 08/01/48 7,345,349
435,109 Pool BM1880.................................................. 4.00% 02/01/45 483,260
969,349 Pool BM3013, 12 Mo. LIBOR + 1.53% (a)........................ 2.50% 07/01/44 1,004,133
15,860,317 Pool BM3076.................................................. 4.50% 07/01/47 17,578,203
8,077,445 Pool BM3625.................................................. 3.00% 03/01/48 8,825,945
17,057,293 Pool BM3980, 12 Mo. LIBOR + 1.78% (a)........................ 3.16% 02/01/43 17,871,967
17,592,459 Pool BM4122.................................................. 7.47% 01/01/40 21,449,923
7,826,303 Pool BM4561.................................................. 5.00% 09/01/48 8,902,232
8,891,723 Pool BM4785.................................................. 4.50% 10/01/38 9,905,024
21,190,116 Pool BM5039.................................................. 4.50% 12/01/48 23,303,335
18,457,439 Pool BM5130.................................................. 4.50% 08/01/47 20,500,130
63,399,476 Pool BM5508.................................................. 5.00% 02/01/49 72,115,282
21,454,170 Pool BM5667.................................................. 4.00% 12/01/48 23,555,849
7,630,241 Pool BM5671.................................................. 4.50% 01/01/49 8,620,612
14,779,943 Pool BM6018.................................................. 5.00% 05/01/49 15,683,490
881,849 Pool BN1027.................................................. 5.50% 03/01/49 1,027,370
12,364,306 Pool BN1345.................................................. 4.00% 09/01/48 13,272,518
30,320,803 Pool BN3925.................................................. 4.50% 01/01/49 34,532,528
2,759,314 Pool BN4059.................................................. 4.00% 12/01/48 2,941,648
6,780,651 Pool BN4328.................................................. 5.00% 01/01/49 7,539,198
3,346,431 Pool BN5323.................................................. 3.50% 03/01/49 3,534,672
12,899,330 Pool BN6078.................................................. 4.00% 06/01/49 13,769,423
10,204,999 Pool BN8210.................................................. 4.50% 07/01/49 11,326,895
7,226,779 Pool BO1420.................................................. 3.50% 09/01/49 7,629,545
19,046,458 Pool BO2179.................................................. 4.00% 09/01/49 21,763,425
15,398,168 Pool BO2653.................................................. 3.50% 07/01/49 16,356,124
</TABLE>
Page 34 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 7,357,340 Pool BO3030.................................................. 4.00% 10/01/49 $ 8,147,806
5,099,264 Pool BO5425.................................................. 4.00% 10/01/49 5,634,585
11,159,987 Pool BO5426.................................................. 4.00% 10/01/49 12,124,054
9,808,249 Pool BO5430.................................................. 4.00% 10/01/49 10,615,076
13,425,238 Pool BP1950.................................................. 3.00% 04/01/50 14,887,794
4,743,122 Pool BP4238.................................................. 3.00% 04/01/50 4,962,772
874,224 Pool BP6504.................................................. 1.50% 07/01/35 893,233
2,688,716 Pool BP8797.................................................. 3.00% 07/01/50 2,871,881
7,894,466 Pool BQ3099.................................................. 3.00% 10/01/50 8,432,298
5,850,603 Pool CA0843.................................................. 3.00% 12/01/47 6,445,980
13,541,163 Pool CA1576.................................................. 5.00% 01/01/48 15,041,134
12,612,639 Pool CA1902.................................................. 4.50% 06/01/48 13,774,780
7,656,535 Pool CA1917.................................................. 5.00% 06/01/48 8,761,785
2,745,168 Pool CA2520.................................................. 4.00% 10/01/33 2,944,008
6,203,675 Pool CA2947.................................................. 4.00% 12/01/48 6,863,049
665,298 Pool CA3684.................................................. 4.50% 06/01/49 719,181
31,087,764 Pool CA4175.................................................. 4.00% 09/01/49 35,522,725
21,937,628 Pool FM0050.................................................. 5.50% 11/01/49 24,660,636
62,631,517 Pool FM0085.................................................. 4.00% 03/01/50 71,564,925
96,290,482 Pool FM1194.................................................. 4.50% 05/01/39 107,263,304
3,091,410 Pool FM1284.................................................. 3.50% 02/01/46 3,380,267
3,003,198 Pool FM1285.................................................. 4.00% 10/01/43 3,310,744
6,765,522 Pool FM1286.................................................. 4.50% 06/01/46 7,505,434
2,899,816 Pool FM1287.................................................. 5.00% 11/01/44 3,194,997
72,502,233 Pool FM1725.................................................. 2.50% 11/01/47 76,664,247
15,252,788 Pool FM2001.................................................. 5.00% 09/01/49 16,908,938
27,510,166 Pool FM2329.................................................. 5.00% 12/01/49 31,067,713
24,309,357 Pool FM2397.................................................. 4.50% 01/01/50 26,904,532
7,895,769 Pool FM2450.................................................. 3.50% 12/01/39 8,774,934
115,498,475 Pool FM2500.................................................. 2.50% 03/01/35 123,180,446
6,012,759 Pool FM2853.................................................. 5.00% 03/01/41 6,624,816
148,668 Pool MA0096.................................................. 4.50% 06/01/29 161,996
3,220 Pool MA0293.................................................. 4.50% 01/01/30 3,510
50,231 Pool MA0295.................................................. 5.00% 01/01/30 55,639
47,445 Pool MA0353.................................................. 4.50% 03/01/30 52,298
1,258,296 Pool MA0443.................................................. 5.00% 05/01/30 1,417,130
40,074 Pool MA0444.................................................. 5.00% 06/01/40 44,901
334,461 Pool MA0575.................................................. 4.50% 11/01/30 368,704
221,435 Pool MA0633.................................................. 5.00% 01/01/41 248,108
5,640 Pool MA0777.................................................. 5.00% 06/01/31 6,345
832,422 Pool MA1125.................................................. 4.00% 07/01/42 907,230
1,509,674 Pool MA1217.................................................. 4.00% 10/01/42 1,658,381
46,696 Pool MA1222.................................................. 4.00% 10/01/32 51,007
81,033 Pool MA1228.................................................. 3.00% 09/01/42 87,753
540,795 Pool MA1510.................................................. 4.00% 07/01/43 594,474
170,677 Pool MA1591.................................................. 4.50% 09/01/43 190,661
16,980,662 Pool MA1629.................................................. 4.50% 10/01/43 18,972,695
456,811 Pool MA1664.................................................. 4.50% 11/01/43 510,299
441,566 Pool MA1711.................................................. 4.50% 12/01/43 493,267
716,647 Pool MA1866.................................................. 4.50% 04/01/44 800,561
613,553 Pool MA1900.................................................. 4.50% 04/01/44 685,395
676,192 Pool MA2024.................................................. 4.00% 07/01/29 721,617
</TABLE>
See Notes to Financial Statements Page 35
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 1,037,070 Pool MA2099.................................................. 3.50% 11/01/29 $ 1,099,080
450,385 Pool MA2454.................................................. 3.50% 09/01/30 477,454
6,973 Pool MA2509.................................................. 3.00% 01/01/46 7,195
1,969,984 Pool MA2695.................................................. 4.00% 07/01/46 2,167,025
2,318,496 Pool MA2916.................................................. 4.00% 02/01/47 2,550,627
452,453 Pool MA3101.................................................. 4.50% 08/01/47 492,468
180,314 Pool MA3123.................................................. 5.00% 08/01/47 200,520
675,557 Pool MA3205.................................................. 5.00% 10/01/47 751,264
12,179,463 Pool MA3385.................................................. 4.50% 06/01/48 13,205,200
14,388,933 Pool MA4018.................................................. 2.00% 05/01/50 14,862,596
1,537,365 Pool MA4122.................................................. 1.50% 09/01/35 1,570,797
1,064,959 Pool MA4154.................................................. 1.50% 10/01/35 1,088,117
125,000,000 Pool TBA (i)................................................. 1.50% 11/15/35 127,634,276
45,000,000 Pool TBA (i)................................................. 1.50% 12/15/50 45,214,453
249,000,000 Pool TBA (i)................................................. 2.00% 12/15/50 256,294,923
370,500,000 Pool TBA (i)................................................. 2.50% 12/15/50 385,522,619
40,000,000 Pool TBA..................................................... 4.00% 12/15/50 42,760,937
Government National Mortgage Association
85,183 Pool 3149.................................................... 6.00% 10/20/31 96,068
54,166 Pool 3172.................................................... 6.00% 12/20/31 62,540
57,900 Pool 3227.................................................... 6.00% 04/20/32 65,155
401,405 Pool 3345.................................................... 5.00% 02/20/33 454,717
134,943 Pool 3389.................................................... 5.00% 05/20/33 152,575
23,537 Pool 3390.................................................... 5.50% 05/20/33 27,936
652,526 Pool 3428.................................................... 5.00% 08/20/33 740,610
56,309 Pool 3442.................................................... 5.00% 09/20/33 64,109
23,025 Pool 3459.................................................... 5.50% 10/20/33 27,332
11,745 Pool 3474.................................................... 6.00% 11/20/33 13,502
78,425 Pool 3487.................................................... 5.00% 12/20/33 89,148
406,539 Pool 3529.................................................... 5.00% 03/20/34 462,928
62,159 Pool 3555.................................................... 5.00% 05/20/34 70,818
89,978 Pool 3596.................................................... 5.50% 08/20/34 106,749
78,823 Pool 3786.................................................... 5.50% 11/20/35 93,566
55,691 Pool 3807.................................................... 5.50% 01/20/36 66,104
402,144 Pool 4029.................................................... 6.50% 09/20/37 482,106
254,552 Pool 4251.................................................... 5.50% 10/20/23 267,758
141,297 Pool 455986.................................................. 5.25% 07/15/25 157,384
156,127 Pool 487108.................................................. 6.00% 04/15/29 186,266
55,006 Pool 553144.................................................. 5.50% 04/15/33 63,397
9,699 Pool 589331.................................................. 6.00% 10/15/22 10,292
153,488 Pool 604338.................................................. 5.00% 05/15/33 176,818
151,654 Pool 604897.................................................. 5.00% 12/15/33 174,816
146,838 Pool 605389.................................................. 5.00% 04/15/34 169,224
351,590 Pool 615403.................................................. 4.50% 08/15/33 396,626
14,454 Pool 627123.................................................. 5.50% 03/15/34 16,943
88,716 Pool 638704.................................................. 5.50% 11/15/36 100,936
200,355 Pool 653143.................................................. 4.90% 04/15/36 223,630
260,675 Pool 658324.................................................. 5.50% 03/15/37 292,570
187,894 Pool 677190.................................................. 5.00% 06/15/38 212,851
25,186 Pool 687833.................................................. 6.00% 08/15/38 30,166
50,369 Pool 706840.................................................. 4.50% 05/15/40 58,543
200,556 Pool 706855.................................................. 4.50% 09/15/40 232,553
</TABLE>
Page 36 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Government National Mortgage Association (Continued)
$ 316,049 Pool 711483.................................................. 4.00% 01/15/40 $ 354,676
134,723 Pool 711543.................................................. 4.00% 11/15/40 153,086
842,428 Pool 711563.................................................. 4.50% 03/15/41 972,361
7,956,250 Pool 720225.................................................. 4.50% 07/15/39 9,007,067
419,643 Pool 723216.................................................. 4.50% 08/15/40 471,638
94,605 Pool 723248.................................................. 5.00% 10/15/39 108,981
376,946 Pool 724230.................................................. 5.00% 08/15/39 434,559
99,669 Pool 724267.................................................. 5.00% 09/15/39 114,838
293,725 Pool 724340.................................................. 4.50% 09/15/39 332,289
85,619 Pool 725272.................................................. 4.50% 11/15/39 93,812
70,660 Pool 726394.................................................. 4.50% 10/15/39 80,013
41,083 Pool 728921.................................................. 4.50% 12/15/24 42,982
292,096 Pool 733595.................................................. 4.50% 04/15/40 330,708
136,705 Pool 733733.................................................. 5.00% 06/15/40 157,142
781,681 Pool 736317.................................................. 4.25% 06/20/36 845,663
133,952 Pool 736617.................................................. 4.00% 12/15/35 143,332
1,235,964 Pool 737673.................................................. 4.50% 11/15/40 1,386,591
255,366 Pool 737996.................................................. 4.00% 02/15/41 286,805
260,507 Pool 739341.................................................. 3.50% 10/15/41 294,159
216,902 Pool 743673.................................................. 4.50% 07/15/40 246,370
443,274 Pool 745478.................................................. 5.00% 08/20/40 491,462
766,938 Pool 748939.................................................. 4.00% 09/20/40 867,726
122,352 Pool 754384.................................................. 4.50% 03/20/42 136,156
537,971 Pool 762905.................................................. 4.50% 04/15/41 605,198
1,756,822 Pool 769102.................................................. 4.50% 07/20/41 1,968,429
498,127 Pool 781623.................................................. 5.00% 06/15/33 565,078
68,149 Pool 781697.................................................. 6.00% 11/15/33 81,162
413,036 Pool 781824.................................................. 5.50% 11/15/34 484,174
14,177 Pool 781862.................................................. 5.50% 01/15/35 16,617
60,228 Pool 782070.................................................. 7.00% 06/15/32 67,998
48,069 Pool 782133.................................................. 6.00% 01/15/22 48,896
146,268 Pool 782259.................................................. 5.00% 02/15/36 168,599
81,886 Pool 782810.................................................. 4.50% 11/15/39 91,181
1,390,031 Pool 783009.................................................. 6.10% 12/20/33 1,584,953
127,328 Pool 783091.................................................. 5.50% 06/15/40 149,065
49,372 Pool 783220.................................................. 5.50% 09/15/24 52,382
203,113 Pool 783375.................................................. 5.00% 08/15/41 232,649
13,349,378 Pool 783590.................................................. 4.50% 06/20/41 14,878,549
316,671 Pool 783760.................................................. 5.00% 02/15/42 365,108
5,374,395 Pool 784063.................................................. 5.00% 09/20/45 5,949,510
232,782 Pool 784343.................................................. 5.00% 02/15/41 268,193
3,767,484 Pool 784573.................................................. 5.00% 12/15/43 4,340,058
4,520,203 Pool 784752.................................................. 4.00% 03/15/45 4,976,058
12,074,681 Pool 784758.................................................. 5.50% 05/20/49 13,652,514
3,906,453 Pool AC0197.................................................. 4.00% 12/20/42 4,215,392
520,973 Pool AD0026.................................................. 3.50% 06/20/33 556,304
116,333 Pool AD0856.................................................. 3.75% 08/20/33 124,519
52,630 Pool AG8899.................................................. 4.00% 12/20/43 58,346
1,266,503 Pool AI6317.................................................. 4.50% 06/20/44 1,371,665
571,365 Pool AK2389.................................................. 4.50% 11/20/44 623,059
312,188 Pool AN4469.................................................. 5.00% 12/15/40 345,756
408,731 Pool AR8421.................................................. 5.00% 10/20/41 445,488
</TABLE>
See Notes to Financial Statements Page 37
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Government National Mortgage Association (Continued)
$ 1,570,926 Pool BB1216.................................................. 4.50% 06/20/47 $ 1,762,989
722,201 Pool BB4731.................................................. 4.00% 07/20/47 800,374
532,869 Pool BB4757.................................................. 4.00% 08/20/47 582,711
421,194 Pool BB4769.................................................. 4.00% 08/20/47 458,810
820,555 Pool BD0483.................................................. 4.50% 11/20/47 916,150
549,997 Pool BF0415.................................................. 5.00% 06/20/35 601,927
1,209,554 Pool BF2472.................................................. 5.50% 04/20/48 1,362,296
574,572 Pool BF2604.................................................. 5.50% 05/20/48 645,132
803,373 Pool BG1872.................................................. 5.50% 04/20/48 926,137
968,055 Pool BG1886.................................................. 5.50% 05/20/48 1,087,784
910,698 Pool BG1888.................................................. 5.50% 05/20/48 1,007,850
754,861 Pool BG5094.................................................. 5.50% 08/20/48 854,514
665,682 Pool BH7648.................................................. 5.50% 08/20/48 764,867
832,877 Pool BI2592.................................................. 5.50% 09/20/48 953,665
945,711 Pool BJ9554.................................................. 5.50% 01/20/49 1,062,314
680,573 Pool BK0831.................................................. 5.50% 12/20/48 771,872
312,238 Pool BK4821.................................................. 5.50% 12/20/48 350,196
1,082,454 Pool BK5396.................................................. 5.50% 12/20/48 1,212,019
448,370 Pool BK7681.................................................. 5.50% 12/20/48 493,483
384,092 Pool BL1291.................................................. 5.50% 01/20/49 421,652
694,254 Pool BL4638.................................................. 5.50% 04/20/49 778,182
524,019 Pool BL6909.................................................. 5.00% 03/20/49 579,068
187,607 Pool BL6923.................................................. 6.00% 03/20/49 205,178
1,168,845 Pool BL7446.................................................. 5.50% 03/20/49 1,321,210
1,112,769 Pool BL7950.................................................. 5.50% 05/20/49 1,252,783
844,051 Pool BL9104.................................................. 5.50% 05/20/49 939,796
476,495 Pool BL9105.................................................. 5.50% 05/20/49 524,037
3,248,332 Pool BM5456.................................................. 5.50% 07/20/49 3,677,038
2,277,976 Pool BM5457.................................................. 5.50% 07/20/49 2,560,886
1,087,136 Pool BM9249.................................................. 5.50% 05/20/49 1,223,889
587,053 Pool BM9832.................................................. 5.50% 06/20/49 652,907
761,494 Pool BN1982.................................................. 5.50% 05/20/49 862,660
890,619 Pool BN1985.................................................. 5.50% 05/20/49 1,022,894
868,307 Pool BN1986.................................................. 5.50% 05/20/49 981,637
1,088,096 Pool BN1987.................................................. 5.50% 05/20/49 1,229,848
1,579,633 Pool BN1989.................................................. 5.50% 05/20/49 1,774,773
1,760,584 Pool BN3607.................................................. 5.50% 05/20/49 2,009,020
1,416,288 Pool BN3608.................................................. 5.50% 05/20/49 1,579,564
1,027,999 Pool BN8877.................................................. 5.50% 07/20/49 1,164,153
2,329,219 Pool BN9929.................................................. 5.50% 08/20/49 2,634,988
947,056 Pool BO2380.................................................. 5.50% 07/20/49 1,094,392
1,045,469 Pool BO5553.................................................. 5.50% 08/20/49 1,195,342
1,476,751 Pool BO5554.................................................. 5.50% 08/20/49 1,670,317
1,550,283 Pool BO5555.................................................. 5.50% 08/20/49 1,743,748
953,476 Pool BO6139.................................................. 5.50% 07/20/49 1,071,338
2,116,659 Pool BO8096.................................................. 5.50% 08/20/49 2,392,080
1,884,731 Pool BO8097.................................................. 5.50% 08/20/49 2,105,822
228,433 Pool MA1017.................................................. 6.00% 05/20/43 265,652
135,171 Pool MA1162.................................................. 6.00% 07/20/43 154,561
236,403 Pool MA2077.................................................. 5.50% 07/20/44 278,072
33,654 Pool MA2215.................................................. 3.50% 09/20/44 34,966
141,250 Pool MA2683.................................................. 6.00% 03/20/45 162,433
</TABLE>
Page 38 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Government National Mortgage Association (Continued)
$ 150,608 Pool MA2759.................................................. 6.00% 01/20/45 $ 173,759
419,943 Pool MA2829.................................................. 5.00% 05/20/45 477,610
57,246 Pool MA2897.................................................. 6.00% 03/20/45 65,614
292,823 Pool MA2966.................................................. 6.00% 09/20/39 331,959
300,250 Pool MA3249.................................................. 6.00% 04/20/40 345,690
50,164 Pool MA3380.................................................. 5.50% 01/20/46 58,631
582,066 Pool MA3459.................................................. 6.00% 08/20/39 669,801
335,943 Pool MA3525.................................................. 5.50% 03/20/46 391,325
338,419 Pool MA3941.................................................. 5.50% 09/20/46 398,670
700,548 Pool MA4076.................................................. 7.00% 01/20/39 835,172
6,544,252 Pool MA5714.................................................. 6.00% 01/20/49 7,297,744
----------------
2,995,154,546
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................................... 5,593,329,238
(Cost $5,494,021,487) ----------------
MORTGAGE-BACKED SECURITIES -- 2.9%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.9%
Alternative Loan Trust
47,917 Series 2003-J3, Class 2A1.................................... 6.25% 12/25/33 49,016
American Home Mortgage Investment Trust
2,078 Series 2004-3, Class 6A1..................................... 5.32% 10/25/34 2,105
Banc of America Funding Corp.
2,838 Series 2008-R2, Class 1A2 (h)................................ 6.00% 09/25/37 2,838
Banc of America Funding Trust
997 Series 2005-2, Class 2A4..................................... 5.75% 04/25/35 1,122
Banc of America Mortgage Trust
355,488 Series 2005-A, Class 2A2 (c)................................. 3.69% 02/25/35 356,371
BCAP LLC Trust
7,101 Series 2009-RR5, Class 8A1 (h)............................... 5.50% 11/26/34 7,123
Chase Home Lending Mortgage Trust
10,067,616 Series 2019-1, Class A11, 1 Mo. LIBOR + 0.85% (a) (h)........ 1.00% 03/25/50 10,075,308
CHL Mortgage Pass-Through Trust
48,000 Series 2004-8, Class 1A7..................................... 5.75% 07/25/34 49,317
30,798 Series 2004-8, Class 2A1..................................... 4.50% 06/25/19 31,927
CIM Trust
4,088,402 Series 2017-7, Class A (h)................................... 3.00% 04/25/57 4,186,025
12,712,566 Series 2019-INV1, Class A11 (h).............................. 4.00% 02/25/49 13,143,110
Citigroup Global Markets Mortgage Securities VII, Inc.
250 Series 2003-UP2, Class PO1, PO............................... (b) 12/25/18 229
Citigroup Mortgage Loan Trust
7,718 Series 2003-1, Class WA2..................................... 6.50% 06/25/31 7,951
COLT Mortgage Loan Trust
5,655,679 Series 2019-1, Class A1 (h).................................. 3.71% 03/25/49 5,692,234
Credit Suisse First Boston Mortgage Securities Corp.
3,932 Series 2003-11, Class 1A39................................... 5.25% 06/25/33 3,996
16,304 Series 2003-AR18, Class 2A3 (c).............................. 3.20% 07/25/33 16,366
2,227 Series 2004-AR8, Class 2A1 (c) (f)........................... 2.99% 09/25/34 2,230
61,098 Series 2005-5, Class 3A2, 1 Mo. LIBOR + 0.30% (a)............ 0.45% 07/25/35 59,253
2,109 Series 2005-7, Class 1A5..................................... 5.15% 08/25/35 2,202
CSFB Mortgage-Backed Trust
496 Series 2004-7, Class 6A1..................................... 5.25% 10/25/19 514
</TABLE>
See Notes to Financial Statements Page 39
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
CSMC
$ 822,522 Series 2017-HL1, Class A3 (h)................................ 3.50% 06/25/47 $ 827,727
1,244,318 Series 2017-HL2, Class A3 (h)................................ 3.50% 10/25/47 1,251,623
Deutsche Alt-A Securities, Inc. Mortgage Loan Trust
2,829 Series 2005-3, Class 1A1 (c)................................. 4.27% 06/25/20 2,825
Flagstar Mortgage Trust
1,690,929 Series 2018-2, Class A4 (h).................................. 3.50% 04/25/48 1,711,954
2,573,999 Series 2018-4, Class B1 (c) (h).............................. 4.28% 07/25/48 2,713,511
6,364,775 Series 2019-2, Class A11 (h)................................. 3.50% 12/25/49 6,608,806
Galton Funding Mortgage Trust
2,511,676 Series 2018-1, Class A43 (h)................................. 3.50% 11/25/57 2,537,683
4,281,750 Series 2018-2, Class A41 (h)................................. 4.50% 10/25/58 4,381,495
GMACM Mortgage Loan Trust
892 Series 2003-J10, Class A1.................................... 4.75% 01/25/19 894
GS Mortgage-Backed Securities Corp. Trust
6,251,600 Series 2019-PJ3, Class A1 (h)................................ 3.50% 03/25/50 6,409,543
GSR Mortgage Loan Trust
25,403 Series 2004-8F, Class 2A3.................................... 6.00% 09/25/34 26,099
205,073 Series 2004-12, Class 3A6 (c)................................ 2.65% 12/25/34 202,180
Impac CMB Trust
359,917 Series 2004-6, Class M3, 1 Mo. LIBOR + 1.05% (a)............. 1.20% 10/25/34 370,630
JP Morgan Resecuritization Trust
33,037 Series 2009-7, Class 11A1 (c) (h)............................ 3.30% 09/27/36 33,127
249,323 Series 2009-7, Class 17A1 (c) (h)............................ 5.42% 07/27/37 251,061
JPMorgan Mortgage Trust
7,228 Series 2004-S2, Class 5A1.................................... 5.50% 12/25/19 7,231
37,823 Series 2014-IVR3, Class 2A1 (c) (h).......................... 3.00% 09/25/44 38,227
448,071 Series 2015-3, Class A5 (h).................................. 3.50% 05/25/45 449,280
6,348,774 Series 2015-IVR2, Class A5 (c) (h)........................... 2.70% 01/25/45 6,443,991
375,608 Series 2016-1, Class A5 (h).................................. 3.50% 05/25/46 377,992
690,325 Series 2016-3, Class 1A3 (h)................................. 3.49% 10/25/46 696,592
10,049,712 Series 2019-1, Class A11, 1 Mo. LIBOR + 0.95% (a) (h)........ 1.10% 05/25/49 10,061,322
3,193,428 Series 2019-2, Class A11, 1 Mo. LIBOR + 0.95% (a) (h)........ 1.10% 08/25/49 3,197,106
5,013,079 Series 2019-3, Class A11, 1 Mo. LIBOR + 0.95% (a) (h)........ 1.10% 09/25/49 5,016,320
4,186,842 Series 2019-5, Class A11, 1 Mo. LIBOR + 0.90% (a) (h)........ 1.05% 11/25/49 4,186,277
7,199,691 Series 2020-LTV1, Class A11, 1 Mo. LIBOR + 1.00% (a) (h)..... 1.15% 06/25/50 7,203,590
MASTR Alternative Loan Trust
4,431 Series 2004-13, Class 8A1.................................... 5.50% 01/25/25 4,361
MASTR Asset Securitization Trust
130,978 Series 2003-11, Class 7A5.................................... 5.25% 12/25/33 135,885
209,604 Series 2003-12, Class 1A1.................................... 5.25% 12/25/24 213,599
31,053 Series 2003-12, Class 1A2.................................... 5.25% 12/25/24 30,915
7,638 Series 2004-1, Class 30PO, PO................................ (b) 02/25/34 6,365
8,454 Series 2004-3, Class 1A3..................................... 5.25% 03/25/24 8,502
MASTR Seasoned Securitization Trust
58,096 Series 2005-1, Class 3A1 (c)................................. 3.15% 10/25/32 58,313
2,423 Series 2005-2, Class 3A1..................................... 6.00% 11/25/17 2,423
MetLife Securitization Trust
5,129,143 Series 2018-1A, Class A (h).................................. 3.75% 03/25/57 5,524,662
Morgan Stanley Mortgage Loan Trust
1,298,366 Series 2005-6AR, Class 1M1, 1 Mo. LIBOR + 0.46% (a).......... 0.61% 11/25/35 1,297,836
</TABLE>
Page 40 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
New Residential Mortgage Loan Trust
$ 614,461 Series 2014-2A, Class A3 (h)................................. 3.75% 05/25/54 $ 665,452
6,863,382 Series 2015-2A, Class B1 (h)................................. 4.50% 08/25/55 7,421,432
7,448,574 Series 2016-1A, Class A1 (h)................................. 3.75% 03/25/56 8,008,903
11,776,105 Series 2018-4A, Class A1S, 1 Mo. LIBOR + 0.75% (a) (h)....... 0.90% 01/25/48 11,767,730
Nomura Asset Acceptance Corp. Alternative Loan Trust
3,020 Series 2004-AP3, Class A6.................................... 5.29% 10/25/34 3,032
2,954 Series 2005-WF1, Class 2A5, steps up to 5.66% after
Redemption Date (g)....................................... 5.16% 03/25/35 3,136
Oaks Mortgage Trust
806,773 Series 2015-2, Class A8 (h).................................. 3.50% 10/25/45 807,730
OBX Trust
5,558,478 Series 2018-EXP1, Class 1A3 (h).............................. 4.00% 04/25/48 5,756,552
1,417,537 Series 2018-EXP2, Class 1A1 (h).............................. 4.00% 07/25/58 1,442,587
Provident Funding Mortgage Trust
233,946 Series 2019-1, Class A3 (h).................................. 3.00% 12/25/49 237,244
4,790,607 Series 2019-1, Class A5 (h).................................. 3.00% 12/25/49 4,909,920
1,073,562 Series 2020-1, Class A3 (h).................................. 3.00% 02/25/50 1,093,939
6,297,076 Series 2020-1, Class A5 (h).................................. 3.00% 02/25/50 6,408,782
RBSSP Resecuritization Trust
46,862 Series 2009-6, Class 9A4, 1 Mo. LIBOR + 0.45% (a) (h)........ 0.60% 11/26/36 46,530
Residential Accredit Loans, Inc.
3,397 Series 2003-QS20, Class CB................................... 5.00% 11/25/18 3,491
Residential Asset Securitization Trust
51 Series 2004-A3, Class A4..................................... 5.25% 06/25/34 51
RFMSI Trust
362 Series 2005-S3, Class A1..................................... 4.75% 03/25/20 364
Sequoia Mortgage Trust
112,296 Series 2000-4, Class A, 1 Mo. LIBOR + 0.72% (a).............. 0.88% 11/22/24 112,314
916,252 Series 2017-3, Class A4 (h).................................. 3.50% 04/25/47 928,381
1,483,259 Series 2018-CH2, Class A12 (h)............................... 4.00% 06/25/48 1,491,821
964,103 Series 2018-CH3, Class A10 (h)............................... 4.50% 08/25/48 972,846
136,388 Series 2018-CH3, Class A11 (h)............................... 4.00% 08/25/48 137,353
626,927 Series 2018-CH4, Class A10 (h)............................... 4.50% 10/25/48 630,419
5,501,341 Series 2020-1, Class A4 (h).................................. 3.50% 02/25/50 5,581,605
1,987,802 Series 2020-1, Class A19 (h)................................. 3.50% 02/25/50 2,025,176
Shellpoint Co-Originator Trust
612,162 Series 2016-1, Class 1A10 (h)................................ 3.50% 11/25/46 620,841
810,179 Series 2017-1, Class A4 (h).................................. 3.50% 04/25/47 822,475
Structured Asset Securities Corp................................
2,062 Series 2004-4XS, Class A3A (j)............................... 5.19% 02/25/34 2,108
Structured Asset Securities Corp. Mortgage Loan Trust
3,718 Series 2002-9, Class A2, 1 Mo. LIBOR + 0.60% (a)............. 0.75% 10/25/27 3,718
Structured Asset Securities Corp. Mortgage
Pass-Through Certificates
12,923 Series 2004-11XS, Class 1A6 (j).............................. 5.19% 06/25/34 13,235
WaMu Mortgage Pass-Through Certificates Trust
25,651 Series 2003-S3, Class 3A1.................................... 5.50% 05/25/33 27,110
8,518 Series 2004-RS1, Class A11................................... 5.50% 11/25/33 8,827
Wells Fargo Mortgage Backed Securities Trust
2,624 Series 2004-K, Class 2A12 (c)................................ 3.12% 07/25/34 2,611
5,591,608 Series 2019-1, Class A1 (h).................................. 4.00% 11/25/48 5,695,697
1,124,135 Series 2019-3, Class A1 (h).................................. 3.50% 07/25/49 1,153,190
</TABLE>
See Notes to Financial Statements Page 41
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
WinWater Mortgage Loan Trust
$ 4,052,758 Series 2016-1, Class 1A18 (h)................................ 3.50% 01/20/46 $ 4,203,346
1,728,896 Series 2016-1, Class 2A3 (h)................................. 3.00% 12/20/30 1,761,711
4,774,695 Series 2016-1, Class B1 (c) (h).............................. 3.83% 01/20/46 4,939,582
----------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................ 185,690,425
(Cost $183,261,858) ----------------
ASSET-BACKED SECURITIES -- 2.2%
Aegis Asset Backed Securities Trust
1,003,972 Series 2005-2, Class M2, 1 Mo. LIBOR + 0.44% (a)............. 0.59% 06/25/35 998,272
AMSR Trust
2,500,000 Series 2020-SFR2, Class A (h)................................ 1.63% 07/17/37 2,531,016
6,393,000 Series 2020-SFR5, Class A (h)................................ 1.38% 11/17/37 6,397,251
CIT Home Equity Loan Trust
70 Series 2003-1, Class A6 (j).................................. 4.56% 10/20/32 70
Citicorp Residential Mortgage Trust
15,512 Series 2007-2, Class A6 (j).................................. 4.99% 06/25/37 15,860
Citigroup Global Markets Mortgage Securities VII, Inc...........
1,268 Series 1998-AQ1, Class A6.................................... 6.63% 06/25/28 1,295
Countrywide Asset-Backed Certificates...........................
2,680,785 Series 2005-9, Class M1, 1 Mo. LIBOR + 0.52% (a)............. 0.67% 01/25/36 2,682,746
Credit-Based Asset Servicing & Securitization LLC
3,618,151 Series 2007-MX1, Class A3, steps up to 6.33% after
Redemption Date (g) (h)................................... 5.83% 12/25/36 3,635,367
FBR Securitization Trust
2,185,058 Series 2005-2, Class M2, 1 Mo. LIBOR + 0.75% (a)............. 0.90% 09/25/35 2,180,361
FCI Funding LLC
21,458,798 Series 2019-1A, Class A (h).................................. 3.63% 02/18/31 21,775,993
Fieldstone Mortgage Investment Trust
323,693 Series 2005-3, Class 2A2, 1 Mo. LIBOR + 0.52% (a)............ 0.67% 02/25/36 323,822
First Alliance Mortgage Loan Trust
25,988 Series 1999-1, Class A1...................................... 7.18% 06/20/30 26,320
FirstKey Homes Trust
15,000,000 Series 2020-SFR2, Class A (h)................................ 1.27% 10/19/37 14,942,061
Foursight Capital Automobile Receivables Trust
13,000,000 Series 2020-1, Class A3 (h).................................. 2.05% 10/15/24 13,317,543
Fremont Home Loan Trust
889,230 Series 2005-1, Class M4, 1 Mo. LIBOR + 1.02% (a)............. 1.17% 06/25/35 892,813
GMACM Home Equity Loan Trust
57,429 Series 2000-HE2, Class A1, 1 Mo. LIBOR + 0.44% (a)........... 0.61% 06/25/30 46,455
107,900 Series 2004-HE1, Class A3, 1 Mo. LIBOR + 0.50% (a)........... 0.65% 06/25/34 105,992
GSAMP Trust
7,994,000 Series 2006-SEA1, Class M2, 1 Mo. LIBOR + 1.10% (a) (h)...... 1.25% 05/25/36 7,975,476
Home Partners of America Trust
14,758,000 Series 2020-2, Class A (h)................................... 1.53% 01/17/41 14,757,890
Morgan Stanley Dean Witter Capital I, Inc. Trust
5,331 Series 2003-NC2, Class M2, 1 Mo. LIBOR + 3.00% (a)........... 3.15% 02/25/33 5,421
New Century Home Equity Loan Trust
11,315 Series 2003-5, Class AI7..................................... 5.01% 11/25/33 11,735
Park Place Securities, Inc. Asset-Backed
Pass-Through Certificates
1,938,900 Series 2004-WCW2, Class M2, 1 Mo. LIBOR + 0.98% (a).......... 1.12% 10/25/34 1,951,169
Progress Residential Trust
10,685,000 Series 2018-SFR2, Class A (h)................................ 3.71% 08/17/35 10,923,575
</TABLE>
Page 42 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Progress Residential Trust (Continued)
$ 6,493,587 Series 2019-SFR1, Class A (h)................................ 3.42% 08/17/35 $ 6,704,242
1,444,251 Series 2019-SFR3, Class A (h)................................ 2.27% 09/17/36 1,474,138
1,470,000 Series 2019-SFR4, Class A (h)................................ 2.69% 10/17/36 1,513,886
Saxon Asset Securities Trust
3,783 Series 2004-2, Class MV3, 1 Mo. LIBOR + 1.91% (a)............ 2.05% 08/25/35 3,566
Towd Point Mortgage Trust
2,090,000 Series 2015-1, Class A2 (h).................................. 3.25% 10/25/53 2,123,014
792,499 Series 2015-2, Class 1A12 (h)................................ 2.75% 11/25/60 801,633
340,383 Series 2015-3, Class A4B (h)................................. 3.50% 03/25/54 352,501
763,041 Series 2015-4, Class A1B (h)................................. 2.75% 04/25/55 767,427
1,500,000 Series 2015-4, Class A2A (h)................................. 3.50% 04/25/55 1,556,516
756,875 Series 2015-5, Class A1B (h)................................. 2.75% 05/25/55 764,319
1,300,000 Series 2015-5, Class A2 (h).................................. 3.50% 05/25/55 1,350,601
905,472 Series 2016-1, Class A1B (h)................................. 2.75% 02/25/55 919,948
Tricon American Homes Trust
15,000,000 Series 2020-SFR2, Class A (h)................................ 1.48% 11/17/39 14,999,639
----------------
TOTAL ASSET-BACKED SECURITIES............................................................... 138,829,933
(Cost $138,194,079) ----------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
EXCHANGE-TRADED FUNDS -- 0.0%
CAPITAL MARKETS -- 0.0%
11,750 First Trust Long Duration Opportunities ETF (k)............................................. 342,924
(Cost $305,193) ----------------
MONEY MARKET FUNDS -- 20.9%
1,333,812,789 Morgan Stanley Institutional Liquidity Funds - Treasury
Portfolio - Institutional Class - 0.01% (l).............................................. 1,333,812,789
(Cost $1,333,812,789) ----------------
TOTAL INVESTMENTS -- 113.5%................................................................. 7,252,005,309
(Cost $7,149,595,406) (m) ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT -- (9.0)%
Federal National Mortgage Association
$ (45,000,000) Pool TBA (i)................................................. 1.50% 11/15/50 (45,307,617)
(75,000,000) Pool TBA (i)................................................. 3.00% 11/15/50 (78,393,087)
(335,000,000) Pool TBA (i)................................................. 4.00% 11/15/50 (357,861,130)
(20,000,000) Pool TBA (i)................................................. 4.50% 11/15/50 (21,631,641)
(22,000,000) Pool TBA (i)................................................. 5.00% 11/15/50 (24,175,937)
(45,000,000) Pool TBA..................................................... 3.00% 12/15/50 (47,042,010)
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT.......................... (574,411,422)
(Proceeds $574,179,180) ----------------
NET OTHER ASSETS AND LIABILITIES -- (4.5)%.................................................. (287,852,124)
----------------
NET ASSETS -- 100.0%........................................................................ $ 6,389,741,763
================
</TABLE>
See Notes to Financial Statements Page 43
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
FUTURES CONTRACTS AT OCTOBER 31, 2020 (See Note 2D - Futures Contracts in the
Notes to Financial Statements):
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
NUMBER OF EXPIRATION NOTIONAL (DEPRECIATION)/
FUTURES CONTRACTS POSITION CONTRACTS DATE VALUE VALUE
------------------------------------------------------ ----------- ----------- ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Ultra Bond Futures Long 214 Dec-2020 $ 46,010,000 $ (312,342)
U.S. 5-Year Treasury Notes Short 4,757 Dec-2020 (597,486,635) 1,761,137
U.S. 10-Year Treasury Notes Short 2,135 Dec-2020 (295,097,031) 2,639,165
U.S. 10-Year Ultra Treasury Notes Short 961 Dec-2020 (151,147,281) 1,759,631
U.S. Treasury Long Bond Futures Short 1,102 Dec-2020 (190,060,563) 3,410,847
--------------- ----------------
$(1,187,781,510) $ 9,258,438
=============== ================
</TABLE>
-----------------------------
(a) Floating or variable rate security.
(b) Zero coupon security.
(c) Collateral Strip Rate bond. Coupon is based on the weighted net interest
rate of the investment's underlying collateral. The interest rate resets
periodically.
(d) Inverse floating rate security.
(e) Weighted Average Coupon security. Coupon is based on the blended interest
rate of the underlying holdings, which may have different coupons. The
coupon may change in any period.
(f) 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 (the "Advisor").
(g) Step-up security. A security where the coupon increases or steps up at a
predetermined date.
(h) 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, 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, 2020,
securities noted as such amounted to $337,110,138 or 5.3% of net assets.
(i) All or a portion of this security is part of a mortgage dollar roll
agreement (see Note 2I- Mortgage Dollar Rolls and TBA Transactions in the
Notes to Financial Statements).
(j) Step security. The coupon rate is determined based on the underlying
investments. The coupon rate resets periodically.
(k) Investment in an affiliated fund.
(l) Rate shown reflects yield as of October 31, 2020.
(m) Aggregate cost for federal income tax purposes is $6,570,558,787. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$168,139,031 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$51,845,493. The net unrealized appreciation was $116,293,538. The amounts
presented are inclusive of investments sold short and derivative
contracts.
IO - Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
LIBOR - London Interbank Offered Rate
PO - Principal-Only Security
STRIPS - Separate Trading of Registered Interest and Principal of Securities
TBA - To-Be-Announced Security
Page 44 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage-Backed Securities..... $ 5,593,329,238 $ -- $ 5,593,329,238 $ --
Mortgage-Backed Securities............................ 185,690,425 -- 185,690,425 --
Asset-Backed Securities............................... 138,829,933 -- 138,829,933 --
Exchange-Traded Funds*................................ 342,924 342,924 -- --
Money Market Funds.................................... 1,333,812,789 1,333,812,789 -- --
--------------- --------------- --------------- ---------------
Total Investments..................................... 7,252,005,309 1,334,155,713 5,917,849,596 --
Futures Contracts**................................... 9,570,780 9,570,780 -- --
--------------- --------------- --------------- ---------------
Total................................................. $ 7,261,576,089 $ 1,343,726,493 $ 5,917,849,596 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
U.S. Government Agency Mortgage-Backed Securities
Sold Short......................................... $ (574,411,422) $ -- $ (574,411,422) $ --
Futures Contracts**................................... (312,342) (312,342) -- --
--------------- --------------- --------------- ---------------
Total................................................. $ (574,723,764) $ (312,342) $ (574,411,422) $ --
=============== =============== =============== ===============
</TABLE>
* 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 Page 45
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value - Unaffiliated...................................... $7,251,662,385
Investments, at value - Affiliated........................................ 342,924
--------------
Total investments, at value............................................... 7,252,005,309
Cash segregated as collateral for open futures contracts.................. 14,072,960
Receivables:
Investment securities sold............................................. 1,898,055,666
Capital shares sold.................................................... 66,937,293
Interest............................................................... 20,731,127
Dividends.............................................................. 10,917
Variation margin....................................................... 1,280,317
--------------
Total Assets........................................................ 9,253,093,589
--------------
LIABILITIES:
Investments sold short, at value (proceeds $574,179,180).................. 574,411,422
Payables:
Investment securities purchased........................................ 2,274,584,852
Distributions to shareholders.......................................... 10,921,500
Investment advisory fees............................................... 3,434,052
--------------
Total Liabilities................................................... 2,863,351,826
--------------
NET ASSETS................................................................ $6,389,741,763
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $6,392,070,212
Par value................................................................. 1,242,000
Accumulated distributable earnings (loss)................................. (3,570,449)
--------------
NET ASSETS................................................................ $6,389,741,763
==============
NET ASSET VALUE, per share................................................ $ 51.45
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)............................................. 124,200,002
==============
Investments, at cost - Unaffiliated....................................... $7,149,290,213
==============
Investments, at cost - Affiliated......................................... $ 305,193
==============
Total investments, at cost................................................ $7,149,595,406
==============
</TABLE>
Page 46 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 111,934,020
Dividends - Unaffiliated.................................................. 1,865,188
Dividends - Affiliated.................................................... 13,246
--------------
Total investment income................................................... 113,812,454
--------------
EXPENSES:
Investment advisory fees.................................................. 33,259,927
--------------
Total expenses......................................................... 33,259,927
--------------
NET INVESTMENT INCOME (LOSS).............................................. 80,552,527
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Unaffiliated............................................. 8,210,261
Investments - Affiliated............................................... --
Investments sold short................................................. (5,626,759)
Futures contracts...................................................... (68,365,332)
Purchased options contracts............................................ (350,534)
Written options contracts.............................................. 1,862,427
--------------
Net realized gain (loss).................................................. (64,269,937)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments - Unaffiliated............................................. 42,037,401
Investments - Affiliated............................................... 16,626
Investments sold short................................................. 62,315
Futures contracts...................................................... 6,755,997
Purchased options contracts............................................ (29,558)
Written options contracts.............................................. --
--------------
Net change in unrealized appreciation (depreciation)...................... 48,842,781
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (15,427,156)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 65,125,371
==============
</TABLE>
See Notes to Financial Statements Page 47
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2020 10/31/2019
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 80,552,527 $ 65,051,358
Net realized gain (loss).................................................. (64,269,937) (28,220,321)
Net change in unrealized appreciation (depreciation)...................... 48,842,781 87,648,689
-------------- --------------
Net increase (decrease) in net assets resulting from operations........... 65,125,371 124,479,726
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (98,308,815) (67,215,845)
Return of capital......................................................... (19,702,687) (4,340,158)
-------------- --------------
Total distributions to shareholders....................................... (118,011,502) (71,556,003)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 2,755,885,309 1,983,467,078
Cost of shares redeemed................................................... (78,726,417) --
-------------- --------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................... 2,677,158,892 1,983,467,078
-------------- --------------
Total increase (decrease) in net assets................................... 2,624,272,761 2,036,390,801
NET ASSETS:
Beginning of period....................................................... 3,765,469,002 1,729,078,201
-------------- --------------
End of period............................................................. $6,389,741,763 $3,765,469,002
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 72,600,002 34,050,002
Shares sold............................................................... 53,150,000 38,550,000
Shares redeemed........................................................... (1,550,000) --
-------------- --------------
Shares outstanding, end of period......................................... 124,200,002 72,600,002
============== ==============
</TABLE>
Page 48 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
2020 2019 2018 2017 2016
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 51.87 $ 50.78 $ 51.76 $ 52.54 $ 50.32
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ................... 0.87 1.24 1.17 1.13 1.31
Net realized and unrealized gain (loss) ........ (0.10) 1.21 (0.74) (0.50) 2.41
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 0.77 2.45 0.43 0.63 3.72
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (0.99) (1.23) (1.13) (1.14) (1.50)
Net realized gain............................... -- (0.05) (0.28) (0.02) --
Return of capital............................... (0.20) (0.08) -- (0.25) --
---------- ---------- ---------- ---------- ----------
Total distributions............................. (1.19) (1.36) (1.41) (1.41) (1.50)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ................. $ 51.45 $ 51.87 $ 50.78 $ 51.76 $ 52.54
========== ========== ========== ========== ==========
TOTAL RETURN (a)................................ 1.50% 4.88% 0.84% 1.22% 7.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $6,389,742 $3,765,469 $1,729,078 $ 846,322 $ 270,586
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average
net assets (b)............................... 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income (loss) to average
net assets .................................. 1.57% 2.41% 2.32% 2.20% 2.06%
Portfolio turnover rate (c)..................... 434% (d) 373% (d) 331% (d) 190% (d) 92%
</TABLE>
(a) 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.
(b) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. This ratio
does not include these indirect fees and expenses.
(c) 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.
(d) The portfolio turnover rate not including mortgage dollar rolls was 245%,
246%, 117% and 97% for the years ended October 31, 2020, 2019, 2018 and
2017, respectively.
See Notes to Financial Statements Page 49
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Low Duration Opportunities ETF (the "Fund"), a
diversified series of the Trust, which trades under the ticker "LMBS" on The
Nasdaq Stock Market LLC ("Nasdaq"). Unlike conventional mutual funds, the Fund
issues and redeems shares on a continuous basis, at net asset value ("NAV"),
only in large specified blocks consisting of 50,000 shares called a "Creation
Unit." Creation Units are generally issued and redeemed for cash and, in certain
circumstances, in-kind for securities in which the Fund invests, and only to and
from broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's primary
investment objective is to generate current income. The Fund's secondary
investment objective is to provide capital appreciation. The Fund seeks to
achieve its investment objectives by investing, under normal market conditions,
at least 60% of its net assets (including investment borrowings) in
mortgage-related debt securities and other mortgage-related instruments
(collectively, "Mortgage-Related Investments"). The Fund normally expects to
invest in Mortgage-Related Investments tied to residential and commercial
mortgages. Mortgage-Related Investments include residential mortgage-backed
securities, commercial mortgage-backed securities, stripped mortgage-backed
securities, collateralized mortgage obligations and real estate mortgage
investment conduits. The Fund may also invest in investment companies, including
ETFs, that invest primarily in Mortgage-Related Investments. The Fund will limit
its investments in Mortgage-Related Investments that are not issued or
guaranteed by Government Entities(1) to 20% of its net assets (including
investment borrowings). The Fund may invest, without limitation, in mortgage
dollar rolls. The Fund intends to enter into mortgage dollar rolls only with
high quality securities dealers and banks, as determined by the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor").
The Fund may also invest in to-be-announced transactions ("TBA Transactions").
Further, the Fund may enter into short sales as part of its overall portfolio
management strategies or to offset a potential decline in the value of a
security; however, the Fund does not expect, under normal market conditions, to
engage in short sales with respect to more than 30% of the value of its net
assets (including investment borrowings). Although the Fund intends to invest
primarily in investment grade securities, the Fund may invest up to 20% of its
net assets (including investment borrowings) in securities of any credit
quality, including securities that are below investment grade, which are also
known as high yield securities, or commonly referred to as "junk" bonds, or
unrated securities that have not been judged by the Advisor to be of comparable
quality to rated investment grade securities. In the case of a split rating
between one or more of the nationally recognized statistical rating
organizations, the Fund will consider the highest rating. The Fund targets an
estimated effective duration of three years or less.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
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.
A. PORTFOLIO VALUATION
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 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 Advisor's Pricing Committee, in
-----------------------------
(1) "Government Entities" means the U.S. government, its agencies and
instrumentalities, and U.S. government-sponsored entities.
Page 50
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. 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:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are fair valued on the basis of
valuations provided by dealers who make markets in such securities or by a
third-party pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Common stocks 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 principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid 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 Trust's Board of Trustees or its
delegate, 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
Page 51
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
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 fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management (for corporate debt
only);
11) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); 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:
o 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.
o 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.
o 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, 2020, 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.
In July 2017, the Financial Conduct Authority ("FCA") announced that it will no
longer persuade or compel banks to submit rates for the calculations of the
London Interbank Offered Rates ("LIBOR") after 2021. Further, the FCA has
subsequently stated, as recently as March 2020, that the central assumption
continues to be that firms should not rely on LIBOR being published after the
end of 2021.
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018.
Page 52
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
The Fund invests in interest-only securities. For these securities, if there is
a change in the estimated cash flows, based on an evaluation of current
information, then the estimated yield is adjusted. Additionally, if the
evaluation of current information indicates a permanent impairment of the
security, the cost basis of the security is written down and a loss is
recognized. Debt obligations may be placed on non-accrual status and the related
interest income may be reduced by ceasing current accruals and writing off
interest receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures. A debt obligation is
removed from non-accrual status when the issuer resumes interest payments or
when collectability of interest is reasonably assured.
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, 2020, the Fund had no when-issued or
delayed-delivery securities. At October 31, 2020, the Fund held $1,123,862,050
of forward purchase commitments.
C. SHORT SALES
Short sales are utilized to manage interest rate and spread risk, and are
transactions in which securities or other instruments (such as options,
forwards, futures or other derivative contracts) are sold that 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 is charged 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 effected 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 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.
D. FUTURES CONTRACTS
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures
contracts to hedge against or gain exposure to 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. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are included in "Variation margin" receivable or payable 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.
E. OPTIONS CONTRACTS
The Fund may invest in exchange-listed options on U.S. Treasury securities,
exchange-listed options on U.S. Treasury futures contracts and exchange-listed
U.S. Treasury futures contracts. The Fund may also invest up to 20% of its net
assets in over-the-counter derivatives. The Fund uses derivative instruments
primarily to hedge interest rate risk and actively manage interest rate
exposure. The primary risk exposure is interest rate risk.
Page 53
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
The Fund may purchase (buy) or write (sell) put and call options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position. A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a futures option contract may be closed out by an
offsetting purchase or sale of a futures option of the same series. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in "Options contracts written, at value" on the Statement of
Assets and Liabilities. When the Fund purchases (buys) an option, the premium
paid represents the cost of the option, which is included in "Premiums paid on
options contracts purchased" on the Statement of Assets and Liabilities. Options
are marked-to-market daily and their value is affected by changes in the value
of the underlying security, changes in interest rates, changes in the actual or
perceived volatility of the securities markets and the underlying securities,
and the remaining time to the option's expiration. The value of options may also
be adversely affected if the market for the options becomes less liquid or the
trading volume diminishes.
The Fund uses options on futures contracts in connection with hedging
strategies. Generally, these strategies are applied under the same market and
market sector conditions in which the Fund uses put and call options on
securities. The purchase of put options on futures contracts is analogous to the
purchase of puts on securities so as to hedge the Fund's securities holdings
against the risk of declining market prices. The writing of a call option or the
purchasing of a put option on a futures contract constitutes a partial hedge
against declining prices of securities which are deliverable upon exercise of
the futures contract. If the price at expiration of a written call option is
below the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Fund's holdings of securities. If the price when the option is
exercised is above the exercise price, however, the Fund will incur a loss,
which may be offset, in whole or in part, by the increase in the value of the
securities held by the Fund that were being hedged. Writing a put option or
purchasing a call option on a futures contract serves as a partial hedge against
an increase in the value of the securities the Fund intends to acquire. Realized
gains and losses on written options are included in "Net realized gain (loss) on
written options contracts" on the Statement of Operations. Realized gains and
losses on purchased options are included in "Net realized gain (loss) on
purchased options contracts" on the Statement of Operations.
The Fund is required to deposit and maintain margin with respect to put and call
options on futures contracts written by it. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option and other
futures positions held by the Fund. The Fund will pledge in a segregated account
at the Fund's custodian, liquid assets, such as cash, U.S. government securities
or other high-grade liquid debt obligations equal in value to the amount due on
the underlying obligation. Such segregated assets will be marked-to-market
daily, and additional assets will be pledged in the segregated account whenever
the total value of the pledged assets falls below the amount due on the
underlying obligation.
The risks associated with the use of options on future contracts include the
risk that the Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Fund's successful use of options on futures contracts depends on the Advisor's
ability to correctly predict the movement in prices on futures contracts and the
underlying instruments, which may prove to be incorrect. In addition, there may
be imperfect correlation between the instruments being hedged and the futures
contract subject to option.
F. INTEREST-ONLY SECURITIES
An interest-only security ("IO Security") is the interest-only portion of a
mortgage-backed security that receives some or all of the interest portion of
the underlying mortgage-backed security and little or no principal. A reference
principal value called a notional value is used to calculate the amount of
interest due to the IO Security. IO Securities are sold at a deep discount to
their notional principal amount. Generally speaking, when interest rates are
falling and prepayment rates are increasing, the value of an IO Security will
fall. Conversely, when interest rates are rising and prepayment rates are
decreasing, generally the value of an IO Security will rise. These securities,
if any, are identified on the Portfolio of Investments.
G. PRINCIPAL-ONLY SECURITIES
A principal-only security ("PO Security") is the principal-only portion of a
mortgage-backed security that does not receive any interest, is priced at a deep
discount to its redemption value and ultimately receives the redemption value.
Generally speaking, when interest rates are falling and prepayment rates are
increasing, the value of a PO Security will rise. Conversely, when interest
rates are rising and prepayment rates are decreasing, generally the value of a
PO Security will fall. These securities, if any, are identified on the Portfolio
of Investments.
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
H. STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security known as an IO Security and all
of the principal is distributed to holders of another type of security known as
a PO Security. These securities, if any, are identified on the Portfolio of
Investments.
I. MORTGAGE DOLLAR ROLLS AND TBA TRANSACTIONS
The Fund may invest, without limitation, in mortgage dollar rolls. The Fund
intends to enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Fund's investment advisor. In a mortgage
dollar roll, the Fund will sell (or buy) mortgage-backed securities for delivery
on a specified date and simultaneously contract to repurchase (or sell)
substantially similar (same type, coupon and maturity) securities on a future
date. Mortgage dollar rolls are recorded as separate purchase and sales in the
Fund. The Fund may also invest in TBA Transactions. A TBA Transaction is a
method of trading mortgage-backed securities. TBA Transactions generally are
conducted in accordance with widely-accepted guidelines which establish commonly
observed terms and conditions for execution, settlement and delivery. In a TBA
Transaction, the buyer and the seller agree on general trade parameters such as
agency, settlement date, par amount and price.
J. AFFILIATED TRANSACTIONS
The Fund invests in securities of affiliated funds. Dividend income and realized
gains and losses, and change in appreciation (depreciation) from affiliated
funds are presented on the Statement of Operations. The Fund's investment
performance and risks are directly related to the investment performance and
risks of the affiliated funds.
Amounts related to these investments at October 31, 2020 and for the fiscal year
then ended are as follows:
<TABLE>
<CAPTION>
CHANGES IN
UNREALIZED REALIZED
SHARES AT VALUE AT APPRECIATION GAIN VALUE AT DIVIDEND
SECURITY NAME 10/31/2020 10/31/2019 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2020 INCOME
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust Long Duration
Opportunities ETF 11,750 $ 326,298 $ -- $ -- $ 16,626 $ -- $ 342,924 $ 13,246
====================================================================================
</TABLE>
K. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
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.
Page 55
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
The tax character of distributions paid during the fiscal years ended October
31, 2020 and 2019 was as follows:
Distributions paid from: 2020 2019
Ordinary income................................. $ 87,387,315 $ 69,256,766
Capital gains................................... -- 1,877,704
Return of capital............................... 19,702,687 4,340,158
As of October 31, 2020, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ (10,921,500)
Accumulated capital and other gain (loss)....... (108,942,487)
Net unrealized appreciation (depreciation)...... 116,293,538
L. INCOME TAXES
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 2017,
2018, 2019, and 2020 remain open to federal and state audit. As of October 31,
2020, 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, 2020, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $108,942,487.
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, 2020, 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. The results of operations and net assets
were not affected by these adjustments. For the fiscal year ended October 31,
2020, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 3,910,958 $ (3,910,958) $ --
M. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
N. NEW ACCOUNTING PRONOUNCEMENT
On March 30, 2017, the FASB issued Accounting Standards Update ("ASU") 2017-08
"Premium Amortization on Purchased Callable Debt Securities", which amends the
amortization period for certain purchased callable debt securities held at a
premium by shortening such period to the earliest call date. The new guidance
requires an entity to amortize the premium on a callable debt security within
its scope to the earliest call date, unless the guidance for considering
estimated prepayments is applied. If the call option is not exercised at the
earliest call date, the yield is reset to the effective yield using the payment
Page 56
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
terms of the security. If the security has more than one call date and the
premium was amortized to a call price greater than the next call price, any
excess of the amortized cost basis over the amount repayable at the next call
date will be amortized to that date. If there are no other call dates, any
excess of the amortized cost basis over the par amount will be amortized to
maturity. Discounts on purchased callable debt securities will continue to be
amortized to the security's maturity date. The ASU 2017-08 is effective for
public business entities for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. ASU 2017-08 was adopted for
these financial statements and did not have a material impact.
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, pro rata
share of fees and expenses attributable to investments in other investment
companies ("acquired fund fees and expenses"), 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. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.65% of its average daily net assets. In addition, the
Fund incurs acquired fund fees and expenses. The total of the unitary management
fee and acquired fund fees and expenses represents the Fund's total annual
operating expenses.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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 defined-outcome fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee 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 Lead Independent Trustee and Committee
Chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases of U.S. Government securities and non-U.S. Government
securities, excluding investments sold short and short-term investments, for the
fiscal year ended October 31, 2020, were $15,190,987,877 and $638,826,656,
respectively. The proceeds from sales and paydowns of U.S. Government securities
and non-U.S. Government securities, excluding investments sold short and
short-term investments, for the fiscal year ended October 31, 2020, were
$12,581,961,687 and $819,862,941, respectively. The cost of purchases to cover
investments sold short and the proceeds of investments sold short were
$10,195,353,198 and $10,421,697,846, respectively.
For the fiscal year ended October 31, 2020, the Fund had no in-kind
transactions.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2020, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
<TABLE>
<CAPTION>
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------- --------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------- --------- ---------------------------- ---------- -------------------------- ----------
<S> <C> <C> <C> <C> <C>
Futures Interest Unrealized appreciation on Unrealized depreciation on
rate risk futures contracts* $9,570,780 futures contracts* $ 312,342
</TABLE>
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Portfolio of Investments. Only the current day's variation margin is
reported within 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 year ended
October 31, 2020, on derivative instruments, as well as the primary underlying
risk exposure associated with the instruments.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS LOCATION INTEREST RATE RISK
----------------------------------------------------------------------------------
<S> <C>
Net realized gain (loss) on:
Futures contracts $ (68,365,332)
Purchased options contracts (350,534)
Written options contracts 1,862,427
Net change in unrealized appreciation (depreciation) on:
Futures contracts 6,755,997
Purchased options contracts (29,558)
Written options contracts --
</TABLE>
For the fiscal year ended October 31, 2020, the notional value of futures
contracts opened and closed were $7,040,138,863 and $6,212,222,254,
respectively.
During the fiscal year ended October 31, 2020, the premiums for purchased
options contracts opened were $441,961 and the premiums for purchased options
contracts closed, exercised and expired were $480,840.
During the fiscal year ended October 31, 2020, the premiums for written options
contracts opened were $3,628,674 and the premiums for written options contracts
closed, exercised and expired were $3,628,674.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures and options contracts on the Statement of Assets
and Liabilities.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may increase or decrease with changes
in the Fund's portfolio. The price for each Creation Unit will equal the daily
NAV per share times the number of shares in a Creation Unit plus the fees
described above and, if applicable, any operational processing and brokerage
costs, transfer fees or stamp taxes. When Creation Units are issued for cash,
the Authorized Participant may also be assessed an amount to cover the cost of
purchasing portfolio securities, including operational processing and brokerage
costs, transfer fees, stamp taxes, and part or all of the spread between the
expected bid and offer side of the market related to such securities.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may increase or decrease with changes in the Fund's
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020
portfolio. When shares are redeemed for cash, the Authorized Participant may
also be assessed an amount to cover other costs, including operational
processing and brokerage costs, transfer fees, stamp taxes and part or all of
the spread between the expected bid and offer side of the market related to
portfolio securities sold in connection with the redemption.
7. DISTRIBUTION PLAN
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 March 31, 2022.
8. INDEMNIFICATION
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.
9. OTHER MATTERS
By operation of law, LMBS now operates as a diversified open-end management
investment company as defined in Section 5(b) of the 1940 Act.
10. SUBSEQUENT EVENTS
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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Low Duration Opportunities ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2020, 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, 2020, 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.
BASIS FOR OPINION
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, 2020, 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, 2020
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal year ended
October 31, 2020 that were properly designated by the Fund as "interest-related
dividends" or "short-term capital gain dividends," may not be subject to federal
income tax provided that the income was earned directly by such foreign
shareholders.
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended October 31, 2020, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
Page 61
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom's
Financial Conduct Authority announced that LIBOR will cease to be available for
use after 2021. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the fund or on certain
instruments in which the fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. Any such effects of the transition
away from LIBOR, as well as other unforeseen effects, could result in losses to
the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19 pandemic may last
for an extended period of time and will continue to impact the economy for the
foreseeable future.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (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 Low Duration Opportunities ETF (the
"Fund"). The Board approved the continuation of the Agreement for a one-year
period ending June 30, 2021 at a meeting held on June 8, 2020. 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
reasonable 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 May 11, 2020 and June 8, 2020, 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 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 fall-out 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 May
11, 2020, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the May
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
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
held prior to the June 8, 2020 meeting, as well as at the meeting held that day.
The Board considered supplemental information provided by the Advisor on the
operations of the Advisor and the performance of the Fund since the onset of the
COVID-19 pandemic. 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 Mortgage 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 Mortgage
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 Mortgage Securities Team as it uses for overseeing
external sub-advisors, 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 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 May 11, 2020 meeting, described
to the Board the scope of its ongoing investment in additional infrastructure
and personnel 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 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 advisory 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 above the median total (net) expense ratio of the peer funds in the
Expense Group. With respect to the Expense Group, the Board, at the May 11, 2020
meeting, 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 there were no other actively-managed ETFs
in the Expense Group, 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 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, 2019
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 for the one- and three-year
periods ended December 31, 2019 but outperformed the Performance Universe median
for the five-year period ended December 31, 2019. The Board also noted that the
Fund underperformed the benchmark index for the one-year period ended December
31, 2019 but outperformed the benchmark index for the three- and five-year
periods ended December 31, 2019. The Board noted the Advisor's discussion of the
Fund's performance at the May 11, 2020 meeting.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
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 and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. 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, 2019 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 fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out 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 noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out 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.
LIQUIDITY RISK MANAGEMENT
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Funds and each other fund in the First Trust Fund
Complex, other than the closed-end funds, have adopted and implemented a
liquidity risk management program (the "Program") reasonably designed to assess
and manage the funds' liquidity risk, i.e., the risk that a fund could not meet
requests to redeem shares issued by the fund without significant dilution of
remaining investors' interests in the fund. The Board of Trustees of the First
Trust Funds has appointed First Trust Advisors, L.P. (the "Advisor") as the
person designated to administer the Program, and in this capacity the Advisor
performs its duties primarily through the activities and efforts of the First
Trust Liquidity Committee (the "Liquidity Committee"). Pursuant to the Program,
the Liquidity Committee classifies the liquidity of each fund's portfolio
investments into one of the four liquidity categories specified by Rule 22e-4:
highly liquid investments, moderately liquid investments, less liquid
investments and illiquid investments. The Liquidity Committee determines certain
of the inputs for this classification process, including reasonably anticipated
trade sizes and significant investor dilution thresholds. The Liquidity
Committee also determines and periodically reviews a highly liquid investment
minimum for certain funds, monitors the funds' holdings of assets classified as
illiquid investments to seek to ensure they do not exceed 15% of a fund's net
assets and establishes policies and procedures regarding redemptions in kind. At
the May 11, 2020 meeting of the Board of Trustees, as required by Rule 22e-4 and
the Program, the Advisor provided the Board with a written report prepared by
the Advisor that addressed the operation of the Program during the period from
June 1, 2019 (the initial compliance date for certain requirements of Rule
22e-4) through the Liquidity Committee's annual meeting held on March 20, 2020
and assessed the Program's adequacy and effectiveness of implementation during
this period, including the operation of the highly liquid investment minimum for
each fund that is required under the Program to have one, and any material
changes to the Program. Note that because the Funds primarily hold assets that
are highly liquid investments, the Funds have not adopted a highly liquid
investment minimum.
As stated in the written report, during the review period, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor
concluded that each fund's investment strategy is appropriate for an open-end
fund; that the Program operated effectively in all material respects during the
review period; and that the Program is reasonably designed to assess and manage
the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
REMUNERATION
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 Low Duration Opportunities ETF
(the "Fund"), in certain member states in the European Economic Area in
accordance with the cooperation arrangements in Article 42 of the Alternative
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
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, 2019, the amount of remuneration paid (or to
be paid) by First Trust in respect of the Fund is $3,453,778. This figure is
comprised of $580,971 paid (or to be paid) in fixed compensation and $2,872,807
paid (or to be paid) in variable compensation. There were a total of 15
beneficiaries of the remuneration described above. Those amounts include
$687,434 paid (or to be paid) to senior management of First Trust and $2,766,344
paid (or to be paid) to other employees whose professional activities have a
material impact on the risk profiles of First Trust 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.
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 189 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 189 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 189 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 189 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 189 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2020 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
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FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
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First Trust Exchange-Traded Fund IV
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
For the Year Ended
October 31, 2020
For the Year Ended
October 31, 2020
Table of Contents
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2020
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Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or SSI Investment Management LLC (“SSI” or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund IV (the “Trust”) described in this report (First Trust SSI Strategic Convertible Securities ETF; hereinafter referred to as the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that 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. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of 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.
The Advisor may also periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund’s performance. The statistical information that follows may help you understand the Fund’s performance compared to that of a relevant market benchmark.
It is important to keep in mind that the opinions expressed by personnel of the Advisor and/or Sub-Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.
Shareholder Letter
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Letter from the Chairman and CEO
October 31, 2020
Dear Shareholders,
First Trust is pleased to provide you with the annual report for the First Trust SSI Strategic Convertible Securities ETF (the “Fund”), which contains detailed information about the Fund for the twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that my message this year should touch on the tone of the markets and the investing climate rather than belabor all the news and events that brought us to this juncture. We all know how tumultuous our lives have become over the past eight or so months. The phrase “shelter-at-home” says it all. I would rather talk about why I believe investors should be optimistic about where we could be headed.
Having said that, allow me to at least acknowledge the two elephants in the room: the coronavirus (“COVID-19”) and the election. In the first 12 days of November, we learned the following: that we likely have a new president-elect (Joe Biden), though it may not be official for some time because it is being contested by President Donald Trump and some of his loyal backers in the Republican Party citing voter fraud in certain states; that we still do not know which political party will have control of the Senate due to a couple of run-offs in Georgia to be held on January 5, 2021; and, that it looks as though we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either the end of 2020 or the start of 2021, though that too is not yet official. It could be a game-changer in the COVID-19 battle. And, we may gain access to additional vaccines as well. The key to getting the economy back to running on all cylinders is to fully reopen, and a vaccine is “what the doctor ordered.”
With respect to the tone of the markets and investment climate, to say that I am encouraged about what has transpired in 2020 would be an understatement. Despite the extraordinary challenges so far this year, the S&P 500® Index posted a total return of 2.77% over the first 10 months of 2020, this despite plunging 33.8% into bear market territory from February 19, 2020 through March 23, 2020, according to Bloomberg. As impressive as that feat is, the future looks even brighter. While Bloomberg’s consensus earnings growth rate estimate for the S&P 500® Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022 estimates were 21.74% and 16.95%, respectively. That is a strong take on the prospects for a rebound in Corporate America over the next 24 months. One of the tailwinds that is providing a good deal of support to the economy and markets is the decision by the Federal Reserve (the “Fed”) to keep interest rates artificially low for as long as need be to meet both its employment and inflation targets. By keeping rates lower for longer, the Fed is essentially inviting investors to assume more risk to generate higher returns. Brian Wesbury, Chief Economist at First Trust, believes that the Fed could need until 2024 to accomplish its goals. That is a lot of runway for investors to reposition their portfolios, if needed, and a very generous, and perhaps unprecedented, amount of guidance from the Fed, in our opinion. Those investors with cash on the sidelines earning next to nothing have options if they choose to act.
We are encouraged about the prospects for the economy and the markets, but investors should be prepared to weather some volatility until the COVID-19 pandemic is better contained. As always, we encourage investors to stay the course!
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
Fund Performance Overview (Unaudited)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
The First Trust SSI Strategic Convertible Securities ETF (the “Fund”) is an actively managed exchange-traded fund that seeks total return by investing, under normal market conditions, at least 80% of its net assets (including investment borrowings) in a portfolio of U.S. and non-U.S. convertible securities. The shares of the Fund are listed and traded on The Nasdaq Stock Market LLC under the ticker symbol “FCVT.”
| Performance | |||
| Average Annual Total Returns | Cumulative Total Returns | ||
| 1 Year Ended 10/31/20 | Inception (11/3/15) to 10/31/20 | Inception (11/3/15) to 10/31/20 | |
| Fund Performance | |||
| NAV | 29.10% | 12.02% | 76.23% |
| Market Price | 30.51% | 12.19% | 77.57% |
| Index Performance | |||
| ICE BofA All US Convertible Index | 28.10% | 12.57% | 80.61% |
Total returns for the period since inception are calculated from the inception date of the Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the period indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period indicated.
The Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of the Fund did not trade in the secondary market until after its inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the index. 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. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future performance.
Page 2
Fund Performance Overview (Unaudited) (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT) (Continued)
| Sector Allocation | % of Total Investments |
| Information Technology | 35.6% |
| Consumer Discretionary | 23.8 |
| Health Care | 17.9 |
| Communication Services | 11.9 |
| Industrials | 7.1 |
| Financials | 1.5 |
| Materials | 1.3 |
| Energy | 0.5 |
| Real Estate | 0.4 |
| Total | 100.0% |
| Top Ten Holdings | % of Total Investments |
| Tesla, Inc., 5/15/24 | 4.2% |
| Broadcom, Inc., Series A, 9/30/22 | 2.3 |
| Tesla, Inc., 3/15/22 | 1.9 |
| Square, Inc., 5/15/23 | 1.9 |
| Sea Ltd., 12/1/25 | 1.7 |
| Teladoc Health, Inc., 6/1/27 | 1.6 |
| Inphi Corp., 4/15/25 | 1.4 |
| Workday, Inc., 10/1/22 | 1.3 |
| Microchip Technology, Inc., 2/15/27 | 1.3 |
| Danaher Corp., Series A, 4/15/22 | 1.3 |
| Total | 18.9% |
Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of a Fund, if shorter), is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 3
Portfolio Commentary
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2020 (Unaudited)
Advisor
First Trust Advisors L.P. (“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust SSI Strategic Convertible Securities ETF (the “Fund”). First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
SSI Investment Management LLC
SSI Investment Management LLC (“SSI” or the “Sub-Advisor”) is the sub-advisor to the Fund and is a registered investment advisor based in Los Angeles, California. SSI is an innovative investment management firm specializing in alternative investment solutions utilizing convertible assets, equity securities and hedging strategies.
Portfolio Management Team
George M. Douglas – CFA, Chief Investment Officer, Principal of SSI
Ravi Malik – CFA, Portfolio Manager, Principal of SSI
Michael J. Opre – CFA, Portfolio Manager of SSI
Florian Eitner – CFA, Portfolio Manager of SSI
Stephen R. Wachtel – Portfolio Manager of SSI
Commentary
Market Recap – For the 12-month period ended October 31, 2020:
| • | Prior to the emergence of the coronavirus (“COVID-19”), U.S. gross domestic product was positive, the unemployment rate stood at multi-year lows, the S&P 500® Index was near its 52-week high and credit spreads were near 52-week lows, according to Bloomberg. |
| • | The COVID-19 pandemic exacted a terrible human toll and led to extreme challenges in all areas of society. Preventative measures led to a dramatic contraction in economic activity, but fiscal and monetary stimulus coupled with improved medical treatments and vaccine progress spurred recovery in the economy and capital markets. |
| • | As U.S. election politics took center stage, the markets grappled with bouts of additional volatility. |
| • | U.S. economic activity, which experienced an unprecedented drop and rebound, is expected to grow at 3.8% in 2021, according to Bloomberg. |
| • | Corporate earnings growth is expected to decline 18% in 2020 before rebounding 26% in 2021, according to Yardeni Research, Inc. |
| • | After spiking in March 2020 to levels not seen since 2008, credit spreads declined to pre-pandemic levels on Federal Reserve (the “Fed”) buying and economic recovery. |
| • | Ten-year Treasury yields fell by 81 basis points to 0.88% on low inflation and Fed buying. |
| • | Within the convertible universe, Consumer Discretionary, Health Care, and Technology generated significant gains, while Energy, Utilities, and Materials lagged. |
| • | Large cap and equity alternatives convertibles outperformed. |
| • | The convertible market remains healthy, in our view, evidenced by $102 billion in new issuance for the year, the strongest new issuance since the financial crisis. |
Fund Performance
| • | Convertible performance was driven by strong returns in growth equities and stable high yield markets for the 12-month period ended October 31, 2020. The Russell 1000® Growth Index advanced 29.22% and the Bloomberg Barclays High Yield Index rose 3.49% for the same period. |
| • | Fixed income posted positive returns with the Bloomberg Barclays US Aggregate Bond Index up 6.19% for the same period. |
| • | On a one-year trailing basis, as of October 31, 2020, the Fund generated a net gain of 29.1% based on net asset value. This exceeded the return of the ICE BofA All US Convertible Index (VXA0), which was 28.1%. |
Page 4
Portfolio Commentary (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2020 (Unaudited)
| • | Technology and Energy made the largest contribution to portfolio returns on a relative basis. Sea Ltd. benefitted from strength in its mobile gaming e-commerce segments, driven in part by consumer demand during “stay-at-home” orders. Underweights in distressed energy credits such as Chesapeake Energy Corp. and Transocean Ltd. also aided relative performance. |
| • | Consumer Discretionary was the largest detractor on a relative basis due primarily to being underweight the convertibles of automaker, Tesla, Inc. and e-commerce retailer, Wayfair LLC. An underweight in the Financials sector also detracted from relative performance. |
Investment Outlook
| • | The outlook for the Fund is positive, as we believe many of the drivers contributing to the strong returns during the 12-month period ended October 31, 2020 remain in place. |
| • | The economy bottomed early in the second quarter and data has consistently exceeded expectations during the recovery. |
| • | The S&P 500® equity market returns are up 48% off the March lows. The Technology sector which makes up a significant portion of the convertible market, is up 58% during the 12-month period ended October 31, 2020. |
| • | Although markets have done well and economic activity is improving, the ongoing impact of COVID-19 remains difficult to quantify. |
| • | The Fed has indicated that highly accommodative policies will continue for an extended period, providing significant support to the economy and financial markets. |
| • | In the coming year, we believe convertibles are positioned to participate if the market continues higher due to their equity-like characteristics. Convertibles may also offer some downside protection if a more adverse environment develops, due to their bond-like feature of return of principal (par value) at maturity. |
Page 5
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Understanding Your Fund Expenses
October 31, 2020 (Unaudited)
As a shareholder of the First Trust SSI Strategic Convertible Securities ETF (the “Fund”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended October 31, 2020.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Annualized Expense Ratio Based on the Six-Month Period | Expenses Paid During the Six-Month Period (a) | |
| First Trust SSI Strategic Convertible Securities ETF (FCVT) | ||||
| Actual | $1,000.00 | $1,266.20 | 0.95% | $5.41 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,020.36 | 0.95% | $4.82 |
| (a) | Expenses are equal to the annualized expense ratios as indicated in the table multiplied by the average account value over the period (May 1, 2020 through October 31, 2020), multiplied by 184/366 (to reflect the six-month period). |
Page 6
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments
October 31, 2020
| Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
| CONVERTIBLE CORPORATE BONDS – 87.6% | ||||||||
| Air Freight & Logistics – 0.6% | ||||||||
| $625,000 | Air Transport Services Group, Inc. | 1.13% | 10/15/24 | $695,021 | ||||
| 570,000 | Atlas Air Worldwide Holdings, Inc. | 1.88% | 06/01/24 | 678,181 | ||||
| 1,373,202 | ||||||||
| Airlines – 1.9% | ||||||||
| 1,000,000 | Air Canada (a) | 4.00% | 07/01/25 | 1,094,410 | ||||
| 1,785,000 | Southwest Airlines Co. | 1.25% | 05/01/25 | 2,409,750 | ||||
| 635,000 | Spirit Airlines, Inc. | 4.75% | 05/15/25 | 1,003,848 | ||||
| 4,508,008 | ||||||||
| Automobiles – 7.2% | ||||||||
| 162,000 | NIO, Inc. | 4.50% | 02/01/24 | 538,954 | ||||
| 445,000 | Tesla, Inc. | 1.25% | 03/01/21 | 2,403,948 | ||||
| 745,000 | Tesla, Inc. | 2.38% | 03/15/22 | 4,421,070 | ||||
| 1,545,000 | Tesla, Inc. | 2.00% | 05/15/24 | 9,692,467 | ||||
| 17,056,439 | ||||||||
| Biotechnology – 4.5% | ||||||||
| 1,050,000 | BioMarin Pharmaceutical, Inc. | 0.60% | 08/01/24 | 1,082,812 | ||||
| 665,000 | Bridgebio Pharma, Inc. (a) | 2.50% | 03/15/27 | 767,015 | ||||
| 1,930,000 | Exact Sciences Corp. | 0.38% | 03/15/27 | 2,542,775 | ||||
| 755,000 | Halozyme Therapeutics, Inc. (a) | 1.25% | 12/01/24 | 1,003,725 | ||||
| 765,000 | Insmed, Inc. | 1.75% | 01/15/25 | 845,665 | ||||
| 600,000 | Invitae Corp. | 2.00% | 09/01/24 | 907,513 | ||||
| 860,000 | Neurocrine Biosciences, Inc. | 2.25% | 05/15/24 | 1,206,214 | ||||
| 1,135,000 | Sarepta Therapeutics, Inc. | 1.50% | 11/15/24 | 2,269,105 | ||||
| 10,624,824 | ||||||||
| Communications Equipment – 1.2% | ||||||||
| 2,545,000 | Lumentum Holdings, Inc., Series QIB (a) | 0.50% | 12/15/26 | 2,868,722 | ||||
| Construction & Engineering – 0.4% | ||||||||
| 800,000 | Vinci S.A., Series DGFP (b) | 0.38% | 02/16/22 | 848,488 | ||||
| Consumer Finance – 0.2% | ||||||||
| 500,000 | LendingTree, Inc. (a) | 0.50% | 07/15/25 | 499,375 | ||||
| Diversified Consumer Services – 1.4% | ||||||||
| 1,325,000 | Chegg, Inc. | 0.13% | 03/15/25 | 2,050,464 | ||||
| 1,350,000 | Chegg, Inc. (a) | (c) | 09/01/26 | 1,368,525 | ||||
| 3,418,989 | ||||||||
| Diversified Financial Services – 0.5% | ||||||||
| 1,125,000 | AXA S.A. (a) | 7.25% | 05/15/21 | 1,123,594 | ||||
| Diversified Telecommunication Services – 0.5% | ||||||||
| 645,000 | Bandwidth, Inc. (a) | 0.25% | 03/01/26 | 1,197,326 | ||||
| Electrical Equipment – 0.5% | ||||||||
| 775,000 | Bloom Energy Corp. (a) | 2.50% | 08/15/25 | 838,162 | ||||
| 160,000 | Plug Power, Inc. (a) | 3.75% | 06/01/25 | 457,408 | ||||
| 1,295,570 | ||||||||
| Electronic Equipment, Instruments & Components – 0.4% | ||||||||
| 725,000 | II-VI, Inc. | 0.25% | 09/01/22 | 868,155 | ||||
| Entertainment – 4.4% | ||||||||
| 930,000 | Bilibili, Inc. (a) | 1.25% | 06/15/27 | 1,189,630 | ||||
See Notes to Financial Statements
Page 7
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2020
| Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
| CONVERTIBLE CORPORATE BONDS (Continued) | ||||||||
| Entertainment (Continued) | ||||||||
| $700,000 | Liberty Media Corp. - Liberty Formula One | 1.00% | 01/30/23 | $833,000 | ||||
| 1,250,000 | Live Nation Entertainment, Inc. | 2.50% | 03/15/23 | 1,342,969 | ||||
| 540,000 | Sea Ltd. | 1.00% | 12/01/24 | 1,696,800 | ||||
| 2,100,000 | Sea Ltd. (a) | 2.38% | 12/01/25 | 4,003,943 | ||||
| 1,005,000 | Zynga, Inc. | 0.25% | 06/01/24 | 1,268,185 | ||||
| 10,334,527 | ||||||||
| Health Care Equipment & Supplies – 4.3% | ||||||||
| 1,300,000 | CONMED Corp. | 2.63% | 02/01/24 | 1,486,241 | ||||
| 486,000 | DexCom, Inc. | 0.75% | 12/01/23 | 970,050 | ||||
| 2,335,000 | DexCom, Inc. (a) | 0.25% | 11/15/25 | 2,257,042 | ||||
| 670,000 | Envista Holdings Corp. (a) | 2.38% | 06/01/25 | 975,148 | ||||
| 205,000 | Insulet Corp. | 1.38% | 11/15/24 | 493,328 | ||||
| 2,215,000 | Insulet, Corp. | 0.38% | 09/01/26 | 2,716,196 | ||||
| 1,085,000 | Tandem Diabetes Care, Inc. (a) | 1.50% | 05/01/25 | 1,366,268 | ||||
| 10,264,273 | ||||||||
| Health Care Technology – 2.2% | ||||||||
| 780,000 | Livongo Health, Inc. (a) | 0.88% | 06/01/25 | 1,524,413 | ||||
| 3,100,000 | Teladoc Health, Inc. (a) | 1.25% | 06/01/27 | 3,624,744 | ||||
| 5,149,157 | ||||||||
| Hotels, Restaurants & Leisure – 3.3% | ||||||||
| 730,000 | Bloomin’ Brands, Inc. (a) | 5.00% | 05/01/25 | 1,039,640 | ||||
| 860,000 | Carnival Corp. (a) | 5.75% | 04/01/23 | 1,340,301 | ||||
| 1,500,000 | NCL Corp. Ltd. (a) | 6.00% | 05/15/24 | 2,128,406 | ||||
| 635,000 | NCL Corp. Ltd. (a) | 5.38% | 08/01/25 | 737,791 | ||||
| 465,000 | Penn National Gaming, Inc. | 2.75% | 05/15/26 | 1,144,830 | ||||
| 1,365,000 | Royal Caribbean Cruises Ltd. (a) | 4.25% | 06/15/23 | 1,420,891 | ||||
| 7,811,859 | ||||||||
| Interactive Media & Services – 5.7% | ||||||||
| 370,000 | JOYY, Inc. | 1.38% | 06/15/26 | 427,026 | ||||
| 1,925,000 | Match Group Financeco 2, Inc. (a) | 0.88% | 06/15/26 | 2,890,181 | ||||
| 545,000 | Match Group Financeco, Inc. (a) | 0.88% | 10/01/22 | 1,452,438 | ||||
| 1,025,000 | Snap, Inc. (a) | 0.25% | 05/01/25 | 1,959,538 | ||||
| 1,330,000 | Snap, Inc. | 0.75% | 08/01/26 | 2,479,714 | ||||
| 530,000 | Twitter, Inc. | 0.25% | 06/15/24 | 579,979 | ||||
| 590,000 | Zillow Group, Inc. | 0.75% | 09/01/24 | 1,239,030 | ||||
| 1,595,000 | Zillow Group, Inc. | 2.75% | 05/15/25 | 2,508,659 | ||||
| 13,536,565 | ||||||||
| Internet & Direct Marketing Retail – 6.3% | ||||||||
| 1,325,000 | Booking Holdings, Inc. (a) | 0.75% | 05/01/25 | 1,663,751 | ||||
| 992,000 | Etsy, Inc. | 0.13% | 10/01/26 | 1,558,310 | ||||
| 1,100,000 | Etsy, Inc. (a) | 0.13% | 09/01/27 | 1,144,899 | ||||
| 1,180,000 | Fiverr International Ltd. (a) | (c) | 11/01/25 | 1,212,450 | ||||
| 1,410,000 | JPMorgan Chase Bank N.A. (a) | 0.13% | 01/01/23 | 1,840,931 | ||||
| 995,000 | MercadoLibre, Inc. | 2.00% | 08/15/28 | 2,799,700 | ||||
| 625,000 | Pinduoduo, Inc. | (c) | 10/01/24 | 1,343,638 | ||||
| 955,000 | Wayfair, Inc. | 1.13% | 11/01/24 | 2,122,285 | ||||
| 1,300,000 | Wayfair, Inc. (a) | 0.63% | 10/01/25 | 1,246,059 | ||||
| 14,932,023 | ||||||||
| IT Services – 7.1% | ||||||||
| 2,450,000 | Akamai Technologies, Inc. | 0.13% | 05/01/25 | 2,874,156 | ||||
Page 8
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2020
| Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
| CONVERTIBLE CORPORATE BONDS (Continued) | ||||||||
| IT Services (Continued) | ||||||||
| $700,000 | MongoDB, Inc. (a) | 0.25% | 01/15/26 | $910,614 | ||||
| 1,950,000 | Okta, Inc. | 0.13% | 09/01/25 | 2,556,938 | ||||
| 1,185,000 | Shopify, Inc. | 0.13% | 11/01/25 | 1,302,019 | ||||
| 2,100,000 | Square, Inc. | 0.50% | 05/15/23 | 4,347,398 | ||||
| 385,000 | Square, Inc. (a) | 0.13% | 03/01/25 | 566,801 | ||||
| 735,000 | Twilio, Inc. | 0.25% | 06/01/23 | 2,868,860 | ||||
| 1,425,000 | Wix.com Ltd. (a) | (c) | 08/15/25 | 1,399,432 | ||||
| 16,826,218 | ||||||||
| Leisure Products – 0.4% | ||||||||
| 815,000 | Callaway Golf, Co. (a) | 2.75% | 05/01/26 | 976,981 | ||||
| Life Sciences Tools & Services – 1.5% | ||||||||
| 815,000 | Illumina, Inc. | 0.50% | 06/15/21 | 1,008,211 | ||||
| 975,000 | NanoString Technologies, Inc. (a) | 2.63% | 03/01/25 | 1,056,053 | ||||
| 925,000 | Repligen Corp. | 0.38% | 07/15/24 | 1,445,990 | ||||
| 3,510,254 | ||||||||
| Machinery – 1.2% | ||||||||
| 855,000 | Chart Industries, Inc. (a) | 1.00% | 11/15/24 | 1,359,450 | ||||
| 1,275,000 | Meritor, Inc. | 3.25% | 10/15/37 | 1,387,138 | ||||
| 2,746,588 | ||||||||
| Media – 1.3% | ||||||||
| 1,425,000 | GCI Liberty, Inc. (a) | 1.75% | 09/30/46 | 2,384,737 | ||||
| 675,000 | Liberty Media Corp. | 1.38% | 10/15/23 | 757,916 | ||||
| 3,142,653 | ||||||||
| Metals & Mining – 0.7% | ||||||||
| 750,000 | Cleveland-Cliffs, Inc. | 1.50% | 01/15/25 | 922,208 | ||||
| 630,000 | SSR Mining, Inc. | 2.50% | 04/01/39 | 839,869 | ||||
| 1,762,077 | ||||||||
| Mortgage Real Estate Investment Trusts – 0.4% | ||||||||
| 815,000 | Hannon Armstrong Sustainable Infrastructure Capital, Inc. | (c) | 08/15/23 | 848,847 | ||||
| Oil, Gas & Consumable Fuels – 0.5% | ||||||||
| 475,000 | CNX Resources Corp. (a) | 2.25% | 05/01/26 | 503,675 | ||||
| 545,000 | Pioneer Natural Resources Co. (a) | 0.25% | 05/15/25 | 583,359 | ||||
| 1,087,034 | ||||||||
| Pharmaceuticals – 1.5% | ||||||||
| 965,000 | Jazz Investments I Ltd. (a) | 2.00% | 06/15/26 | 1,159,224 | ||||
| 1,420,000 | Pacira BioSciences, Inc. (a) | 0.75% | 08/01/25 | 1,447,261 | ||||
| 898,000 | Revance Therapeutics, Inc. (a) | 1.75% | 02/15/27 | 959,686 | ||||
| 3,566,171 | ||||||||
| Real Estate Management & Development – 0.4% | ||||||||
| 950,000 | Redfin Corp. (a) | (c) | 10/15/25 | 896,610 | ||||
| Road & Rail – 0.2% | ||||||||
| 450,000 | Lyft, Inc. (a) | 1.50% | 05/15/25 | 433,289 | ||||
| Semiconductors & Semiconductor Equipment – 8.7% | ||||||||
| 225,000 | Advanced Micro Devices, Inc. | 2.13% | 09/01/26 | 2,113,245 | ||||
| 775,000 | Canadian Solar, Inc. (a) | 2.50% | 10/01/25 | 937,436 | ||||
| 435,000 | Cree, Inc. (a) | 1.75% | 05/01/26 | 666,909 | ||||
| 2,600,000 | Inphi Corp. (a) | 0.75% | 04/15/25 | 3,339,247 | ||||
See Notes to Financial Statements
Page 9
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2020
| Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
| CONVERTIBLE CORPORATE BONDS (Continued) | ||||||||
| Semiconductors & Semiconductor Equipment (Continued) | ||||||||
| $565,000 | Microchip Technology, Inc. | 1.63% | 02/15/25 | $1,275,036 | ||||
| 1,985,000 | Microchip Technology, Inc. | 1.63% | 02/15/27 | 3,092,836 | ||||
| 740,000 | Nova Measuring Instruments Ltd. (a) | (c) | 10/15/25 | 745,953 | ||||
| 40,000 | Novellus Systems, Inc. | 2.63% | 05/15/41 | 429,999 | ||||
| 1,640,000 | ON Semiconductor Corp. | 1.63% | 10/15/23 | 2,340,969 | ||||
| 935,000 | SolarEdge Technologies, Inc. (a) | (c) | 09/15/25 | 1,150,985 | ||||
| 600,000 | STMicroelectronics N.V., Series A (b) | (c) | 08/04/25 | 665,166 | ||||
| 1,610,000 | Synaptics, Inc. | 0.50% | 06/15/22 | 1,942,506 | ||||
| 705,000 | Teradyne, Inc. | 1.25% | 12/15/23 | 1,972,566 | ||||
| 20,672,853 | ||||||||
| Software – 15.3% | ||||||||
| 370,000 | 2U, Inc. (a) | 2.25% | 05/01/25 | 562,519 | ||||
| 800,000 | Atlassian, Inc. | 0.63% | 05/01/23 | 1,880,140 | ||||
| 850,000 | Blackline, Inc. | 0.13% | 08/01/24 | 1,254,281 | ||||
| 770,000 | Cerence Inc. (a) | 3.00% | 06/01/25 | 1,282,877 | ||||
| 580,000 | Cloudflare, Inc. (a) | 0.75% | 05/15/25 | 917,656 | ||||
| 710,000 | Coupa Software, Inc. | 0.13% | 06/15/25 | 1,268,032 | ||||
| 975,000 | Coupa Software, Inc. (a) | 0.38% | 06/15/26 | 1,136,553 | ||||
| 420,000 | Datadog, Inc. (a) | 0.13% | 06/15/25 | 526,932 | ||||
| 715,000 | DocuSign, Inc. | 0.50% | 09/15/23 | 2,034,622 | ||||
| 1,525,000 | Envestnet, Inc. (a) | 0.75% | 08/15/25 | 1,532,037 | ||||
| 1,075,000 | Five9, Inc. (a) | 0.50% | 06/01/25 | 1,427,062 | ||||
| 1,160,000 | HubSpot, Inc. (a) | 0.38% | 06/01/25 | 1,457,682 | ||||
| 910,000 | Nice Ltd. (a) | (c) | 09/15/25 | 931,100 | ||||
| 990,000 | Nuance Communications, Inc. | 1.25% | 04/01/25 | 1,706,659 | ||||
| 2,060,000 | Palo Alto Networks, Inc. | 0.75% | 07/01/23 | 2,213,750 | ||||
| 1,005,000 | Pegasystems, Inc. (a) | 0.75% | 03/01/25 | 1,123,590 | ||||
| 900,000 | Q2 Holdings, Inc. | 0.75% | 06/01/26 | 1,116,563 | ||||
| 1,340,000 | RingCentral, Inc. (a) | (c) | 03/01/25 | 1,420,118 | ||||
| 650,000 | ServiceNow, Inc. | (c) | 06/01/22 | 2,399,673 | ||||
| 1,135,000 | Splunk, Inc. | 0.50% | 09/15/23 | 1,637,729 | ||||
| 2,040,000 | Splunk, Inc. (a) | 1.13% | 06/15/27 | 2,255,514 | ||||
| 2,080,000 | Workday, Inc. | 0.25% | 10/01/22 | 3,137,405 | ||||
| 1,615,000 | Zendesk, Inc. (a) | 0.63% | 06/15/25 | 2,027,291 | ||||
| 895,000 | Zscaler, Inc. (a) | 0.13% | 07/01/25 | 1,039,444 | ||||
| 36,289,229 | ||||||||
| Specialty Retail – 2.9% | ||||||||
| 430,000 | American Eagle Outfitters, Inc. (a) | 3.75% | 04/15/25 | 756,405 | ||||
| 1,045,000 | Burlington Stores, Inc. (a) | 2.25% | 04/15/25 | 1,201,201 | ||||
| 920,000 | Dick’s Sporting Goods, Inc. (a) | 3.25% | 04/15/25 | 1,649,675 | ||||
| 685,000 | National Vision Holdings, Inc. (a) | 2.50% | 05/15/25 | 1,008,399 | ||||
| 1,280,000 | RH | (c) | 06/15/23 | 2,304,071 | ||||
| 6,919,751 | ||||||||
Total Convertible Corporate Bonds | 207,389,651 | |||||||
| (Cost $153,420,258) | ||||||||
| Shares | Description | Stated Rate | Stated Maturity (d) | Value | ||||
| CONVERTIBLE PREFERRED SECURITIES – 10.7% | ||||||||
| Auto Components – 0.7% | ||||||||
| 13,350 | Aptiv PLC, Series A | 5.50% | 06/15/23 | 1,607,340 | ||||
Page 10
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2020
| Shares | Description | Stated Rate | Stated Maturity (d) | Value | ||||
| CONVERTIBLE PREFERRED SECURITIES (Continued) | ||||||||
| Capital Markets – 0.4% | ||||||||
| 19,975 | KKR & Co., Inc., Series C | 6.00% | 09/15/23 | $1,039,499 | ||||
| Health Care Equipment & Supplies – 1.9% | ||||||||
| 1,925 | Danaher Corp., Series A | 4.75% | 04/15/22 | 3,022,038 | ||||
| 1,150 | Danaher Corp., Series B | 5.00% | 04/15/23 | 1,527,269 | ||||
| 4,549,307 | ||||||||
| Internet & Direct Marketing Retail – 0.6% | ||||||||
| 1,000 | 2020 Mandatory Exchangeable Trust (a) | 6.50% | 05/16/23 | 1,462,000 | ||||
| Life Sciences Tools & Services – 1.0% | ||||||||
| 30,600 | Avantor, Inc., Series A | 6.25% | 05/15/22 | 2,298,366 | ||||
| Machinery – 2.2% | ||||||||
| 10,550 | Colfax Corp. | 5.75% | 01/15/22 | 1,246,694 | ||||
| 1,815 | Fortive Corp., Series A | 5.00% | 07/01/21 | 1,677,659 | ||||
| 22,000 | Stanley Black & Decker, Inc. | 5.25% | 11/15/22 | 2,296,360 | ||||
| 5,220,713 | ||||||||
| Metals & Mining – 0.6% | ||||||||
| 37,725 | ArcelorMittal S.A. | 5.50% | 05/18/23 | 1,308,680 | ||||
| Semiconductors & Semiconductor Equipment – 2.3% | ||||||||
| 4,572 | Broadcom, Inc., Series A | 8.00% | 09/30/22 | 5,440,634 | ||||
| Wireless Telecommunication Services – 1.0% | ||||||||
| 2,255 | 2020 Cash Mandatory Exchangeable Trust (a) | 5.25% | 06/01/23 | 2,354,446 | ||||
Total Convertible Preferred Securities | 25,280,985 | |||||||
| (Cost $21,723,388) | ||||||||
Total Investments – 98.3% | 232,670,636 | |||||||
| (Cost $175,143,646) (e) | ||||||||
Net Other Assets and Liabilities – 1.7% | 4,131,442 | ||
Net Assets – 100.0% | $236,802,078 |
| (a) | This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A under 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 SSI Investment Management LLC (“SSI”), the Fund’s sub-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, 2020, securities noted as such amounted to $93,786,929 or 39.6% of net assets. |
| (b) | This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| (c) | Zero coupon security. |
| (d) | Stated maturity represents the mandatory conversion date. |
| (e) | Aggregate cost for federal income tax purposes was $179,128,818. As of October 31, 2020, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $55,714,893 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $2,173,075. The net unrealized appreciation was $53,541,818. |
See Notes to Financial Statements
Page 11
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2020
Valuation Inputs
A summary of the inputs used to value the Fund’s investments as of October 31, 2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| Total Value at 10/31/2020 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Convertible Corporate Bonds* | $ 207,389,651 | $ — | $ 207,389,651 | $ — |
| Convertible Preferred Securities: | ||||
Health Care Equipment & Supplies | 4,549,307 | 3,022,038 | 1,527,269 | — |
Internet & Direct Marketing Retail | 1,462,000 | — | 1,462,000 | — |
Wireless Telecommunication Services | 2,354,446 | — | 2,354,446 | — |
Other industry categories* | 16,915,232 | 16,915,232 | — | — |
Total Investments | $ 232,670,636 | $ 19,937,270 | $ 212,733,366 | $— |
| * | See Portfolio of Investments for industry breakout. |
Page 12
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Statement of Assets and Liabilities
October 31, 2020
| ASSETS: | |
Investments, at value (Cost $175,143,646) | $ 232,670,636 |
Cash | 2,994,254 |
| Receivables: | |
Investment securities sold | 995,644 |
Interest | 543,786 |
Dividends | 23,868 |
Total Assets | 237,228,188 |
| LIABILITIES: | |
| Payables: | |
Investment securities purchased | 225,515 |
Investment advisory fees | 199,595 |
Other liabilities | 1,000 |
Total Liabilities | 426,110 |
NET ASSETS | $236,802,078 |
| NET ASSETS consist of: | |
Paid-in capital | $ 180,916,941 |
Par value | 59,000 |
Accumulated distributable earnings (loss) | 55,826,137 |
NET ASSETS | $236,802,078 |
NET ASSET VALUE, per share | $40.14 |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | 5,900,002 |
See Notes to Financial Statements
Page 13
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Statement of Operations
For the Year Ended October 31, 2020
| INVESTMENT INCOME: | ||
Dividends | $ 1,882,769 | |
Interest | (2,794,571) | |
Other | 19,047 | |
Total investment income | (892,755) | |
| EXPENSES: | ||
Investment advisory fees | 2,082,721 | |
Excise tax expense | 6,159 | |
Total expenses | 2,088,880 | |
NET INVESTMENT INCOME (LOSS) | (2,981,635) | |
| NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on investments | 9,201,568 | |
Net change in unrealized appreciation (depreciation) on investments | 39,005,257 | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | 48,206,825 | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ 45,225,190 | |
Page 14
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Statements of Changes in Net Assets
| Year Ended 10/31/2020 | Year Ended 10/31/2019 | ||
| OPERATIONS: | |||
Net investment income (loss) | $ (2,981,635) | $ (1,161,320) | |
Net realized gain (loss) | 9,201,568 | 4,565,461 | |
Net change in unrealized appreciation (depreciation) | 39,005,257 | 14,922,374 | |
Net increase (decrease) in net assets resulting from operations | 45,225,190 | 18,326,515 | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (3,308,156) | (2,995,341) | |
| SHAREHOLDER TRANSACTIONS: | |||
Proceeds from shares sold | 106,145,960 | 29,071,259 | |
Cost of shares redeemed | (105,418,747) | (52,711,960) | |
Net increase (decrease) in net assets resulting from shareholder transactions | 727,213 | (23,640,701) | |
Total increase (decrease) in net assets | 42,644,247 | (8,309,527) | |
| NET ASSETS: | |||
Beginning of period | 194,157,831 | 202,467,358 | |
End of period | $236,802,078 | $194,157,831 | |
| CHANGES IN SHARES OUTSTANDING: | |||
Shares outstanding, beginning of period | 6,150,002 | 7,050,002 | |
Shares sold | 3,050,000 | 950,000 | |
Shares redeemed | (3,300,000) | (1,850,000) | |
Shares outstanding, end of period | 5,900,002 | 6,150,002 |
See Notes to Financial Statements
Page 15
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Financial Highlights
For a share outstanding throughout each period
| Year Ended October 31, | Period Ended 10/31/2016 (a) | ||||||||
| 2020 | 2019 | 2018 | 2017 | ||||||
Net asset value, beginning of period | $ 31.57 | $ 28.72 | $ 29.01 | $ 25.21 | $ 25.00 | ||||
| Income from investment operations: | |||||||||
Net investment income (loss) | (0.55) | (0.24) | (0.09) | (0.14) | (0.24) | ||||
Net realized and unrealized gain (loss) | 9.65 | 3.58 | 0.52 | 4.45 | 0.90 | ||||
Total from investment operations | 9.10 | 3.34 | 0.43 | 4.31 | 0.66 | ||||
| Distributions paid to shareholders from: | |||||||||
Net investment income | (0.53) | (0.49) | (0.67) | (0.51) | (0.45) | ||||
Net realized gain | — | — | (0.05) | — | — | ||||
Total distributions | (0.53) | (0.49) | (0.72) | (0.51) | (0.45) | ||||
Net asset value, end of period | $40.14 | $31.57 | $28.72 | $29.01 | $25.21 | ||||
Total return (b) | 29.10% | 11.72% | 1.46% | 17.29% | 2.68% | ||||
| Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) | $ 236,802 | $ 194,158 | $ 202,467 | $ 58,016 | $ 7,564 | ||||
Ratio of total expenses to average net assets | 0.95% | 0.95% | 0.95% | 0.95% | 0.95% (c) | ||||
Ratio of net investment income (loss) to average net assets | (1.36)% | (0.63)% | (2.16)% | (1.86)% | (2.34)% (c) | ||||
Portfolio turnover rate (d) | 119% | 64% | 71% | 56% | 54% | ||||
| (a) | Inception date is November 3, 2015, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| (b) | 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. |
| (c) | Annualized. |
| (d) | 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. |
Page 16
See Notes to Financial Statements
Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of nine funds that are offering shares. This report covers the First Trust SSI Strategic Convertible Securities ETF (the “Fund”), a diversified series of the Trust, which trades under the ticker “FCVT” on The Nasdaq Stock Market LLC (“Nasdaq”). Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large specified blocks consisting of 50,000 shares called a “Creation Unit.” Creation Units are issued and redeemed for cash and, in certain circumstances, in-kind for securities in which the Fund invests. Except when aggregated in Creation Units, the Fund’s shares are not redeemable securities.
The Fund is an actively managed exchange-traded fund. The investment objective of the Fund is to seek total return. 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 a portfolio of U.S. and non-U.S. convertible securities. There can be no assurances 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.
A. Portfolio Valuation
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 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 adopted by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act. 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:
Convertible preferred stocks 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 principal market for such securities.
Convertible corporate bonds, notes and other debt securities are fair valued on the basis of valuations provided by dealers who make markets in such securities or by a third-party pricing service approved by the Trust’s Board of Trustees, which may use the following valuation inputs when available:
| 1) | benchmark yields; |
| 2) | reported trades; |
| 3) | broker/dealer quotes; |
| 4) | issuer spreads; |
| 5) | benchmark securities; |
| 6) | bids and offers; and |
| 7) | reference data including market research publications. |
Page 17
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020
Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid 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 Trust’s Board of Trustees or its delegate, 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.
Fair valuation of a debt security will be based on the consideration of all available information, including, but not limited to, the following:
| 1) | the fundamental business data relating to the issuer; |
| 2) | an evaluation of the forces which influence the market in which these securities are purchased and sold; |
| 3) | the type, size and cost of the security; |
| 4) | the financial statements of the issuer; |
| 5) | the credit quality and cash flow of the issuer, based on the sub-advisor’s or external analysis; |
| 6) | the information as to any transactions in or offers for the security; |
| 7) | the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies; |
| 8) | the coupon payments; |
| 9) | the quality, value and salability of collateral, if any, securing the security; |
| 10) | the business prospects of the issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer’s management; |
| 11) | the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; and |
| 12) | other relevant factors. |
Fair valuation of an equity security will be based on the consideration of all available information, including, but not limited to, the following:
| 1) | the type of security; |
| 2) | the size of the holding; |
| 3) | the initial cost of the security; |
| 4) | transactions in comparable securities; |
| 5) | price quotes from dealers and/or third-party pricing services; |
| 6) | relationships among various securities; |
| 7) | information obtained by contacting the issuer, analysts, or the appropriate stock exchange; |
Page 18
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020
| 8) | an analysis of the issuer’s financial statements; and |
| 9) | the existence of merger proposals or tender offers that might affect the value of the security. |
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, 2020, 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.
The Fund invests in convertible securities that are acquired at a price significantly above the principal value. Consequently, the amortization of premium may exceed the interest income earned on the securities.
C. Dividends and Distributions to Shareholders
Dividends from net investment income, if any, are declared and paid monthly by the Fund, 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.
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 by the Fund during the fiscal years ended October 31, 2020 and 2019, was as follows:
| Distributions paid from: | 2020 | 2019 |
Ordinary income | $3,308,156 | $2,995,341 |
Capital gains | — | — |
Return of capital | — | — |
As of October 31, 2020, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | $— |
Accumulated capital and other gain (loss) | 2,284,319 |
Net unrealized appreciation (depreciation) | 53,541,818 |
Page 19
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020
D. Income Taxes
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 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, 2020, for federal income tax purposes, the Fund had no capital loss carryforwards available to the extent provided by regulations to offset future capital gains.
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, 2020, the Fund had no net ordinary losses.
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. Taxable years ended 2017, 2018, 2019, and 2020 remain open to federal and state audit. As of October 31, 2020, 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.
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, 2020, the adjustments for the Fund were as follows:
| Accumulated Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Paid-in Capital | ||
| $6,112,462 | $(6,803,752) | $691,290 |
E. Expenses
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 supervising 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.
The Fund and First Trust have retained SSI Investment Management LLC (“SSI” or the “Sub-Advisor”) to serve as its investment sub-advisor. In this capacity, SSI is responsible for the selection and on-going monitoring of the securities in the Fund’s investment portfolio. Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust will supervise SSI and its management of the investment of the Fund’s assets and will pay SSI for its services as the Fund’s sub-advisor. First Trust will also be responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, 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. The Fund has agreed to pay First Trust an annual unitary management fee equal to 0.95% of its average daily net assets. SSI receives a sub-advisory fee from First Trust equal to 50% of any remaining monthly investment management fee paid to First Trust after the average Fund expenses accrued during the most recent twelve months are subtracted from the investment management fee in a given month. First Trust also provides 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.
Page 20
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020
The Trust has multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH is responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH is 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 defined-outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee 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 Lead Independent Trustee and Committee Chairmen rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding short-term investments and in-kind transactions, for the fiscal year ended October 31, 2020, were $253,484,871 and $255,203,654, respectively.
For the fiscal year ended October 31, 2020, the Fund had no in-kind transactions.
5. Creations, Redemptions and Transaction Fees
Shares are created and redeemed by the Fund only in Creation Unit size aggregations of 50,000 shares in transactions with broker-dealers or large institutional investors that have entered into a participation agreement (an “Authorized Participant”). Due to the nature of the Fund’s investments, the Fund’s Creation Units are generally issued and redeemed for cash, although Creation Units may be issued in-kind for securities in which the Fund invests in limited circumstances. Authorized Participants purchasing Creation Units must pay to BBH, as transfer agent, a creation transaction fee (the “Creation Transaction Fee”) regardless of the number of Creation Units purchased in the transaction. The Creation Transaction Fee may vary and is based on the composition of the securities included in the Fund’s portfolio and/or the countries in which the transactions are settled. The Creation Transaction Fee may increase or decrease with changes in the Fund’s portfolio. The price for each Creation Unit will equal the daily NAV per share times the number of shares in a Creation Unit plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees or stamp taxes. When Creation Units are issued for cash, the Authorized Participant may also be assessed an amount to cover the cost of purchasing portfolio securities, including operational processing and brokerage costs, transfer fees, stamp taxes, and part or all of the spread between the expected bid and offer side of the market related to such securities.
Authorized Participants redeeming Creation Units must pay to BBH, as transfer agent, a standard redemption transaction fee (the “Redemption Transaction Fee”), regardless of the number of Creation Units redeemed in the transaction. The Redemption Transaction Fee may vary and is based on the composition of the securities included in the Fund’s portfolio and/or the countries in which the transactions are settled. The Redemption Transaction Fee may increase or decrease with changes in the Fund’s portfolio. When shares are redeemed for cash, the Authorized Participant may also be assessed an amount to cover other costs, including operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to portfolio securities sold in connection with the redemption.
6. Distribution Plan
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 to provide 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 March 31, 2022.
Page 21
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020
7. Indemnification
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.
8. Other Matters
By operation of law, the Fund now operates as a diversified open-end management investment company as defined in Section 5(b) of the 1940 Act.
9. Subsequent Events
Management has evaluated the impact of all subsequent events to 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.
Page 22
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of First Trust SSI Strategic Convertible Securities ETF (the “Fund”), a series of the First Trust Exchange-Traded Fund IV, including the portfolio of investments, as of October 31, 2020, 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 the years ended October 31, 2020, 2019, 2018, and 2017, and the period from November 3, 2015 (commencement of operations) through October 31, 2016, 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, 2020, 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 the years ended October 31, 2020, 2019, 2018, and 2017, and for the period from November 3, 2015 (commencement of operations) through October 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
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, 2020, 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.
Chicago, Illinois
December 23, 2020
We have served as the auditor of one or more First Trust investment companies since 2001.
Page 23
Additional Information
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Federal Tax Information
For the taxable year ended October 31, 2020, the following percentages of income dividend 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 | |
| 35.15% | 35.15% |
A portion of the ordinary dividends (including short-term capital gains) that the Fund paid to shareholders during the taxable year ended October 31, 2020, 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.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a large percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is not concentrated.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified
Page 24
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index Constituent Risk. Certain funds may be a constituent of one or more indices. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could significantly increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom’s Financial Conduct Authority announced that LIBOR will cease to be available for use after 2021. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the fund.
Page 25
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. The outbreak of the respiratory disease designated as COVID-19 in December 2019 has caused significant volatility and declines in global financial markets, which have caused losses for investors. The COVID-19 pandemic may last for an extended period of time and will continue to impact the economy for the foreseeable future.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
| NOT FDIC INSURED | NOT BANK GUARANTEED | MAY LOSE VALUE |
Advisory and Sub-Advisory Agreements
Board Considerations Regarding Approval of Continuation of Investment Management and Sub-Advisory Agreements
The Board of Trustees of First Trust Exchange-Traded Fund IV (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 SSI Strategic Convertible Securities ETF (the “Fund”). The Board approved the continuation of the Advisory Agreement for a one-year period ending June 30, 2021 at a meeting held on June 8, 2020. The Board determined that the continuation of the Advisory 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 reasonable 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 May 11, 2020 and June 8, 2020, 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 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 fall-out 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 May 11, 2020, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the May meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees,
Page 26
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
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 8, 2020 meeting, as well as at the meeting held that day. The Board considered supplemental information provided by the Advisor on the operations of the Advisor and the performance of the Fund since the onset of the COVID-19 pandemic. 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 Advisory Agreement, the Board had received sufficient information to renew the Advisory 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.
The Board noted that it had approved a new Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”) among the Fund, the Advisor and SSI Investment Management LLC (the “Sub-Advisor”) at a meeting held on March 11, 2019 for an initial two-year term and that shareholders of the Fund approved the Sub-Advisory Agreement at a meeting held on July 11, 2019. Accordingly, the Board did not consider the renewal of the Sub-Advisory Agreement at the June 8, 2020 meeting and will first consider its renewal at its June 2021 meeting.
In reviewing the Advisory Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Advisory Agreement. 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 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 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 May 11, 2020 meeting, described to the Board the scope of its ongoing investment in additional infrastructure and personnel 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 Advisory Agreement have been and are expected to remain satisfactory.
The Board considered the unitary fee rate payable by the Fund under the Advisory 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 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 advisory 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 above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board, at the May 11, 2020 meeting, 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 there were no other actively-managed ETFs in the Expense Group, 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 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 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, 2019 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- and three-year periods ended December 31, 2019.
Page 27
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
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 to the Fund under the Advisory 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 and noted the Advisor’s statement that it believes its expenses will likely increase over the next twelve months as the Advisor continues to hire personnel and build infrastructure, including technology, to improve the services to the Fund. The Board noted that any reduction in fixed costs associated with the management of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for the Fund. 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, 2019 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 fall-out benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as a fall-out 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. The Board also considered the Advisor’s compensation for fund reporting services provided to the Fund pursuant to a separate Fund Reporting Services Agreement, which is paid from the unitary fee. The Board concluded that the character and amount of potential fall-out 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 Advisory Agreement continue to be fair and reasonable and that the continuation of the Advisory Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund and each other fund in the First Trust Fund Complex, other than the closed-end funds, have adopted and implemented a liquidity risk management program (the “Program”) reasonably designed to assess and manage the funds’ liquidity risk, i.e., the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. The Board of Trustees of the First Trust Funds has appointed First Trust Advisors L.P. (the “Advisor”) as the person designated to administer the Program, and in this capacity the Advisor performs its duties primarily through the activities and efforts of the First Trust Liquidity Committee (the “Liquidity Committee”).
Pursuant to the Program, the Liquidity Committee classifies the liquidity of each fund’s portfolio investments into one of the four liquidity categories specified by Rule 22e-4: highly liquid investments, moderately liquid investments, less liquid investments and illiquid investments. The Liquidity Committee determines certain of the inputs for this classification process, including reasonably anticipated trade sizes and significant investor dilution thresholds. The Liquidity Committee also determines and periodically reviews a highly liquid investment minimum for certain funds, monitors the funds’ holdings of assets classified as illiquid investments to seek to ensure they do not exceed 15% of a fund’s net assets and establishes policies and procedures regarding redemptions in kind.
At the May 11, 2020 meeting of the Board of Trustees, as required by Rule 22e-4 and the Program, the Advisor provided the Board with a written report prepared by the Advisor that addressed the operation of the Program during the period from June 1, 2019 (the initial compliance date for certain requirements of Rule 22e-4) through the Liquidity Committee’s annual meeting held on March 20, 2020 and assessed the Program’s adequacy and effectiveness of implementation during this period, including the operation of the highly liquid investment minimum for each fund that is required under the Program to have one, and any material changes to the Program. Note that because the Fund primarily holds assets that are highly liquid investments, the Fund has not adopted a highly liquid investment minimum.
As stated in the written report, during the review period, no fund breached the 15% limitation on illiquid investments, no fund with a highly liquid investment minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor concluded that each fund’s investment strategy is appropriate for an open-end fund; that the Program operated effectively in all material respects during the review period; and that the Program is reasonably designed to assess and manage the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
Page 28
Board of Trustees and Officers
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
The following tables identify the Trustees and Officers of the Trust. Unless otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite 400, Wheaton, IL 60187.
The Trust’s statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891.
| Name, Year of Birth and Position with the Trust | Term of Office and Year First Elected or Appointed | Principal Occupations During Past 5 Years | Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
| INDEPENDENT TRUSTEES | ||||
| Richard E. Erickson, Trustee (1951) | • Indefinite Term • Since Inception | Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007 to November 2015) | 189 | None |
| Thomas R. Kadlec, Trustee (1957) | • Indefinite Term • Since Inception | President, ADM Investor Services, Inc. (Futures Commission Merchant) | 189 | Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association |
| Robert F. Keith, Trustee (1956) | • Indefinite Term • Since Inception | President, Hibs Enterprises (Financial and Management Consulting) | 189 | Director of Trust Company of Illinois |
| Niel B. Nielson, Trustee (1954) | • Indefinite Term • Since Inception | Senior Advisor (August 2018 to Present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation (Educational Products and Services) | 189 | None |
| INTERESTED TRUSTEE | ||||
| James A. Bowen(1), Trustee and Chairman of the Board (1955) | • Indefinite Term • Since Inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 189 | None |
| (1) | Mr. Bowen is deemed an “interested person” of the Trust due to his position as CEO of First Trust Advisors L.P., investment advisor of the Trust. |
Page 29
Board of Trustees and Officers (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
| Name and Year of Birth | Position and Offices with Trust | Term of Office and Length of Service | Principal Occupations During Past 5 Years |
| OFFICERS(2) | |||
| James M. Dykas (1966) | President and Chief Executive Officer | • Indefinite Term • Since January 2016 | Managing Director and Chief Financial Officer (January 2016 to Present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
| Donald P. Swade (1972) | Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite Term • Since January 2016 | Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P. |
| W. Scott Jardine (1960) | Secretary and Chief Legal Officer | • Indefinite Term • Since Inception | General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC |
| Daniel J. Lindquist (1970) | Vice President | • Indefinite Term • Since Inception | Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
| Kristi A. Maher (1966) | Chief Compliance Officer and Assistant Secretary | • Indefinite Term • Since Inception | Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
| Roger F. Testin (1966) | Vice President | • Indefinite Term • Since Inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
| Stan Ueland (1970) | Vice President | • Indefinite Term • Since Inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P |
| (2) | The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. |
Page 30
Privacy Policy
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2020 (Unaudited)
Privacy Policy
First Trust values our relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We collect nonpublic personal information about you from the following sources:
| • | Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; |
| • | Information about your transactions with us, our affiliates or others; |
| • | Information we receive from your inquiries by mail, e-mail or telephone; and |
| • | Information we collect on our website through the use of “cookies”. For example, we may identify the pages on our website that your browser requests or visits. |
Information Collected
The type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status, family relationships and other personal information.
Disclosure of Information
We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses may also include the disclosure of such information to unaffiliated companies for the following reasons:
| • | In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. |
| • | We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). |
In addition, in order to alert you to our other financial products and services, we may share your personal information within First Trust.
Use of Website Analytics
We currently use third party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s website and marketing our products and services to you. These tools employ cookies, which are small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and web navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust’s website better and more useful to our users. The information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to contact you in order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis.
Confidentiality and Security
With regard to our internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and Inquiries
As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors).
March 2019
Page 31
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
SSI Investment Management LLC
9440 Santa Monica Blvd, 8th Floor
Beverly Hills, CA 90210
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
FUND ACCOUNTANT &
TRANSFER AGENT
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Long Duration Opportunities ETF (LGOV)
------------------
Annual Report
For the Year Ended
October 31, 2020
------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2020
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 11
Statement of Operations...................................................... 12
Statement of Changes in Net Assets........................................... 13
Financial Highlights......................................................... 14
Notes to Financial Statements................................................ 15
Report of Independent Registered Public Accounting Firm...................... 24
Additional Information....................................................... 25
Board of Trustees and Officers............................................... 30
Privacy Policy............................................................... 32
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Long Duration Opportunities ETF; hereinafter referred
to as the "Fund") to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. When evaluating the information included in this report, you are
cautioned not to place undue reliance on these forward-looking statements, which
reflect the judgment of the Advisor and its representatives only as of the date
hereof. We undertake no obligation to publicly revise or update these
forward-looking statements to reflect events and circumstances that arise after
the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that 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 investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2020
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Long Duration Opportunities ETF (the "Fund"), which contains detailed
information about the Fund for the twelve months ended October 31, 2020.
As I was collecting my thoughts for this annual roundup it occurred to me that
my message this year should touch on the tone of the markets and the investing
climate rather than belabor all the news and events that brought us to this
juncture. We all know how tumultuous our lives have become over the past eight
or so months. The phrase "shelter-at-home" says it all. I would rather talk
about why I believe investors should be optimistic about where we could be
headed.
Having said that, allow me to at least acknowledge the two elephants in the
room: the coronavirus ("COVID-19") and the election. In the first 12 days of
November, we learned the following: that we likely have a new president-elect
(Joe Biden), though it may not be official for some time because it is being
contested by President Donald Trump and some of his loyal backers in the
Republican Party citing voter fraud in certain states; that we still do not know
which political party will have control of the Senate due to a couple of
run-offs in Georgia to be held on January 5, 2021; and, that it looks as though
we may be fortunate enough to have an FDA-approved COVID-19 vaccine by either
the end of 2020 or the start of 2021, though that too is not yet official. It
could be a game-changer in the COVID-19 battle. And, we may gain access to
additional vaccines as well. The key to getting the economy back to running on
all cylinders is to fully reopen, and a vaccine is "what the doctor ordered."
With respect to the tone of the markets and investment climate, to say that I am
encouraged about what has transpired in 2020 would be an understatement. Despite
the extraordinary challenges so far this year, the S&P 500(R) Index posted a
total return of 2.77% over the first 10 months of 2020, this despite plunging
33.8% into bear market territory from February 19, 2020 through March 23, 2020,
according to Bloomberg. As impressive as that feat is, the future looks even
brighter. While Bloomberg's consensus earnings growth rate estimate for the S&P
500(R) Index for 2020 was -16.51%, as of November 13, 2020, its 2021 and 2022
estimates were 21.74% and 16.95%, respectively. That is a strong take on the
prospects for a rebound in Corporate America over the next 24 months. One of the
tailwinds that is providing a good deal of support to the economy and markets is
the decision by the Federal Reserve (the "Fed") to keep interest rates
artificially low for as long as need be to meet both its employment and
inflation targets. By keeping rates lower for longer, the Fed is essentially
inviting investors to assume more risk to generate higher returns. Brian
Wesbury, Chief Economist at First Trust, believes that the Fed could need until
2024 to accomplish its goals. That is a lot of runway for investors to
reposition their portfolios, if needed, and a very generous, and perhaps
unprecedented, amount of guidance from the Fed, in our opinion. Those investors
with cash on the sidelines earning next to nothing have options if they choose
to act.
We are encouraged about the prospects for the economy and the markets, but
investors should be prepared to weather some volatility until the COVID-19
pandemic is better contained. As always, we encourage investors to stay the
course!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
The First Trust Long Duration Opportunities ETF's (the "Fund") primary
investment objective is to generate current income with a focus on preservation
of capital. Under normal market conditions, the Fund will invest at least 80% of
its net assets (including investment borrowings) in a portfolio of
investment-grade debt securities issued or guaranteed by the U.S. government,
its agencies or government-sponsored entities, including publicly-issued U.S.
Treasury securities and mortgage-related securities. The Fund may also invest in
exchange-traded funds ("ETFs") that principally invest in such securities. The
Fund may purchase mortgage-related securities in "to-be-announced" transactions
("TBA Transactions"), including mortgage dollar rolls.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (1/22/19) Inception (1/22/19)
10/31/20 to 10/31/20 to 10/31/20
<S> <C> <C> <C>
FUND PERFORMANCE
NAV 7.46% 12.17% 22.59%
Market Price 9.37% 12.64% 23.48%
INDEX PERFORMANCE
ICE BofA 5+ Year US Treasury Index 10.73% 13.60% 25.36%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the periods since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the periods
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund a the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of the Fund did
not trade in the secondary market until after its inception, for the period from
inception to the first day of secondary market trading in shares of the Fund,
the NAV of the Fund is used as a proxy for the secondary market trading price to
calculate market returns. NAV and market returns assume that all distributions
have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. 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. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
---------------------------------------------------------------
% OF
FUND ALLOCATION NET ASSETS
---------------------------------------------------------------
U.S. Government Agency Mortgage-Backed
Securities 80.0%
U.S. Government Bonds and Notes 8.5
Exchange Traded Funds 0.6
Money Market Funds 36.9
Call Options Purchased 0.0*
Put Options Written (0.0)*
Net Other Assets and Liabilities(1) (26.0)
-------
Total 100.0%
=======
* Amount is less than 0.05%.
---------------------------------------------------------------
% OF TOTAL LONG
FIXED-INCOME
CREDIT QUALITY(3) INVESTMENTS & CASH
---------------------------------------------------------------
Government and Agency 70.53%
Cash & Cash Equivalents 29.47
-------
Total 100.00%
=======
---------------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS(2)
---------------------------------------------------------------
Federal National Mortgage Association,
Pool TBA, 2.00%, 12/15/50 10.64%
Government National Mortgage Association,
Series 2010-61, Class KE, 5.00%, 05/16/40 8.81
U.S. Treasury Bond, 1.25%, 05/15/50 7.05
Federal National Mortgage Association,
Series 2015-66, Class CL, 3.50%, 07/25/41 5.62
Federal National Mortgage Association,
Pool TBA, 1.50%, 12/15/50 5.19
Government National Mortgage Association,
Series 2020-159, Class Z, 2.50%, 10/16/62 3.81
Government National Mortgage Association,
Series 2020-145, Class BD, 2.30%, 03/16/63 3.74
Federal National Mortgage Association,
Series 2020-17, Class L, 2.50%, 03/25/50 3.71
Federal Home Loan Mortgage Corporation,
Pool U99176, 4.00%, 12/01/47 3.42
Federal National Mortgage Association,
Series 2005-74, Class NZ, 6.00%, 09/25/35 2.91
-------
Total 54.90%
=======
---------------------------------------------------------------
WEIGHTED AVERAGE EFFECTIVE NET DURATION
---------------------------------------------------------------
October 31, 2020 11.55 Years
High - December 31, 2019 12.47 Years
Low - April 30, 2020 9.14 Years
-----------------------------
(1) Includes variation margin on futures.
(2) Percentages are based on the long positions only. Money market funds are
excluded.
(3) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. 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 highest to lowest on a scale that generally ranges from AAA
to D for long-term ratings and A-1+ to C for short-term ratings.
Investment grade is defined as those issuers that have a long-term credit
rating of BBB- or higher or a short-term credit rating of A-3 or higher.
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.
U.S. Treasury and U.S. Agency mortgage-backed securities appear under
"Government and Agency". Credit ratings are subject to change.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JANUARY 22, 2019 - OCTOBER 31, 2020
First Trust Long Duration ICE BofA 5+ Year
Opportunities ETF US Treasury Index
<S> <C> <C>
1/22/19 $10,000 $10,000
4/30/19 10,425 10,273
10/31/19 11,408 11,321
4/30/20 12,436 12,839
10/31/20 12,259 12,536
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the First Trust Long Duration Opportunities ETF (the "Fund" or
"LGOV"). First Trust is responsible for the selection and ongoing monitoring of
the securities in the Fund's portfolio and certain other services necessary for
the management of the portfolio.
PORTFOLIO MANAGEMENT TEAM
JEREMIAH CHARLES - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER, FIRST
TRUST SECURITIZED PRODUCTS GROUP
JAMES SNYDER - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER, FIRST
TRUST SECURITIZED PRODUCTS GROUP
COMMENTARY
The Fund's primary investment objective is to generate current income with a
focus on preservation of capital. Under normal market conditions, the Fund will
invest at least 80% of its net assets (including investment borrowings) in a
portfolio of investment-grade debt securities issued or guaranteed by the U.S.
government, its agencies or government-sponsored entities, including
publicly-issued U.S. Treasury securities and mortgage-related securities.
MARKET RECAP
The 12-month period ended October 31, 2020 began relatively calmly, being driven
primarily by policy decisions related to the trade war. The onset of the
coronavirus ("COVID-19") pandemic triggered an unprecedented liquidity crisis
across global markets, with its effects rippling through the domestic and global
economies and causing profound changes in both bond and equity market
fundamentals, risk factors and valuations. Due to the nature of this pandemic,
the reversal in monetary policy driven by the trade war was put into overdrive.
In response, the Federal Reserve (the "Fed") began a new phase of seemingly
limitless quantitative easing, and reinstated programs that were last relied
upon during the Great Recession of 2008. It also began to roll out new programs,
expanding the range of covered asset classes, providing a backstop to the
significant dislocations and severe illiquidity that occurred. The Fed further
aided markets with emergency rate cuts totaling 150 basis points ("bps") in
March 2020 and setting the lower bound of the Fed Funds rate at 0%. The Fed was
not alone in providing aid, as Congress stepped in with a large stimulus package
to help Americans weather COVID-19 and its effects. Treasury issuance as a
result has soared to buoy government spending, however, with the aid of
quantitative easing ("QE") programs and a continued demand for safe haven
assets, Treasury yields plunged to record lows. For example, over the last year,
the 2-Year Treasury yield has declined precipitously by -137 bps to close on
October 31, 2020 at 15 bps, while the 10-Year Treasury fell -82 bps to close the
year at 87.4 bps, with the curve bull steepening. The COVID-19 panic did not
discriminate, affecting nearly every aspect of the broader spread markets,
including Agency Mortgage-Backed Securities ("MBS"), which initially saw large
spread widening moves as Agency MBS spreads widened dramatically from the low
40s Treasury Option-Adjusted Spread ("OAS"), to a wide of 136 OAS. Agency MBS
spreads tightened to close the fiscal year at 64 OAS, as the impact of Fed
programs and legislative support helped improve liquidity and greatly improved
market participants risk appetite.
PERFORMANCE ANALYSIS
For the 12-month period ended October 31, 2020, the Fund returned 7.46% on a net
asset value ("NAV") basis, net of fees. Since the Fund's inception on January
22, 2019, the Fund has returned 22.59% on a cumulative NAV basis, net of fees.
During 12-month period ended October 31, 2020, the ICE BofA 5+ Year US Treasury
Index (the "Index") returned 10.73%. Since the Fund's inception on January 22,
2019, the Index has returned 25.36% on a cumulative basis.
During the 12-month period ended October 31, 2020, the Fund underperformed the
Index by -327 bps, net of fees. The Fund is structured to own a significant
percentage of the fund in Agency MBS securities, whereas the benchmark is a pure
treasury and agency index. Agency MBS experienced substantial widening during
the severe illiquidity that gripped the fixed income markets during the early
stages of the COVID-19 pandemic unfolding in America. As markets digested the
rapid pace of lockdowns, uncertainties on future economic health, and the Fed's
rapidly evolving market support, Treasury yields plunged in an outright flight
to quality. The negative convexity associated with mortgage securities coupled
with spread widening was also detrimental to the Fund in terms of keeping up
with the violent Treasury market rally. As the year progressed and the Fed
continued to unveil the ever-broadening scope of its market support, coupled
with legislative initiatives, risk assets staged a dramatic comeback that has
persisted into the close of the fiscal year. As such, valuations on Agency MBS
have improved, which helped the fund to recover from the illiquid markets
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2020 (UNAUDITED)
exhibited in March 2020. Since March 25, 2020, the Fund has outperformed its
5+year treasury benchmark in excess of 200 bps. A benefit to performance was
attributable to pricing performance of select odd lot Agency MBS positions at
the time of purchase. The Fund's portfolio managers reasonably expect that such
investments in odd lot positions could continue to impact the Fund's performance
to the extent the Fund continues to grow. Additionally, given the significant
rally in treasury yields in the first quarter of 2020, followed by a modest
selloff in treasury yields later in the year, the Fund's usage of derivatives to
manage overall interest rate risk, volatility, and convexity was mildly
detrimental to the Fund's performance over the 12-month period ended October 31,
2020.
MARKET OUTLOOK
The Fed has deployed emergency rate cuts, large scale QE, unprecedented lending
programs and has signaled it plans to be highly accommodative for some time to
come. We believe this will keep the front end of the yield curve anchored in
place in the near term, with any rate volatility centralized in the longer
maturity segments of the yield curve. We do expect consumer and overall economic
data to continue to recover, with the recovery likely to accelerate on the back
of any potential additional stimulus package, as well as any positive
developments in COVID-19 treatment and vaccines to combat the pandemic. On the
other side of that, a rapid acceleration of the pandemic, and corresponding
enhanced large-scale restrictions or lockdowns could be quite detrimental to our
growth forecast. Over the near term, we expect no rise in inflation, but given
the surge in the money supply and dollar weakness, we could see inflationary
pressure build over the medium term. We remain positive on MBS spread valuations
over the longer term and believe there is additional capacity for spread
tightening to occur. Lastly, while we do generally expect interest rate
volatility to remain somewhat muted due to ongoing fiscal and monetary programs
deployed to assist in fighting the virus, chiefly quantitative easing and the
potential for a yield curve control type program by the Fed, we are mindful that
volatility could spike around the U.S. elections in November 2020.
Given our outlook on the broader bond markets, we plan to continue to actively
manage the Fund versus the Index from a duration standpoint, especially after
the dramatic declines in Treasury yields to such uneconomic levels. To the
extent the curve sees a large bear steepening, likely due to inflation, supply
or volatility, we will look to take advantage of higher, longer maturity yields.
Across the mortgage sector, prepayments remain extremely elevated due to low
interest rates and mortgage buybacks. As such, we continue to favor select, call
protected locked out collateralized mortgage obligation ("CMO") structures,
Agency Multifamily Commercial Mortgage-Backed Securities, and select TBA
securities. Our goal is simple. Lock in longer, more certain mortgage cashflow
in government guaranteed sectors, with little to no credit loss risk, protecting
for a strategic period the yield, income, dividend and spread for the Fund's
shareholders. Over time, we expect others will need those same characteristics
and those bonds will become dearer and outperform. We continue to maintain
exceptional liquidity within a difficult environment allowing us the ability to
take advantage of opportunities.
Page 6
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2020 (UNAUDITED)
As a shareholder of First Trust Long Duration Opportunities ETF (the "Fund"),
you incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service (12b-1) fees, if any, and
other Fund expenses. This Example is intended to help you understand your
ongoing costs of investing in the Fund and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2020.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2020 OCTOBER 31, 2020 PERIOD (a) PERIOD (a) (b)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
Actual $1,000.00 $ 985.70 0.65% $3.24
Hypothetical (5% return before expenses) $1,000.00 $1,021.87 0.65% $3.30
</TABLE>
(a) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2020
through October 31, 2020), multiplied by 184/366 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 80.0%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 44.5%
Federal Home Loan Mortgage Corporation
$ 212,405 Series 2003-2649, Class IM, IO............................... 7.00% 07/15/33 $ 40,813
264,000 Series 2010-3653, Class UJ................................... 5.00% 04/15/40 347,674
540,219 Series 2013-4239, Class OU, PO............................... (a) 07/15/43 474,416
137,194 Series 2013-4255, Class SN,
1 Mo. LIBOR (x) -2.67 + 12.27% (b)........................ 11.87% 05/15/35 189,566
303,769 Series 2020-4980, Class ZU................................... 3.00% 06/25/50 313,923
Federal National Mortgage Association
153,296 Series 2005-69, Class JI, IO................................. 6.00% 08/25/35 34,903
402,825 Series 2005-74, Class NZ..................................... 6.00% 09/25/35 562,855
1,094,103 Series 2005-113, Class AI, IO,
1 Mo. LIBOR (x) -1 + 7.23% (b)............................ 7.08% 01/25/36 243,475
146,221 Series 2008-94, Class JS, 1 Mo. LIBOR (x) -6 + 30.00% (b).... 29.10% 04/25/36 273,230
433,000 Series 2012-93, Class LY..................................... 2.50% 09/25/42 453,902
173,000 Series 2013-3, Class BC...................................... 2.50% 12/25/42 169,728
165,982 Series 2015-34, Class OK, PO................................. (a) 03/25/44 162,247
944,376 Series 2015-66, Class CL..................................... 3.50% 07/25/41 1,086,509
298,685 Series 2016-23, Class PL..................................... 3.00% 11/25/45 325,071
351,012 Series 2016-101, Class ZP.................................... 3.50% 01/25/47 390,601
395,045 Series 2018-9, Class PL...................................... 3.50% 02/25/48 443,076
166,132 Series 2018-94, Class KZ..................................... 4.50% 01/25/49 220,939
87,952 Series 2018-94, Class LZ..................................... 4.50% 01/25/49 116,459
710,669 Series 2020-17, Class L...................................... 2.50% 03/25/50 718,085
Government National Mortgage Association
270,630 Series 2009-32, Class ZA..................................... 5.50% 05/20/39 336,658
1,292,000 Series 2010-61, Class KE..................................... 5.00% 05/16/40 1,703,568
665,228 Series 2015-168, Class GI, IO................................ 5.50% 02/16/33 112,866
82,163 Series 2016-63, Class NZ..................................... 3.00% 05/20/46 82,591
403,000 Series 2018-112, Class CG.................................... 3.50% 08/20/48 426,779
423,220 Series 2018-125, Class KZ.................................... 3.50% 09/20/48 442,515
----------------
9,672,449
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 18.3%
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates
7,808,598 Series 2014-K036, Class X1, IO (c)........................... 0.72% 10/25/23 147,992
39,879,125 Series 2018-K156, Class X1, IO (c)........................... 0.07% 06/25/33 423,213
4,645,000 Series 2019-K093, Class XAM, IO (c).......................... 1.19% 05/25/29 427,665
1,696,406 Series 2019-K095, Class X1, IO (c)........................... 0.95% 06/25/29 120,280
1,200,000 Series 2019-K095, Class XAM, IO (c).......................... 1.24% 06/25/29 118,296
1,999,516 Series 2020-1515, Class X1, IO (c)........................... 1.51% 02/25/35 318,419
2,648,379 Series 2020-1516, Class X1, IO (c)........................... 1.51% 05/25/35 445,577
3,499,712 Series 2020-1517, Class X1, IO (c)........................... 1.33% 07/25/35 509,899
Government National Mortgage Association
768,760 Series 2020-145, Class BD (d)................................ 2.30% 03/16/63 723,463
830,408 Series 2020-159, Class Z (d)................................. 2.50% 10/16/62 737,846
----------------
3,972,650
----------------
PASS-THROUGH SECURITIES -- 17.2%
Federal Home Loan Mortgage Corporation
601,918 Pool U99176.................................................. 4.00% 12/01/47 661,854
Federal National Mortgage Association
1,000,000 Pool TBA..................................................... 1.50% 12/15/50 1,004,765
2,000,000 Pool TBA (e)................................................. 2.00% 12/15/50 2,058,594
----------------
3,725,213
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................................... 17,370,312
(Cost $16,546,161) ----------------
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT BONDS AND NOTES -- 8.5%
$ 500,000 U.S. Treasury Bond.............................................. 1.13% 05/15/40 $ 477,187
1,500,000 U.S. Treasury Bond.............................................. 1.25% 05/15/50 1,363,125
----------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES....................................................... 1,840,312
(Cost $1,883,906) ----------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
EXCHANGE-TRADED FUNDS -- 0.6%
CAPITAL MARKETS -- 0.6%
850 iShares 20+ Year Treasury Bond ETF.......................................................... 133,935
----------------
TOTAL EXCHANGE-TRADED FUNDS................................................................. 133,935
(Cost $115,923) ----------------
MONEY MARKET FUNDS -- 36.9%
8,025,633 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio -
Institutional Class - 0.01% (f).......................................................... 8,025,633
(Cost $8,025,633) ----------------
TOTAL INVESTMENTS -- 126.0%................................................................. 27,370,192
(Cost $26,571,623) (g) ----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- -------------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
CALL OPTIONS PURCHASED -- 0.0%
6 U.S. Treasury Long Bond Futures Call.............. $ 1,034,813 $ 175.00 Nov-2020 6,656
(Cost $7,901) ----------------
PUT OPTIONS WRITTEN -- (0.0)%
(3) U.S. Treasury Long Bond Futures Put............... (517,406) 171.00 Nov-2020 (4,594)
(Premiums received $3,503) ----------------
NET OTHER ASSETS AND LIABILITIES -- (26.0)%................................................. (5,647,318)
----------------
NET ASSETS -- 100.0%........................................................................ $ 21,724,936
================
</TABLE>
FUTURES CONTRACTS AT OCTOBER 31, 2020 (See Note 2D - Futures Contracts in the
Notes to Financial Statements):
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
NUMBER OF EXPIRATION NOTIONAL (DEPRECIATION)/
FUTURES CONTRACTS POSITION CONTRACTS DATE VALUE VALUE
------------------------------------------------------- ----------- ----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Ultra Bond Futures Long 8 Dec-2020 $ 1,720,000 $ (18,910)
U.S. 5-Year Treasury Notes Short 5 Dec-2020 (628,008) 291
-------------- ----------------
$ 1,091,992 $ (18,619)
============== ================
</TABLE>
(a) Zero coupon security.
(b) Inverse floating rate security.
(c) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
(d) Weighted Average Coupon security. Coupon is based on the blended interest
rate of the underlying holdings, which may have different coupons. The
coupon may change in any period.
(e) All or a portion of this security is part of a mortgage dollar roll
agreement (see Note 2I - Mortgage Dollar Rolls and TBA Transactions in the
Notes to Financial Statements).
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2020
(f) Rate shown reflects yield as of October 31, 2020.
(g) Aggregate cost for federal income tax purposes is $26,583,694. As of
October 31, 2020, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$1,015,235 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$245,294. The net unrealized appreciation was $769,941. The amounts
presented are inclusive of derivative contracts.
IO - Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
LIBOR - London Interbank Offered Rate
PO - Principal-Only Security
TBA - To-Be-Announced Security
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2020 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage-Backed Securities $ 17,370,312 $ -- $ 17,370,312 $ --
U.S. Government Bonds and Notes.................... 1,840,312 -- 1,840,312 --
Exchange-Traded Funds*............................. 133,935 133,935 -- --
Money Market Funds................................. 8,025,633 8,025,633 -- --
--------------- --------------- --------------- ---------------
Total Investments.................................. 27,370,192 8,159,568 19,210,624 --
Call Options Purchased............................. 6,656 6,656 -- --
Futures Contracts**................................ 291 291 -- --
--------------- --------------- --------------- ---------------
Total.............................................. $ 27,377,139 $ 8,166,515 $ 19,210,624 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2020 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Put Options Written................................ $ (4,594) $ (4,594) $ -- $ --
Futures Contracts**................................ (18,910) (18,910) -- --
--------------- --------------- --------------- ---------------
Total.............................................. $ (23,504) $ (23,504) $ -- $ --
=============== =============== =============== ===============
</TABLE>
* 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.
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2020
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value.................................................. $ 27,370,192
Options contracts purchased, at value ................................. 6,656
Cash segregated as collateral for open futures contracts............... 161,774
Receivables:
Investment securities sold.......................................... 2,064,347
Interest............................................................ 64,199
Dividends........................................................... 69
--------------
Total Assets..................................................... 29,667,237
--------------
LIABILITIES:
Options contracts written, at value.................................... 4,594
Payables:
Investment securities purchased..................................... 7,922,248
Investment advisory fees............................................ 11,501
Variation margin.................................................... 3,958
--------------
Total Liabilities................................................ 7,942,301
--------------
NET ASSETS............................................................. $ 21,724,936
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ 20,376,343
Par value.............................................................. 7,500
Accumulated distributable earnings (loss).............................. 1,341,093
--------------
NET ASSETS............................................................. $ 21,724,936
==============
NET ASSET VALUE, per share............................................. $ 28.97
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 750,002
==============
Investments, at cost................................................... $ 26,571,623
==============
Premiums paid on options contracts purchased........................... $ 7,901
==============
Premiums received on options contracts written......................... $ 3,503
==============
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2020
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest............................................................... $ 335,815
Dividends.............................................................. 12,518
--------------
Total investment income............................................. 348,333
--------------
EXPENSES:
Investment advisory fees............................................... 88,022
Excise tax............................................................. 5,004
--------------
Total expenses...................................................... 93,026
--------------
NET INVESTMENT INCOME (LOSS)........................................... 255,307
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... 686,122
Futures contracts................................................... (10,216)
Purchased options contracts......................................... (40,288)
Written options contracts........................................... (2,678)
--------------
Net realized gain (loss)............................................... 632,940
--------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... (176,119)
Futures contracts................................................... (28,322)
Purchased options contracts......................................... (1,245)
Written options contracts........................................... (1,091)
--------------
Net change in unrealized appreciation (depreciation)................... (206,777)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 426,163
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ 681,470
==============
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
10/31/2020 10/31/2019 (a)
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 255,307 $ 218,064
Net realized gain (loss)............................................... 632,940 188,680
Net change in unrealized appreciation (depreciation)................... (206,777) 984,391
-------------- ---------------
Net increase (decrease) in net assets resulting from operations........ 681,470 1,391,135
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (478,522) (183,881)
-------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 11,691,878 11,437,545
Cost of shares redeemed................................................ (1,384,694) (1,429,995)
-------------- ---------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................ 10,307,184 10,007,550
-------------- ---------------
Total increase (decrease) in net assets................................ 10,510,132 11,214,804
NET ASSETS:
Beginning of period.................................................... 11,214,804 --
-------------- ---------------
End of period.......................................................... $ 21,724,936 $ 11,214,804
============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 400,002 --
Shares sold............................................................ 400,000 450,002
Shares redeemed........................................................ (50,000) (50,000)
-------------- ---------------
Shares outstanding, end of period...................................... 750,002 400,002
============== ===============
</TABLE>
(a) Inception date is January 22, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/2020 10/31/2019 (a)
-------------- --------------
<S> <C> <C>
Net asset value, beginning of period $ 28.04 $ 25.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.82 0.55
Net realized and unrealized gain (loss) 1.24 2.95
---------- ----------
Total from investment operations 2.06 3.50
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (1.13) (0.46)
---------- ----------
Net asset value, end of period $ 28.97 $ 28.04
========== ==========
TOTAL RETURN (b) 7.46% 14.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 21,725 $ 11,215
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets (c) 0.69% (d) 0.65% (e)
Ratio of net investment income (loss) to
average net assets 1.89% 2.64% (e)
Portfolio turnover rate (f) 174% (g) 152% (g)
</TABLE>
(a) Inception date is January 22, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) 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.
(c) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. The ratio does
not include these indirect fees and expenses.
(d) Includes excise tax. If this excise tax expense was not included, the
expense ratio would have been 0.65%.
(e) Annualized.
(f) 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.
(g) The portfolio turnover rate not including mortgage dollar rolls was 118%
and 104% for the periods ended October 31, 2020 and October 31, 2019,
respectively.
Page 14 See Notes to Financial Statements
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Long Duration Opportunities ETF (the "Fund"), a
non-diversified series of the Trust, which trades under the ticker "LGOV" on the
NYSE Arca, Inc. ("NYSE Arca"). Unlike conventional mutual funds, the Fund issues
and redeems shares on a continuous basis, at net asset value ("NAV"), only in
large specified blocks consisting of 50,000 shares called a "Creation Unit."
Creation Units are generally issued and redeemed for cash and, in certain
circumstances, in-kind for securities in which the Fund invests, and only to and
from broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's primary
investment objective is to generate current income with a focus on preservation
of capital. The Fund seeks to achieve its investment objectives by investing,
under normal market conditions, at least 80% of its net assets (including
investment borrowings) in a portfolio of investment-grade debt securities issued
or guaranteed by the U.S. government, its agencies or government-sponsored
entities, including publicly-issued U.S. Treasury securities and
mortgage-related securities. The Fund may also invest in exchange-traded funds
("ETFs") that principally invest in such securities. The Fund's investments in
mortgage-related securities may include investments in fixed or adjustable-rate
securities structured as "pass-through" securities and collateralized mortgage
obligations, including residential and commercial mortgage-backed securities,
stripped mortgage-backed securities and real estate mortgage investment
conduits. The Fund will invest in mortgage-related securities issued or
guaranteed by the U.S. government, its agencies (such as Ginnie Mae), and U.S.
government-sponsored entities (such as Fannie Mae and Freddie Mac). The Fund may
purchase government-sponsored mortgage-related securities in "to-be-announced"
transactions ("TBA Transactions"), including mortgage dollar rolls. The Fund
intends to enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Fund's investment advisor, First Trust
Advisors L.P. ("First Trust" or the "Advisor"). In addition to its investment in
securities issued or guaranteed by the U.S. government, its agencies and
government-sponsored entities, the Fund may invest up to 20% of its net assets
in other types of debt securities, including privately-issued, non-agency
sponsored asset-backed and mortgage-related securities, futures contracts,
options, swap agreements, cash and cash equivalents, and ETFs that invest
principally in fixed income securities. Further, the Fund may enter into short
sales as part of its overall portfolio management strategy, or to offset a
potential decline in the value of a security; however, the Fund does not expect,
under normal market conditions, to engage in short sales with respect to more
than 30% of the value of its net assets. Although the Fund intends to invest
primarily in investment grade securities, the Fund may invest up to 20% of its
net assets in securities of any credit quality, including securities that are
below investment grade, which are also known as high yield securities, or
commonly referred to as "junk" bonds, or unrated securities that have not been
judged by the Advisor to be of comparable quality to rated investment grade
securities. In the case of a split rating between one or more of the nationally
recognized statistical rating organizations, the Fund will consider the highest
rating. The Fund targets a weighted average effective duration of eight or more
years.
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.
A. PORTFOLIO VALUATION
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 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 Advisor's Pricing Committee, in
Page 15
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. 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:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are fair valued on the basis of
valuations provided by dealers who make markets in such securities or by a
third-party pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Common stocks and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq Stock Market LLC ("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 principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid 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 Trust's Board of Trustees or its
delegate, 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:
Page 16
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management (for corporate debt
only);
11) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); 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:
o 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.
o 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.
o 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, 2020, 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.
In July 2017, the Financial Conduct Authority ("FCA") announced that it will no
longer persuade or compel banks to submit rates for the calculations of the
London Interbank Offered Rates ("LIBOR") after 2021. Further, the FCA has
subsequently stated, as recently as March 2020, that the central assumption
continues to be that firms should not rely on LIBOR being published after the
end of 2021.
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018.
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
The Fund invests in interest-only securities. For these securities, if there is
a change in the estimated cash flows, based on an evaluation of current
information, then the estimated yield is adjusted. Additionally, if the
evaluation of current information indicates a permanent impairment of the
security, the cost basis of the security is written down and a loss is
recognized. Debt obligations may be placed on non-accrual status and the related
interest income may be reduced by ceasing current accruals and writing off
Page 17
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
interest receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures. A debt obligation is
removed from non-accrual status when the issuer resumes interest payments or
when collectability of interest is reasonably assured.
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, 2020, the Fund had no when-issued,
delayed-delivery securities. At October 31, 2020, the Fund held $2,058,594 of
forward purchase commitments.
C. SHORT SALES
Short sales are utilized to manage interest rate and spread risk, and are
transactions in which securities or other instruments (such as options,
forwards, futures or other derivative contracts) are sold that 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 is charged 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 effected 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 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.
D. FUTURES CONTRACTS
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. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are included in "Variation margin" receivable or payable 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.
E. OPTIONS CONTRACTS
In the normal course of pursuing its investment objectives, the Fund may invest
up to 20% of its net assets in derivative instruments in connection with hedging
strategies. The Fund may invest in exchange-listed options on U.S. Treasury
securities, exchange-listed options on U.S. Treasury futures contracts and
exchange-listed U.S. Treasury futures contracts. The Fund uses derivative
instruments primarily to hedge interest rate risk and actively manage interest
rate exposure. The primary risk exposure is interest rate risk.
The Fund may purchase (buy) or write (sell) put and call options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position. A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a futures option contract may be closed out by an
offsetting purchase or sale of a futures option of the same series. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in "Options contracts written, at value" on the Statement of
Assets and Liabilities. When the Fund purchases (buys) an option, the premium
paid represents the cost of the option, which is included in "Premiums paid on
options contracts purchased" on the Statement of Assets and Liabilities. Options
Page 18
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
are marked-to-market daily and their value is affected by changes in the value
of the underlying security, changes in interest rates, changes in the actual or
perceived volatility of the securities markets and the underlying securities,
and the remaining time to the option's expiration. The value of options may also
be adversely affected if the market for the options becomes less liquid or the
trading volume diminishes.
The Fund uses options on futures contracts in connection with hedging
strategies. Generally, these strategies are applied under the same market and
market sector conditions in which the Fund uses put and call options on
securities. The purchase of put options on futures contracts is analogous to the
purchase of puts on securities so as to hedge the Fund's securities holdings
against the risk of declining market prices. The writing of a call option or the
purchasing of a put option on a futures contract constitutes a partial hedge
against declining prices of securities which are deliverable upon exercise of
the futures contract. If the price at expiration of a written call option is
below the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Fund's holdings of securities. If the price when the option is
exercised is above the exercise price, however, the Fund will incur a loss,
which may be offset, in whole or in part, by the increase in the value of the
securities held by the Fund that were being hedged. Writing a put option or
purchasing a call option on a futures contract serves as a partial hedge against
an increase in the value of the securities the Fund intends to acquire. Realized
gains and losses on written options are included in "Net realized gain (loss) on
written options contracts" on the Statement of Operations. Realized gains and
losses on purchased options are included in "Net realized gain (loss) on
purchased options contracts" on the Statement of Operations.
The Fund is required to deposit and maintain margin with respect to put and call
options on futures contracts written by it. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option and other
futures positions held by the Fund. The Fund will pledge in a segregated account
at the Fund's custodian, liquid assets, such as cash, U.S. government securities
or other high-grade liquid debt obligations equal in value to the amount due on
the underlying obligation. Such segregated assets will be marked-to-market
daily, and additional assets will be pledged in the segregated account whenever
the total value of the pledged assets falls below the amount due on the
underlying obligation.
The risks associated with the use of options on future contracts include the
risk that the Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Fund's successful use of options on futures contracts depends on the Advisor's
ability to correctly predict the movement in prices on futures contracts and the
underlying instruments, which may prove to be incorrect. In addition, there may
be imperfect correlation between the instruments being hedged and the futures
contract subject to option.
F. INTEREST-ONLY SECURITIES
An interest-only security ("IO Security") is the interest-only portion of a
mortgage-backed security that receives some or all of the interest portion of
the underlying mortgage-backed security and little or no principal. A reference
principal value called a notional value is used to calculate the amount of
interest due to the IO Security. IO Securities are sold at a deep discount to
their notional principal amount. Generally speaking, when interest rates are
falling and prepayment rates are increasing, the value of an IO Security will
fall. Conversely, when interest rates are rising and prepayment rates are
decreasing, generally the value of an IO Security will rise. These securities,
if any, are identified on the Portfolio of Investments.
G. PRINCIPAL-ONLY SECURITIES
A principal-only security ("PO Security") is the principal-only portion of a
mortgage-backed security that does not receive any interest, is priced at a deep
discount to its redemption value and ultimately receives the redemption value.
Generally speaking, when interest rates are falling and prepayment rates are
increasing, the value of a PO Security will rise. Conversely, when interest
rates are rising and prepayment rates are decreasing, generally the value of a
PO Security will fall. These securities, if any, are identified on the Portfolio
of Investments.
H. STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security known as an IO Security and all
of the principal is distributed to holders of another type of security known as
a PO Security. These securities, if any, are identified on the Portfolio of
Investments.
I. MORTGAGE DOLLAR ROLLS AND TBA TRANSACTIONS
The Fund may invest, without limitation, in mortgage dollar rolls. The Fund
intends to enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Fund's investment advisor. In a mortgage
dollar roll, the Fund will sell (or buy) mortgage-backed securities for delivery
on a specified date and simultaneously contract to repurchase (or sell)
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
substantially similar (same type, coupon and maturity) securities on a future
date. Mortgage dollar rolls are recorded as separate purchase and sale in the
Fund. The Fund may also invest in TBA Transactions. A TBA Transaction is a
method of trading mortgage-backed securities. TBA Transactions generally are
conducted in accordance with widely-accepted guidelines which establish commonly
observed terms and conditions for execution, settlement and delivery. In a TBA
Transaction, the buyer and the seller agree on general trade parameters such as
agency, settlement date, par amount and price.
J. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
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, 2020 and 2019 was as follows:
Distributions paid from: 2020 2019
Ordinary income................................. $ 478,522 $ 183,881
Capital gains................................... -- --
Return of capital............................... -- --
As of October 31, 2020, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 571,152
Accumulated capital and other gain (loss)....... --
Net unrealized appreciation (depreciation)...... 769,941
K. INCOME TAXES
The Fund intends to qualify as a regulated investment company by complying with
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, 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 2019 and
2020 remain open to federal and state audit. As of October 31, 2020, 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, 2020, the
Fund had no non-expiring capital loss carryforwards for federal income tax
purposes.
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, 2020, 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
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
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,
2020, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 192,384 $ (249,246) $ 56,862
L. EXPENSES
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, pro rata
share of fees and expenses attributable to investments in other investment
companies ("acquired fund fees and expenses"), 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. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.65% of its average daily net assets.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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 defined-outcome fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee 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 Lead Independent Trustee and Committee
Chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases of U.S. Government securities and non-U.S. Government
securities, excluding short-term investments, for the fiscal year ended October
31, 2020, were $28,789,638 and $156,582, respectively. The proceeds from sales
and paydowns of U.S. Government securities and non-U.S. Government securities,
excluding short-term investments, for the fiscal year ended October 31, 2020,
were $18,830,940 and $41,606, respectively. The cost of purchases to cover
investments sold short and the proceeds of investments sold short were
$1,026,094 and $1,026,094, respectively.
For the fiscal year ended October 31, 2020, the Fund had no in-kind
transactions.
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2020, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
<TABLE>
<CAPTION>
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------- --------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------- --------- ---------------------------- ---------- -------------------------- ----------
<S> <C> <C> <C> <C> <C>
Futures Interest Unrealized appreciation Unrealized depreciation
rate risk on futures contracts* $ 291 on futures contracts* $ 18,910
Options Interest Options contracts Options contracts
rate risk purchased, at value 6,656 written, at value 4,594
</TABLE>
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Portfolio of Investments. Only the current day's variation margin is
reported within 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, 2020, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS LOCATION INTEREST RATE RISK
--------------------------------------------------------------------------------
<S> <C>
Net realized gain (loss) on:
Futures contracts $ (10,216)
Purchased options contracts (40,288)
Written options contracts (2,678)
Net change in unrealized appreciation (depreciation) on:
Futures contracts (28,322)
Purchased options contracts (1,245)
Written options contracts (1,091)
</TABLE>
For the fiscal year ended October 31, 2020, the notional value of futures
contracts opened and closed were $29,178,043 and $28,785,154, respectively.
During the fiscal year ended October 31, 2020, the premiums for purchased
options contracts opened were $159,840 and the premiums for purchased options
contracts closed, exercised and expired were $151,939.
During the fiscal year ended October 31, 2020, the premiums for written options
contracts opened were $89,583 and the premiums for written options contracts
closed, exercised and expired were $86,080.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures and options contracts on the Statement of Assets
and Liabilities.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may increase or decrease with changes
in the Fund's portfolio. The price for each Creation Unit will equal the daily
NAV per share times the number of shares in a Creation Unit plus the fees
described above and, if applicable, any operational processing and brokerage
costs, transfer fees or stamp taxes. When Creation Units are issued for cash,
the Authorized Participant may also be assessed an amount to cover the cost of
purchasing portfolio securities, including operational processing and brokerage
costs, transfer fees, stamp taxes, and part or all of the spread between the
expected bid and offer side of the market related to such securities.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may increase or decrease with changes in the Fund's
portfolio. When shares are redeemed for cash, the Authorized Participant may
also be assessed an amount to cover other costs, including operational
processing and brokerage costs, transfer fees, stamp taxes and part or all of
the spread between the expected bid and offer side of the market related to
portfolio securities sold in connection with the redemption.
7. DISTRIBUTION PLAN
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 March 31, 2022.
8. INDEMNIFICATION
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.
9. SUBSEQUENT EVENTS
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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Long Duration Opportunities ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2020, the related statement of operations for the year then ended, and the
changes in net assets and the financial highlights for the year then ended and
for the period from January 22, 2019 (commencement of operations) through
October 31, 2019, 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, 2020, and the results of
its operations for the year then ended, and changes in its net assets and the
financial highlights for the year then ended and for the period from January 22,
2019 (commencement of operations) through October 31, 2019, in conformity with
accounting principles generally accepted in the United States of America.
BASIS FOR OPINION
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 audit. 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 audit 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 audit 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 audit 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 audit
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, 2020, by correspondence with
the custodian and brokers; when replies were not received from and brokers, we
performed other auditing procedures. We believe that our audit provides a
reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 22, 2020
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 24
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal year ended
October 31, 2020 that were properly designated by the Fund as "interest-related
dividends" or "short-term capital gain dividends," may not be subject to federal
income tax provided that the income was earned directly by such foreign
shareholders.
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended October 31, 2020, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
Page 25
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. In 2017, the United Kingdom's
Financial Conduct Authority announced that LIBOR will cease to be available for
use after 2021. The unavailability or replacement of LIBOR may affect the value,
liquidity or return on certain fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any
potential effects of the transition away from LIBOR on the fund or on certain
instruments in which the fund invests can be difficult to ascertain, and they
may vary depending on a variety of factors. Any such effects of the transition
away from LIBOR, as well as other unforeseen effects, could result in losses to
the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
Page 26
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19 pandemic may last
for an extended period of time and will continue to impact the economy for the
foreseeable future.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (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 Duration Opportunities ETF
(the "Fund"). The Board approved the continuation of the Agreement for a
one-year period ending June 30, 2021 at a meeting held on June 8, 2020. 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 reasonable 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 May 11, 2020 and June 8, 2020, 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 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; 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 fall-out 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 May
11, 2020, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the May
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 8, 2020 meeting, as well as at the meeting held that day.
The Board considered supplemental information provided by the Advisor on the
Page 27
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
operations of the Advisor and the performance of the Fund since the onset of the
COVID-19 pandemic. 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 Mortgage 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 Mortgage
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 Mortgage Securities Team as it uses for overseeing
external sub-advisors, 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 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 May 11, 2020 meeting, described
to the Board the scope of its ongoing investment in additional infrastructure
and personnel 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 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, acquired fund fees and expenses, if any,
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 advisory 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
above the median total (net) expense ratio of the peer funds in the Expense
Group. With respect to the Expense Group, the Board, at the May 11, 2020
meeting, 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 there were no other actively-managed ETFs
in the Expense Group, 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 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. Because the Fund commenced
operations on January 22, 2019 and therefore has a limited performance history,
comparative performance information for the Fund was not considered.
On the basis of all the information provided on the unitary fee for 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 and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
Page 28
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
the unitary fee structure provides a level of certainty in expenses for the
Fund. 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 period from inception through December 31, 2019 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 twelve
months ended December 31, 2019. 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 fall-out benefits described by the Advisor that
may be realized from its relationship with the Fund. The Board considered that
the Advisor had identified as a fall-out 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 noted that the Advisor does
not utilize soft dollars in connection with the Fund. The Board concluded that
the character and amount of potential fall-out 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.
LIQUIDITY RISK MANAGEMENT PROGRAM
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund and each other fund in the First Trust Fund
Complex, other than the closed-end funds, have adopted and implemented a
liquidity risk management program (the "Program") reasonably designed to assess
and manage the funds' liquidity risk, i.e., the risk that a fund could not meet
requests to redeem shares issued by the fund without significant dilution of
remaining investors' interests in the fund. The Board of Trustees of the First
Trust Funds has appointed First Trust Advisors, L.P. (the "Advisor") as the
person designated to administer the Program, and in this capacity the Advisor
performs its duties primarily through the activities and efforts of the First
Trust Liquidity Committee.
Pursuant to the Program, the Liquidity Committee classifies the liquidity of
each fund's portfolio investments into one of the four liquidity categories
specified by Rule 22e-4: highly liquid investments, moderately liquid
investments, less liquid investments and illiquid investments. The Liquidity
Committee determines certain of the inputs for this classification process,
including reasonably anticipated trade sizes and significant investor dilution
thresholds. The Liquidity Committee also determines and periodically reviews a
highly liquid investment minimum for certain funds, monitors the funds' holdings
of assets classified as illiquid investments to seek to ensure they do not
exceed 15% of a fund's net assets and establishes policies and procedures
regarding redemptions in kind.
At the May 11, 2020 meeting of the Board of Trustees, as required by Rule 22e-4
and the Program, the Advisor provided the Board with a written report prepared
by the Advisor that addressed the operation of the Program during the period
from June 1, 2019 (the initial compliance date for certain requirements of Rule
22e-4) through the Liquidity Committee's annual meeting held on March 20, 2020
and assessed the Program's adequacy and effectiveness of implementation during
this period, including the operation of the highly liquid investment minimum for
each fund that is required under the Program to have one, and any material
changes to the Program. Note that because the Fund primarily holds assets that
are highly liquid investments, the Fund has not adopted a highly liquid
investment minimum.
As stated in the written report, during the review period, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. The Advisor
concluded that each fund's investment strategy is appropriate for an open-end
fund; that the Program operated effectively in all material respects during the
review period; and that the Program is reasonably designed to assess and manage
the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
Page 29
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 189 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 189 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 189 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 189 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 189 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P., Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 30
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 31
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2020 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 32
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
Item 2. Code of Ethics.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
| (d) | The registrant, 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. |
| (e) | Not applicable. |
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 $306,200 for the fiscal year ended October 31, 2019 and $308,200 for the fiscal year ended October 31, 2020. |
| (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 October 31, 2019 and $0 for the fiscal year ended October 31, 2020. |
Audit-Related Fees (Investment Adviser) -- 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 October 31, 2019 and $0 for the fiscal year ended October 31, 2020.
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 October 31, 2019 and $0 for the fiscal year ended October 31, 2020.
| (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 $169,630 for the fiscal year ended October 31, 2019 and $199,634 for the fiscal year ended October 31, 2020. |
Tax Fees (Investment Adviser) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant’s adviser and distributor were $0 for the fiscal year ended October 31, 2019 and $0 for the fiscal year ended October 31, 2020.
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 October 31, 2019 and $0 for the fiscal year ended October 31, 2020.
| (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 October 31, 2019 and $0 for the fiscal year ended October 31, 2020. |
All Other Fees (Investment Adviser) -- The aggregate fees billed for products and services provided by the principal accountant to the registrant’s investment adviser, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended October 31, 2019 and $0 for the fiscal year ended October 31, 2020.
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 October 31, 2019 and $0 for the fiscal year ended October 31, 2020.
| (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 adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant’s adviser (other than any sub-adviser whose role is primarily portfolio management and is sub-contracted with or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to 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 adviser 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: Adviser 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 adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the fiscal year ended October 31, 2019 were $169,630 for the registrant, $28,500 for the registrant’s investment adviser and $34,400 for the registrant’s distributor; and for the fiscal year ended October 31, 2020 were $199,634 for the registrant, $70,370 for the registrant’s investment adviser and $99,830 for the registrant’s distributor. |
| (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 adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser 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. |
Items 5. Audit Committee of Listed Registrants.
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. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Robert F. Keith and Niel B. Nielson.
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
| (b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 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 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3 (c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)). |
| (b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
| (a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (a)(3) | Not applicable. |
| (a)(4) | Not applicable. |
| (b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (registrant) | First Trust Exchange-Traded Fund IV |
| By (Signature and Title)* | /s/ James M. Dykas | |
| James M. Dykas, President and Chief Executive Officer (principal executive officer) |
| Date: | January 11, 2021 |
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) |
| Date: | January 11, 2021 |
| By (Signature and Title)* | /s/ Donald P. Swade | |
| Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
| Date: | January 11, 2021 |
* Print the name and title of each signing officer under his or her signature.