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, 2022
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, 450 Fifth Street, NW, Washington, DC 20549-0609. 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, 2022
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, 2022
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............................................... 35
Privacy Policy............................................................... 37
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 certain 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, 2022
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, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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)
The First Trust North American Energy Infrastructure Fund (the "Fund") is an
actively managed exchange-traded fund. The Fund's investment objective is to
seek total return. The Fund 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. These
companies principally include U.S. and Canadian natural gas and electric
utilities, corporations operating energy infrastructure assets such as pipelines
or renewable energy production, utilities, publicly-traded master limited
partnerships or limited liability companies taxed as partnerships ("MLPs"), MLP
affiliates, and other companies that derive the majority of their revenues from
operating and providing services in support of infrastructure assets such as
pipelines, power transmission and petroleum, 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.
<TABLE>
<CAPTION>
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PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
Inception Inception
1 Year Ended 5 Years Ended 10 Years Ended (6/20/12) 5 Years Ended 10 Years Ended (6/20/12)
10/31/22 10/31/22 10/31/22 to 10/31/22 10/31/22 10/31/22 to 10/31/22
<S> <C> <C> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 10.19% 5.84% 6.26% 6.71% 32.80% 83.45% 96.11%
Market Price 10.26% 5.87% 6.25% 6.73% 32.99% 83.27% 96.38%
INDEX PERFORMANCE
Blended Benchmark(1) 16.05% 8.72% 7.15% 7.48% 51.87% 99.49% 111.10%
S&P 500(R) Index -14.61% 10.44% 12.79% 12.83% 64.31% 233.08% 249.56%
------------------------------------------------------------------------------------------------------------------------------------
</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 32.3%
Natural Gas Transmission 28.6
Petroleum Product Transmission 16.7
Crude Oil Transmission 9.8
Nat. Gas Gathering & Processing 8.7
Oil & Gas Production 0.6
Propane 0.2
Marine 0.1
Other 3.0
-------
Total 100.0%
=======
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
Enterprise Products Partners, L.P. 6.8%
Energy Transfer, L.P. 6.3
Magellan Midstream Partners, L.P. 6.2
Cheniere Energy, Inc. 4.2
NextEra Energy Partners, L.P. 4.1
DT Midstream, Inc. 4.0
Quanta Services, Inc. 3.9
TC Energy Corp. 3.3
Plains GP Holdings, L.P., Class A 3.2
Sempra Energy 3.0
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Total 45.0%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
OCTOBER 31, 2012 - OCTOBER 31, 2022
First Trust North American Blended S&P 500(R)
Energy Infrastructure Fund Benchmark Index
<S> <C> <C> <C>
10/31/12 $10,000 $10,000 $10,000
4/30/13 11,580 11,568 11,442
10/31/13 11,354 11,400 12,718
4/30/14 12,479 12,645 13,781
10/31/14 13,900 13,592 14,914
4/30/15 14,035 13,044 15,570
10/31/15 11,966 11,378 15,690
4/30/16 12,163 11,842 15,757
10/31/16 13,404 12,368 16,397
4/30/17 13,933 13,350 18,581
10/31/17 13,813 13,134 20,272
4/30/18 13,015 12,840 21,046
10/31/18 13,256 13,365 21,762
4/30/19 14,845 14,404 23,885
10/31/19 15,143 14,447 24,879
4/30/20 12,713 11,825 24,093
10/31/20 12,616 11,806 27,293
4/30/21 15,693 15,964 35,167
10/31/21 16,649 17,190 39,006
4/30/22 18,010 19,059 35,244
10/31/22 18,345 19,947 33,308
</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)
The First Trust EIP Carbon Impact ETF (the "Fund") seeks to achieve a
competitive risk-adjusted total return balanced between dividends and capital
appreciation. Under normal market conditions, the Fund will invest at least 80%
of its net assets (including investment borrowings) in the equity securities of
companies identified by the Fund's investment sub-advisor, Energy Income
Partners, LLC ("EIP" or the "Sub-Advisor"), as having or seeking to have a
positive carbon impact. The Sub-Advisor defines this 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.
<TABLE>
<CAPTION>
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PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (8/19/19) Inception (8/19/19)
10/31/22 to 10/31/22 to 10/31/22
<S> <C> <C> <C>
FUND PERFORMANCE
NAV 5.62% 9.28% 32.83%
Market Price 5.49% 9.25% 32.72%
INDEX PERFORMANCE
PHLX Utility Sector Index 1.56% 6.29% 21.55%
S&P 500(R) Index -14.61% 10.98% 39.56%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Fund Performance Overview on page 6.)
Page 4
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EIP CARBON IMPACT ETF (ECLN) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Electric Power & Transmission 52.1%
Natural Gas Transmission 34.7
Nat. Gas Gathering & Processing 7.5
Petroleum Product Transmission 1.4
Propane 0.3
Marine 0.0*
Other 4.0
-------
Total 100.0%
=======
* Amount is less than 0.1%.
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
Cheniere Energy, Inc. 7.6%
DT Midstream, Inc. 6.5
Cheniere Energy Partners, L.P. 6.1
Quanta Services, Inc. 5.4
Atmos Energy Corp. 4.0
Sempra Energy 3.6
Xcel Energy, Inc. 3.5
American Electric Power Co., Inc. 3.4
Public Service Enterprise Group, Inc. 3.4
NextEra Energy Partners, L.P. 3.1
-------
Total 46.6%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 19, 2019 - OCTOBER 31, 2022
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 10,891 10,771 11,436
4/31/21 12,156 11,677 14,736
10/31/21 12,578 11,968 16,344
4/30/22 13,178 12,811 14,768
10/31/22 13,283 12,155 13,956
</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 is 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, 2022 (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 includes 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 $5.2 billion
of assets as of October 31, 2022. 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, in addition to the Funds, EIP serves as a sub-advisor
to four closed-end management investment companies and a sleeve of a series of a
variable insurance trust. EIP is a registered investment advisor with the
Securities and Exchange Commission.
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE - CO-PORTFOLIO MANAGER, CO-FOUNDER, CEO AND PRINCIPAL OF
ENERGY INCOME PARTNERS, LLC
EVA PAO - CO-PORTFOLIO MANAGER, CO-FOUNDER AND PRINCIPAL OF ENERGY INCOME
PARTNERS, LLC
JOHN K. 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 Funds.
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 U.S. and Canadian natural gas and electric
utilities, corporations operating energy infrastructure assets such as pipelines
or renewable energy production, utilities, publicly-traded master limited
partnerships or limited liability companies taxed as partnerships ("MLPs"), MLP
affiliates, and other companies that derive the majority of their revenues from
operating and providing services in support of infrastructure assets such as
pipelines, power transmission and petroleum, 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 ("AMZX" or "MLP Index") and
the PHLX Utility Sector Index (the "UTY Index"), the total returns for
energy-related MLPs and utilities for the 12-month period ended October 31, 2022
were 30.19% and 1.56%, respectively. These figures are according to data
collected from Alerian and Bloomberg. As measured by the S&P 500(R) Index (the
"Index"), the broader equity market over the same period returned -14.61%.
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis for the 12-month period ended October 31,
2022, the Fund provided a total return of 10.19%, including the reinvestment of
dividends. This compares, according to collected data, to a total return of
16.05%(1) or the compounded average of the two indices (the "Blended Benchmark")
(30.19% for the MLP Index and 1.56% for the UTY Index), and -14.61% for the
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, 2022 (UNAUDITED)
The Fund declared quarterly distributions during the fiscal year as follows:
$0.1933 per share in December 2021; $0.1833 per share in March 2022; $0.2035 per
share in June 2022; and $0.2449 per share in September 2022.
The Fund's NAV total return of 10.19% outperformed the Index by 2,480 basis
points ("bps") and underperformed the 16.05% average return of the Blended
Benchmark by 586 bps. Underperformance of the Fund over this period reflects the
Fund's lower overall weight in MLPs relative to the 50/50 Blended Benchmark.
Crude oil prices were up 3.5% during the 12-month period and natural gas prices
were up 17.1% which is positive for the more cyclical supply facing gathering
and processing MLPs (in the AMZX)(2). This was partially offset by the Fund's
exposure to C-Corporations with natural gas pipelines and LNG export terminals
(not in the UTY) that benefited from higher volumes and/or margins. EIP has
sought to consistently run a more conservative portfolio compared to the Blended
Benchmark. This conservatism, in EIP's opinion, is reflected in holding a more
diversified set of higher quality companies that themselves have more
conservative balance sheets, lower dividend payout ratios, less exposure to
commodity prices and more stable cash flows.
MARKET AND FUND OUTLOOK
The Fund outperformed the Index for the 12-month period ended October 31, 2022,
at a time when both interest rates and inflation expectations were up
significantly. Despite outperforming the broader market, the portfolio was
trading at a 20% discount at the end of the period compared to the Index based
on forward 12-month earnings expectations (13.2x vs 16.5x) (Source: Bloomberg as
of October 31, 2022) with yields that are 2.8x the yield of the Index (4.8% vs
1.7%). Equities that trade at lower yields and higher P/E multiples have longer
durations than equities that trade at higher yields and lower P/E multiples, so
it makes sense to us that higher inflation expectations and increasing interest
rates should favor the stocks in the portfolio relative to the Index.
EIP believes regulated pipeline and power utilities in the portfolio offer a
measurable degree of inflation protection. Traditional businesses, like consumer
staples, absorb increasing input costs then pass those costs onto customers by
raising prices. There is often a lag effect as this occurs leading to margin
compression. On the other hand, regulated pipeline and power utilities are
cost-plus businesses that charge a price to customers equal to the sum-total of
their costs, including the cost of debt and an allowed return on equity. EIP
views this type of business model as a natural inflation hedge.
In EIP's opinion, the outlook for electricity and natural gas infrastructure is
positive as the infrastructure is necessary to connect increasingly diverse
sources of energy supply to consumers. While the recent spike in natural gas
prices has driven an increased switching to coal fired power generation near
term, the longer-term trend away from coal fired power generation seems likely
to continue, in EIP's view. Publicly owned utilities' five-year integrated
resource plans and continued announcements of coal plant retirements support
this view. In most cases these retirements are being replaced with natural gas
and/or renewables requiring new transport infrastructure and, in EIP's opinion,
driving further growth in earnings.
EIP is optimistic about the technological breakthroughs in energy and invests in
companies like renewable developers and network utilities where renewable
resources are abundant, 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 distributions. 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.
-----------------------------
(2) Source: Bloomberg
Page 8
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
FIRST TRUST EIP CARBON IMPACT ETF
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 returns for the 12-month period ended October
31, 2022 were -14.61% and 1.56%, 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,
2022, the Fund provided a total return of 5.62%, including the reinvestment of
dividends. The Fund's NAV total return of 5.62% outperformed the Index by 2,023
basis points ("bps") and outperformed the UTY Index by 406 bps. Outperformance
during the period was a result of the Fund's overweight positions in natural gas
pipeline companies (not in UTY) and liquified natural gas terminal companies
(not in UTY). Compared to the UTY Index, EIP has sought to consistently run a
more diversified portfolio that invests in companies that have a positive carbon
impact that includes regulated utilities, renewable developers and other
companies that enable the reduction of carbon emission. 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 changes. We are optimistic
that companies involved in activities aimed at reducing carbon and other GHG
emissions have good growth potential.
The Fund declared quarterly distributions during the fiscal year as follows:
$0.1333 per share in December 2021; $0.0791 per share in March 2022; $0.0919 per
share in June 2022; and $0.0852 per share in September 2022.
MARKET AND FUND OUTLOOK
In EIP's opinion, the outlook for electricity and natural gas infrastructure,
most of the Fund's portfolio, is positive as the infrastructure is necessary to
connect increasingly diverse sources of energy supply to consumers. While the
recent spike in natural gas prices has driven an increased switching to
coal-fired power generation near term, the longer-term trend away from
coal-fired power generation seems likely to continue, in EIP's view. Publicly
owned utilities' five-year integrated resource plans and continued announcements
of coal plant retirements support this view. In most cases these retirements are
being replaced with natural gas and/or renewables requiring new transport
infrastructure and, in EIP's opinion, driving further growth in earnings.
EIP is optimistic about the technological breakthroughs in energy and invests in
companies like renewable developers and network utilities that where renewable
resources are abundant, 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 distributions. 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, 2022 (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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD PERIOD (a)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST NORTH AMERICAN ENERGY
INFRASTRUCTURE FUND (EMLP)
Actual $1,000.00 $1,018.60 0.95% $4.83
Hypothetical (5% return before expenses) $1,000.00 $1,020.42 0.95% $4.84
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
Actual $1,000.00 $1,008.00 0.95% $4.81
Hypothetical (5% return before expenses) $1,000.00 $1,020.42 0.95% $4.84
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 10
<PAGE>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 64.6%
CONSTRUCTION & ENGINEERING
-- 3.8%
689,541 Quanta Services, Inc. $ 97,942,404
--------------
ELECTRIC UTILITIES -- 16.8%
792,673 Alliant Energy Corp. 41,353,750
850,726 American Electric Power Co.,
Inc. 74,795,830
194,180 Constellation Energy Corp. 18,357,777
134,907 Duke Energy Corp. 12,570,634
42,919 Emera, Inc. (CAD) 1,590,619
4,904,664 Enel S.p.A., ADR 21,580,522
320,603 Eversource Energy 24,455,597
419,061 Exelon Corp. 16,171,564
51,306 Fortis, Inc. (CAD) 2,001,625
558,939 Iberdrola S.A., ADR 22,681,745
428,209 IDACORP, Inc. 44,833,482
490,632 NextEra Energy, Inc. 38,023,980
43,120 Orsted A/S, ADR 1,185,369
1,358,035 PPL Corp. 35,974,347
836,269 Southern (The) Co. 54,758,894
352,887 Xcel Energy, Inc. 22,976,473
--------------
433,312,208
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.2%
545,061 Archrock, Inc. 4,093,408
--------------
GAS UTILITIES -- 7.3%
3,237,966 AltaGas Ltd. (CAD) 58,396,759
338,176 Atmos Energy Corp. 36,032,653
12,255 Chesapeake Utilities Corp. 1,524,277
386,175 National Fuel Gas Co. 26,062,951
503,050 New Jersey Resources Corp. 22,456,152
431,244 ONE Gas, Inc. 33,412,785
250,066 UGI Corp. 8,834,832
--------------
186,720,409
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.7%
237,213 AES (The) Corp. 6,205,492
240,253 Clearway Energy, Inc., Class A 7,767,379
107,340 Northland Power, Inc. (CAD) 3,123,249
--------------
17,096,120
--------------
MULTI-UTILITIES -- 12.9%
1,124,603 ATCO Ltd, Class I (CAD) 34,918,125
82,086 Canadian Utilities Ltd., Class A
(CAD) 2,184,180
1,283,371 CenterPoint Energy, Inc. 36,717,244
392,581 CMS Energy Corp. 22,396,746
565,928 Dominion Energy, Inc. 39,597,982
277,092 DTE Energy Co. 31,064,784
1,294,715 Public Service Enterprise Group,
Inc. 72,594,670
499,233 Sempra Energy 75,354,229
180,937 WEC Energy Group, Inc. 16,524,976
--------------
331,352,936
--------------
SHARES/
UNITS DESCRIPTION VALUE
------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
-- 22.6%
592,683 Cheniere Energy, Inc. $ 104,555,208
1,658,430 DT Midstream, Inc. 99,008,271
986,421 Enbridge, Inc. 38,421,098
2,098,865 Keyera Corp. (CAD) 44,986,133
3,585,465 Kinder Morgan, Inc. 64,968,626
802,348 ONEOK, Inc. 47,595,283
564,976 Targa Resources Corp. 38,627,409
1,863,850 TC Energy Corp. 81,860,292
1,899,322 Williams (The) Cos., Inc. 62,164,809
--------------
582,187,129
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.2%
15,015 Enphase Energy, Inc. (a) 4,609,605
--------------
WATER UTILITIES -- 0.1%
16,779 American Water Works Co., Inc. 2,438,660
--------------
TOTAL COMMON STOCKS
-- 64.6% 1,659,752,879
(Cost $1,370,855,275) --------------
MASTER LIMITED PARTNERSHIPS
-- 32.6%
CHEMICALS -- 0.6%
661,577 Westlake Chemical Partners, L.P. 15,269,197
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.1%
156,382 USA Compression Partners, L.P. 2,828,950
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 4.0%
1,379,166 NextEra Energy Partners,
L.P. (b) 102,154,826
--------------
OIL, GAS & CONSUMABLE FUELS
-- 27.9%
709,039 Cheniere Energy Partners, L.P. 42,634,515
12,322,919 Energy Transfer, L.P. 157,363,676
619,692 EnLink Midstream LLC (b) 7,361,941
6,716,712 Enterprise Products Partners,
L.P. 169,596,978
788,972 Hess Midstream, L.P.,
Class A (b) 22,832,850
1,751,314 Holly Energy Partners, L.P. 32,994,756
2,890,279 Magellan Midstream Partners,
L.P. 155,930,552
1,215,016 MPLX, L.P. 40,751,637
6,419,541 Plains GP Holdings, L.P.,
Class A (b) 80,501,044
242,750 Western Midstream Partners, L.P. 6,969,352
--------------
716,937,301
--------------
TOTAL MASTER LIMITED
PARTNERSHIPS -- 32.6% 837,190,274
(Cost $595,163,589) --------------
MONEY MARKET FUNDS -- 2.5%
65,506,758 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 2.85% (c) 65,506,758
(Cost $65,506,758) --------------
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
DESCRIPTION VALUE
------------------------------------------------------------
TOTAL INVESTMENTS -- 99.7% $2,562,449,911
(Cost $2,031,525,622)
NET OTHER ASSETS AND
LIABILITIES -- 0.3% 7,855,089
--------------
NET ASSETS -- 100.0% $2,570,305,000
==============
(a) Non-income producing security.
(b) This security is taxed as a "C" corporation for federal income tax
purposes.
(c) Rate shown reflects yield as of October 31, 2022.
ADR - American Depositary Receipt
Currency Abbreviations:
CAD - Canadian Dollar
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2022 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
10/31/2022 PRICES INPUTS INPUTS
------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks*.................................. $1,659,752,879 $ 1,659,752,879 $ -- $ --
Master Limited Partnerships*.................... 837,190,274 837,190,274 -- --
Money Market Funds.............................. 65,506,758 65,506,758 -- --
------------------------------------------------------------
Total Investments............................... $2,562,449,911 $ 2,562,449,911 $ -- $ --
============================================================
</TABLE>
* 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, 2022
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 75.3%
CONSTRUCTION & ENGINEERING
-- 4.7%
10,573 Quanta Services, Inc. $ 1,501,789
--------------
ELECTRIC UTILITIES -- 21.8%
14,507 Alliant Energy Corp. 756,830
10,604 American Electric Power Co.,
Inc. 932,304
1,458 Duke Energy Corp. 135,856
698 Edison International 41,908
3,124 Emera, Inc. (CAD) 115,778
59,582 Enel S.p.A., ADR 262,161
5,240 Eversource Energy 399,707
3,352 Fortis, Inc. (CAD) 130,773
6,074 Hydro One Ltd. (CAD) (a) (b) 152,301
10,169 Iberdrola S.A., ADR 412,658
8,025 IDACORP, Inc. 840,218
7,153 NextEra Energy, Inc. 554,358
327 Orsted A/S (DKK) (a) (b) 26,970
24,499 PPL Corp. 648,979
8,121 Southern (The) Co. 531,763
14,648 Xcel Energy, Inc. 953,731
--------------
6,896,295
--------------
GAS UTILITIES -- 9.4%
42,256 AltaGas Ltd. (CAD) 762,087
10,327 Atmos Energy Corp. 1,100,342
2,355 Chesapeake Utilities Corp. 292,915
5,345 New Jersey Resources Corp. 238,601
7,354 ONE Gas, Inc. 569,788
--------------
2,963,733
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 6.6%
12,347 AES (The) Corp. 322,998
3,718 Brookfield Renewable Corp.,
Class A (CAD) 115,523
23,618 Clearway Energy, Inc., Class A 763,570
26,772 EDP Renovaveis S.A. (EUR) 563,808
2,852 Encavis AG (EUR) 53,128
9,500 Northland Power, Inc. (CAD) 276,419
--------------
2,095,446
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 1.2%
14,453 Hannon Armstrong Sustainable
Infrastructure Capital, Inc. 392,833
--------------
MULTI-UTILITIES -- 16.3%
11,468 ATCO Ltd., Class I (CAD) 356,073
14,742 CenterPoint Energy, Inc. 421,769
8,623 CMS Energy Corp. 491,942
7,355 Dominion Energy, Inc. 514,629
6,275 DTE Energy Co. 703,490
16,546 Public Service Enterprise Group,
Inc. 927,734
6,577 Sempra Energy 992,733
8,281 WEC Energy Group, Inc. 756,304
--------------
5,164,674
--------------
SHARES/
UNITS DESCRIPTION VALUE
------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
-- 14.3%
11,827 Cheniere Energy, Inc. $ 2,086,401
29,879 DT Midstream, Inc. 1,783,776
19,502 Williams (The) Cos., Inc. 638,301
--------------
4,508,478
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.6%
573 Enphase Energy, Inc. (c) 175,911
--------------
WATER UTILITIES -- 0.4%
880 American Water Works Co., Inc. 127,899
--------------
TOTAL COMMON STOCKS
-- 75.3% 23,827,058
(Cost $23,022,740) --------------
MASTER LIMITED PARTNERSHIPS
-- 12.0%
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 4.3%
17,119 Brookfield Renewable Partners,
L.P. (CAD) 496,725
11,597 NextEra Energy Partners,
L.P. (d) 858,990
--------------
1,355,715
--------------
OIL, GAS & CONSUMABLE FUELS
-- 7.7%
27,869 Cheniere Energy Partners, L.P. 1,675,763
18,920 DCP Midstream, L.P. 752,070
--------------
2,427,833
--------------
TOTAL MASTER LIMITED
PARTNERSHIPS -- 12.0% 3,783,548
(Cost $3,341,491) --------------
MONEY MARKET FUNDS -- 12.7%
4,012,164 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 2.85% (e) 4,012,164
(Cost $4,012,164) --------------
TOTAL INVESTMENTS -- 100.0% 31,622,770
(Cost $30,376,395)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 5,098
--------------
NET ASSETS -- 100.0% $ 31,627,868
==============
(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.
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
(c) Non-income producing security.
(d) This security is taxed as a "C" corporation for federal income tax
purposes.
(e) Rate shown reflects yield as of October 31, 2022.
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,
2022 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
10/31/2022 PRICES INPUTS INPUTS
------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks*.................................. $ 23,827,058 $ 23,827,058 $ -- $ --
Master Limited Partnerships*.................... 3,783,548 3,783,548 -- --
Money Market Funds.............................. 4,012,164 4,012,164 -- --
------------------------------------------------------------
Total Investments............................... $ 31,622,770 $ 31,622,770 $ -- $ --
============================================================
</TABLE>
* 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, 2022
<TABLE>
<CAPTION>
FIRST TRUST NORTH FIRST TRUST
AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
--------------------- ---------------------
ASSETS:
<S> <C> <C>
Investments, at value.................................................. $ 2,562,449,911 $ 31,622,770
Cash................................................................... 1,036,176 --
Foreign currency, at value............................................. 213 5
Receivables:
Dividends........................................................... 7,958,190 18,942
Capital Shares sold................................................. 5,340,621 --
Investment securities sold.......................................... 218,675 8,135
Reclaims............................................................ 50,452 1,345
----------------- -----------------
Total Assets..................................................... 2,577,054,238 31,651,197
----------------- -----------------
LIABILITIES:
Payables:
Investment securities purchased..................................... 4,784,657 --
Investment advisory fees............................................ 1,964,581 23,329
----------------- -----------------
Total Liabilities................................................ 6,749,238 23,329
----------------- -----------------
NET ASSETS............................................................. $ 2,570,305,000 $ 31,627,868
================= =================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 2,434,370,238 $ 30,368,327
Par value.............................................................. 962,550 12,500
Accumulated distributable earnings (loss).............................. 134,972,212 1,247,041
----------------- -----------------
NET ASSETS............................................................. $ 2,570,305,000 $ 31,627,868
================= =================
NET ASSET VALUE, per share............................................. $ 26.70 $ 25.30
================= =================
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share).............................. 96,255,000 1,250,002
================= =================
Investments, at cost................................................... $ 2,031,525,622 $ 30,376,395
================= =================
Foreign currency, at cost (proceeds)................................... $ 210 $ 5
================= =================
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
FIRST TRUST NORTH FIRST TRUST
AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
--------------------- ---------------------
INVESTMENT INCOME:
<S> <C> <C>
Dividends.............................................................. $ 51,062,450 $ 490,667
Foreign withholding tax................................................ (2,545,863) (15,832)
----------------- -----------------
Total investment income............................................. 48,516,587 474,835
----------------- -----------------
EXPENSES:
Investment advisory fees............................................... 22,736,414 201,074
----------------- -----------------
Total expenses...................................................... 22,736,414 201,074
----------------- -----------------
NET INVESTMENT INCOME (LOSS)........................................... 25,780,173 273,761
----------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... 78,880,260 159,236
In-kind redemptions................................................. 31,984,960 538,933
Foreign currency transactions....................................... (286,636) (1,421)
----------------- -----------------
Net realized gain (loss)............................................ 110,578,584 696,748
----------------- -----------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... 77,548,931 (283,049)
Foreign currency translation........................................ 357 (458)
----------------- -----------------
Net change in unrealized appreciation (depreciation)................... 77,549,288 (283,507)
----------------- -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 188,127,872 413,241
----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ 213,908,045 $ 687,002
================= =================
</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 YEAR ENDED
10/31/2022 10/31/2021 10/31/2022 10/31/2021
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)........................... $ 25,780,173 $ 13,687,851 $ 273,761 $ 132,419
Net realized gain (loss)............................... 110,578,584 10,915,859 696,748 (141,467)
Net change in unrealized appreciation (depreciation)... 77,549,288 488,248,200 (283,507) 1,380,219
-------------- -------------- -------------- ---------------
Net increase (decrease) in net assets resulting
from operations..................................... 213,908,045 512,851,910 687,002 1,371,171
-------------- -------------- -------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................. (33,630,677) (71,059,859) (331,016) (173,970)
Return of capital...................................... (41,859,413) -- -- --
-------------- -------------- -------------- ---------------
Total distributions to shareholders.................... (75,490,090) (71,059,859) (331,016) (173,970)
-------------- -------------- -------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. 398,965,547 122,958,569 13,026,378 17,345,173
Cost of shares redeemed................................ (96,213,496) (123,512,268) (2,436,473) --
-------------- -------------- -------------- ---------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... 302,752,051 (553,699) 10,589,905 17,345,173
-------------- -------------- -------------- ---------------
Total increase (decrease) in net assets................ 441,170,006 441,238,352 10,945,891 18,542,374
NET ASSETS:
Beginning of period.................................... 2,129,134,994 1,687,896,642 20,681,977 2,139,603
-------------- -------------- -------------- ---------------
End of period.......................................... $2,570,305,000 $2,129,134,994 $ 31,627,868 $ 20,681,977
============== ============== ============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 85,105,000 85,755,000 850,002 100,002
Shares sold............................................ 14,900,000 5,200,000 500,000 750,000
Shares redeemed........................................ (3,750,000) (5,850,000) (100,000) --
-------------- -------------- -------------- ---------------
Shares outstanding, end of period...................... 96,255,000 85,105,000 1,250,002 850,002
============== ============== ============== ===============
</TABLE>
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,
------------------------------------------------------------------------
2022 2021 2020 2019 2018
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.02 $ 19.68 $ 24.83 $ 22.64 $ 24.55
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.37 0.19 0.20 0.36 0.35
Net realized and unrealized gain (loss) 2.14 6.01 (4.33) 2.81 (1.33)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.51 6.20 (4.13) 3.17 (0.98)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.37) (0.86) (0.70) (0.29) (0.45)
Return of capital (0.46) -- (0.32) (0.69) (0.48)
---------- ---------- ---------- ---------- ----------
Total distributions (0.83) (0.86) (1.02) (0.98) (0.93)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 26.70 $ 25.02 $ 19.68 $ 24.83 $ 22.64
========== ========== ========== ========== ==========
TOTAL RETURN (a) 10.19% 31.97% (16.69)% 14.22% (4.03)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,570,305 $2,129,135 $1,687,897 $2,565,360 $2,117,805
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 1.08% 0.71% 1.13% 1.52% 1.40%
Portfolio turnover rate (b) 32% 52% 46% 33% 35%
</TABLE>
<TABLE>
<CAPTION>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
YEAR ENDED OCTOBER 31,
------------------------------------------ PERIOD ENDED
2022 2021 2020 10/31/2019 (c)
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.33 $ 21.40 $ 20.70 $ 20.09
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.31 0.31 0.30 0.05
Net realized and unrealized gain (loss) 1.05 2.98 0.85 0.56
---------- ---------- ---------- ----------
Total from investment operations 1.36 3.29 1.15 0.61
---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.29) (0.36) (0.33) --
Net realized gain (0.10) -- -- --
Return of capital -- -- (0.12) --
---------- ---------- ---------- ----------
Total distributions (0.39) (0.36) (0.45) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 25.30 $ 24.33 $ 21.40 $ 20.70
========== ========== ========== ==========
TOTAL RETURN (a) 5.62% 15.49% 5.69% 3.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 31,628 $ 20,682 $ 2,140 $ 2,070
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.95% 0.95% 0.95% 0.95% (d)
Ratio of net investment income (loss) to
average net assets 1.29% 1.24% 1.45% 1.18% (d)
Portfolio turnover rate (b) 22% 56% 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>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022
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 twelve funds that are offering shares. This
report covers the two funds (each a "Fund" and collectively, the "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 - (ticker "EMLP")
First Trust EIP Carbon Impact ETF - (ticker "ECLN")
Each Fund represents a separate series of shares of beneficial interest in the
Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on
a continuous basis, at net asset value ("NAV"), only in large blocks of shares
known as "Creation Units."
Each Fund is an actively managed exchange-traded fund. 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.
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 readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Funds' investment advisor, First Trust Advisors L.P. ("First
Trust" or the "Advisor"), in accordance with valuation procedures approved by
the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act
and rules thereunder. Investments valued by the Advisor's Pricing Committee, if
any, are footnoted as such in the footnotes to the Portfolio of Investments.
Each Fund's investments are valued as follows:
Page 19
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022
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 primary exchange for such securities.
Securities trading on foreign exchanges or over-the-counter markets that
close prior to the NYSE close may be valued using a systematic fair
valuation model provided by a third-party pricing service. If these
foreign securities meet certain criteria in relation to the valuation
model, their valuation is systematically adjusted to reflect the impact of
movement in the U.S. market after the close of the foreign markets.
Shares of open-end funds are valued based on NAV per share.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade price.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Advisor's Pricing Committee at
fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a
third-party pricing service is unable to provide a market price; securities
whose trading has been formally suspended; a security whose market or fair value
price is not available from a pre-established pricing source; a security with
respect to which an event has occurred that is likely to materially affect the
value of the security after the market has closed but before the calculation of
a Fund's NAV or make it difficult or impossible to obtain a reliable market
quotation; and a security whose price, as provided by the third-party pricing
service, does not reflect the security's fair value. As a general principle, the
current fair value of a security would appear to be the amount which the owner
might reasonably expect to receive for the security upon its current sale. When
fair value prices are used, generally they will differ from market quotations or
official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not
limited to, the following:
1) the last sale price on the exchange on which they are principally
traded or, for Nasdaq and AIM securities, the official closing
price;
2) the type of security;
3) the size of the holding;
4) the initial cost of the security;
5) transactions in comparable securities;
6) price quotes from dealers and/or third-party pricing services;
7) relationships among various securities;
8) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
9) an analysis of the issuer's financial statements;
10) the existence of merger proposals or tender offers that might affect
the value of the security; and
11) other relevant factors.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the 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;
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions; and
9) other relevant factors.
Because foreign markets may be open on different days than the days during which
investors may transact in the shares of a Fund, the value of the Fund's
securities may change on the days when investors are not able to transact in the
shares of the Fund. The value of 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, 2022
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, 2022, is
included with each Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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.
Distributions received from a Fund's investments in Real Estate Investment
Trusts ("REITs") may be comprised of return of capital, capital gains, and
income. The actual character of the amounts received during the year are not
known until after the REITs' fiscal year end. A Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by a Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
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
Page 21
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022
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. A fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on 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.
The tax character of distributions paid by each Fund during the fiscal year
ended October 31, 2022 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 $ 33,630,677 $ -- $ 41,859,413
First Trust EIP Carbon Impact ETF 331,016 -- --
</TABLE>
The tax character of distributions paid by each Fund during the fiscal year
ended October 31, 2021 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 $ 71,059,859 $ -- $ --
First Trust EIP Carbon Impact ETF 173,970 -- --
</TABLE>
As of October 31, 2022, 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 $ -- $(358,055,801) $ 493,028,013
First Trust EIP Carbon Impact ETF 23,595 39,587 1,183,859
</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, 2022, EMLP
and ECLN had non-expiring capital loss carryforwards available for federal
income tax purposes of $358,055,801 and $0, respectively.
Page 22
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2019,
2020, 2021 and 2022 remain open to federal and state audit. As of October 31,
2022, management has evaluated the application of these standards to the Funds
and has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
During the taxable year ended October 31, 2022, the Funds utilized non-expiring
capital loss carryforwards in the following amounts:
Capital Loss
Carryforward
Utilized
---------------
First Trust North American Energy Infrastructure Fund $ 84,449,607
First Trust EIP Carbon Impact ETF 4,660
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, 2022, the Funds had
no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings
(loss) (which consists of accumulated net investment income (loss), accumulated
net realized gain (loss) on investments and net unrealized appreciation
(depreciation) on investments) on the Statements of Assets and Liabilities that
more closely represent their tax character, certain adjustments have been made
to paid-in capital, accumulated net investment income (loss) and accumulated net
realized gain (loss) on investments. These adjustments are primarily due to the
difference between book and tax treatments of income and gains on various
investment securities held by the Funds and in-kind transactions. The results of
operations and net assets were not affected by these adjustments. For the fiscal
year ended October 31, 2022, the adjustments for each Fund were as follows:
<TABLE>
<CAPTION>
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
--------------- -------------- ---------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ 50,949,333 $ (34,905,841) $ (16,043,492)
First Trust EIP Carbon Impact ETF 36,834 (490,643) 453,809
</TABLE>
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
First Trust North American Energy
Infrastructure Fund $ 2,069,422,137 $ 563,316,970 $ (70,289,196) $ 493,027,774
First Trust EIP Carbon Impact ETF 30,438,880 2,709,175 (1,525,285) 1,183,890
</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
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022
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 target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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, 2022, 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 $ 738,341,223 $ 758,866,492
First Trust EIP Carbon Impact ETF 4,328,506 6,249,238
</TABLE>
For the fiscal year ended October 31, 2022, 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 $ 355,293,733 $ 85,738,015
First Trust EIP Carbon Impact ETF 11,244,925 2,285,344
</TABLE>
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Each Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with a Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, a Fund publishes through the National Securities Clearing
Corporation ("NSCC") the "basket" of securities, cash or other assets that it
will accept in exchange for a Creation Unit of the Fund's shares. An Authorized
Participant that wishes to effectuate a creation of a Fund's shares deposits
with the Fund the "basket" of securities, cash or other assets identified by the
Fund that day, and then receives the Creation Unit of the Fund's shares in
return for those assets. After purchasing a Creation Unit, the Authorized
Participant may continue to hold a Fund's shares or sell them in the secondary
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022
market. The redemption process is the reverse of the purchase process: the
Authorized Participant redeems a Creation Unit of a Fund's shares for a basket
of securities, cash or other assets. The combination of the creation and
redemption process with secondary market trading in a Fund's shares and
underlying securities provides arbitrage opportunities that are designed to help
keep the market price of a Fund's shares at or close to the NAV per share of the
Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of a Fund times the number of shares in
a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of a Fund times the number
of shares in a Creation Unit, minus the fees described above and, if applicable,
any operational processing and brokerage costs, transfer fees, stamp taxes and
part or all of the spread between the expected bid and offer side of the market
related to the securities comprising the redemption basket. Investors who use
the services of a broker or other such intermediary in addition to an Authorized
Participant to effect a redemption of a Creation Unit may also be assessed an
amount to cover the cost of such services. The redemption fee charged by a Fund
will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no
more than 2% of the value of the shares redeemed.
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, 2024.
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 was the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Funds.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee each Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels. During any
period in which the Advisor's management fee is reduced in accordance with the
breakpoints described above, the investment sub-advisory fee (which is based on
the Advisor's management fee) paid to EIP will be reduced to reflect the
reduction in the Advisor's management fee.
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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, 2022, the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, the financial
highlights for 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, 2022, and the results of their operations for the year then
ended, and the changes in their net assets for each of the two years in the
period then ended, 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 FINANCIAL
IN THE TRUST HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
First Trust North American Energy For the years ended October 31, 2022, 2021, 2020, 2019 and 2018
Infrastructure Fund
----------------------------------------------------------------------------------------------------------------------------------
First Trust EIP Carbon Impact ETF For the years ended October 31, 2022, 2021, 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, 2022, 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 21, 2022
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, 2022 (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, 2022, 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 100.00%
First Trust EIP Carbon Impact ETF 100.00%
</TABLE>
For the taxable year ended October 31, 2022, 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 100.00%
First Trust EIP Carbon Impact ETF 100.00%
</TABLE>
A portion of each of the Funds' 2022 ordinary dividends (including short-term
capital gains) paid to its shareholders during the fiscal year ended October 31,
2022, 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 significant
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
more broadly diversified.
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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (UNAUDITED)
INDEX OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
Page 29
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (UNAUDITED)
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
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 Agreements (as applicable to a specific Fund, the
"Advisory Agreement" and collectively, the "Advisory Agreements") with First
Trust Advisors L.P. (the "Advisor") and the Investment Sub-Advisory Agreements
(as applicable to a specific Fund, the "Sub-Advisory Agreement" and
collectively, the "Sub-Advisory Agreements" and together with the Advisory
Agreements, the "Agreements") among the Trust, the Advisor and Energy Income
Partners, LLC (the "Sub-Advisor") on behalf of the following two series of the
Trust (each a "Fund" and collectively, the "Funds"):
First Trust North American Energy Infrastructure Fund (EMLP)
First Trust EIP Carbon Impact ETF (ECLN)
The Board approved the continuation of the applicable Agreements for each Fund
for a one-year period ending June 30, 2023 at a meeting held on June 12-13,
2022. The Board determined for each Fund that the continuation of the applicable
Agreements is in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (UNAUDITED)
To reach this determination for each Fund, the Board considered its duties under
the Investment Company Act of 1940, as amended (the "1940 Act"), as well as
under the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and the Sub-Advisor responding to requests for information from counsel
to the Independent Trustees, submitted on behalf of the Independent Trustees,
that, among other things, outlined: the services provided by the Advisor and the
Sub-Advisor to each Fund (including the relevant personnel responsible for these
services and their experience); the unitary fee rate payable by each Fund as
compared to fees charged to a peer group of funds (the "Expense Group") and a
broad peer universe of funds (the "Expense Universe"), each assembled by
Broadridge Financial Solutions, Inc. ("Broadridge"), an independent source, and
as compared to fees charged to other clients of the Advisor, including other
exchange-traded funds ("ETFs") managed by the Advisor; the sub-advisory fee rate
as compared to fees charged to other clients of the Sub-Advisor; the expense
ratio of each Fund as compared to expense ratios of the funds in the Fund's
Expense Group and Expense Universe; performance information for each Fund,
including comparisons of each Fund's performance to that of one or more relevant
benchmark indexes and to that of a performance group of funds and a broad
performance universe of funds (the "Performance Universe"), each assembled by
Broadridge; the nature of expenses incurred in providing services to each Fund
and the potential for the Advisor and the Sub-Advisor to realize economies of
scale, if any; profitability and other financial data for the Advisor; financial
data for the Sub-Advisor; any indirect benefits to the Advisor and its
affiliates, First Trust Portfolios L.P. ("FTP") and First Trust Capital
Partners, LLC ("FTCP"), and the Sub-Advisor; and information on the Advisor's
and the Sub-Advisor's compliance programs. The Board reviewed initial materials
with the Advisor at the meeting held on April 18, 2022, prior to which the
Independent Trustees and their counsel met separately to discuss the information
provided by the Advisor and the Sub-Advisor. Following the April 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 12-13, 2022 meeting, as well as at the June meeting. The Board applied
its business judgment to determine whether the arrangements between the Trust
and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to
be reasonable business arrangements from each Fund's perspective. The Board
determined that, given the totality of the information provided with respect to
the Agreements, the Board had received sufficient information to renew the
Agreements. The Board considered that shareholders chose to invest or remain
invested in a Fund knowing that the Advisor and the Sub-Advisor manage the Fund
and knowing the Fund's unitary fee.
In reviewing the applicable Agreements for each Fund, the Board considered the
nature, extent and quality of the services provided by the Advisor and the
Sub-Advisor under the applicable Agreements. With respect to the Advisory
Agreements, the Board considered that the Advisor is responsible for the overall
management and administration of the Trust and each Fund and reviewed all of the
services provided by the Advisor to the Funds, including the oversight of the
Sub-Advisor, as well as the background and experience of the persons responsible
for such services. The Board noted that the Advisor oversees the Sub-Advisor's
day-to-day management of each Fund's investments, including portfolio risk
monitoring and performance review. In reviewing the services provided, the Board
noted the compliance program that had been developed by the Advisor and
considered that it includes a robust program for monitoring the Advisor's, the
Sub-Advisor's and each Fund's compliance with the 1940 Act, as well as each
Fund's compliance with its investment objective, policies and restrictions. The
Board also considered a report from the Advisor with respect to its risk
management functions related to the operation of the Funds. Finally, as part of
the Board's consideration of the Advisor's services, the Advisor, in its written
materials and at the April 18, 2022 meeting, described to the Board the scope of
its ongoing investment in additional personnel and infrastructure to maintain
and improve the quality of services provided to the Funds and the other funds in
the First Trust Fund Complex. With respect to the Sub-Advisory Agreements, the
Board noted that each Fund is an actively-managed ETF and the Sub-Advisor
actively manages the Fund's investments. The Board reviewed the materials
provided by the Sub-Advisor and considered the services that the Sub-Advisor
provides to each Fund, including the Sub-Advisor's day-to-day management of the
Funds' investments. In considering the Sub-Advisor's management of the Funds,
the Board noted the background and experience of the Sub-Advisor's portfolio
management team, including the Board's prior meetings with members of the
portfolio management team. In light of the information presented and the
considerations made, the Board concluded that the nature, extent and quality of
the services provided to the Trust and each Fund by the Advisor and the
Sub-Advisor under the Agreements have been and are expected to remain
satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has
managed each Fund consistent with its investment objective, policies and
restrictions.
The Board considered the unitary fee rate payable by each Fund under the
applicable Advisory Agreement for the services provided. The Board noted that
the sub-advisory fee for each Fund is paid by the Advisor from the Fund's
unitary fee. The Board considered that as part of the unitary fee the Advisor is
responsible for each Fund's expenses, including the cost of sub-advisory,
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (UNAUDITED)
transfer agency, custody, fund administration, legal, audit and other services
and license fees, if any, but excluding the fee payment under the applicable
Advisory Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any.
The Board received and reviewed information showing the fee rates and expense
ratios of the peer funds in the Expense Groups, as well as advisory and unitary
fee rates charged by the Advisor and the Sub-Advisor to other fund (including
ETFs) and non-fund clients, as applicable. Because each Fund pays a unitary fee,
the Board determined that expense ratios were the most relevant comparative data
point. Based on the information provided, the Board noted that the unitary fee
rate for EMLP was below the median total (net) expense ratio of the peer funds
in its Expense Group and that the unitary fee rate for ECLN was above the median
total (net) expense ratio of the peer funds in its Expense Group. With respect
to the Expense Groups, the Board, at the April 18, 2022 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 EMLP's 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, for EMLP, not all peer
funds employ an advisor/sub-advisor management structure. The Board took these
limitations and differences into account in considering the peer data. With
respect to fees charged to other non-ETF clients, the Board considered
differences between the Funds and other non-ETF clients that limited their
comparability. In considering the unitary fee rates overall, the Board also
considered the Advisor's statement that it seeks to meet investor needs through
innovative and value-added investment solutions and the Advisor's demonstrated
long-term commitment to each Fund and the other funds in the First Trust Fund
Complex.
The Board considered performance information for each Fund. The Board noted the
process it has established for monitoring each Fund's performance and portfolio
risk on an ongoing basis, which includes quarterly performance reporting from
the Advisor and Sub-Advisor for the Funds. The Board determined that this
process continues to be effective for reviewing each Fund's performance. The
Board received and reviewed information comparing EMLP's performance for periods
ended December 31, 2021 to the performance of the funds in its Performance
Universe and to that of a blended benchmark index and information comparing
ECLN's performance for the one-year period ended December 31, 2021 to the
performance of the funds in its Performance Universe and to that of a benchmark
index. Based on the information provided, the Board noted that EMLP
underperformed its Performance Universe median for the one-year period ended
December 31, 2021 and outperformed its Performance Universe median for the
three- and five-year periods ended December 31, 2021. The Board also noted that
EMLP underperformed its blended benchmark index for the one-, three- and
five-year periods ended December 31, 2021. The Board noted that ECLN
outperformed its Performance Universe median and underperformed its benchmark
index for the one-year period ended December 31, 2021.
On the basis of all the information provided on the unitary fee and performance
of each Fund and the ongoing oversight by the Board, the Board concluded that
the unitary fee for each Fund (out of which the Sub-Advisor is compensated)
continues to be reasonable and appropriate in light of the nature, extent and
quality of the services provided by the Advisor and the Sub-Advisor to each Fund
under the Agreements.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Funds and noted the Advisor's statement that it believes its expenses
relating to providing advisory services to the Funds will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. The Board noted that any reduction in fixed costs associated with the
management of the Funds would benefit the Advisor, but that the unitary fee
structure provides a level of certainty in expenses for the Funds. The Board
considered the revenues and allocated costs (including the allocation
methodology) of the Advisor in serving as investment advisor to each Fund for
the twelve months ended December 31, 2021 and the estimated profitability level
for each Fund calculated by the Advisor based on such data, as well as
complex-wide and product-line profitability data, for the same period. The Board
noted the inherent limitations in the profitability analysis and concluded that,
based on the information provided, the Advisor's profitability level for each
Fund was not unreasonable. In addition, the Board considered indirect benefits
described by the Advisor that may be realized from its relationship with the
Funds. The Board noted that FTCP has an ownership interest in the Sub-Advisor
and considered potential indirect benefits to the Advisor from such ownership
interest. The Board also considered that the Advisor had identified as an
indirect benefit to the Advisor and FTP their exposure to investors and brokers
who, absent their exposure to the Funds, may have had no dealings with the
Advisor or FTP. The Board concluded that the character and amount of potential
indirect benefits to the Advisor were not unreasonable.
The Board considered that the Sub-Advisor 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 each Fund.
The Board noted that the Advisor pays the Sub-Advisor for each Fund from its
unitary fee and its understanding that each 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
indirect benefits that may be realized by the Sub-Advisor from its relationship
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (UNAUDITED)
with the Funds, including soft-dollar arrangements, and considered a summary of
such arrangements. The Board also considered the potential indirect 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 indirect benefits to
the Sub-Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of each Fund. No single factor was
determinative in the Board's analysis.
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENTS TO THE 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 amendment (as
applicable to a specific Fund, the "Advisory Agreement Amendment" and
collectively, the "Advisory Agreement Amendments") of the Investment Management
Agreements (as applicable to a specific Fund, the "Advisory Agreement" and
collectively, the "Advisory Agreements") with First Trust Advisors L.P. (the
"Advisor") and the amendment (as applicable to a specific Fund, the
"Sub-Advisory Agreement Amendment" and collectively, the "Sub-Advisory Agreement
Amendments" and together with the Advisory Agreement Amendments, the
"Amendments") of the Investment Sub-Advisory Agreements (as applicable to a
specific Fund, the "Sub-Advisory Agreement" and collectively, the "Sub-Advisory
Agreements" and together with the Advisory Agreements, the "Agreements") among
the Trust, the Advisor and Energy Income Partners, LLC (the "Sub-Advisor") on
behalf of the following two series of the Trust (each a "Fund" and collectively,
the "Funds"):
First Trust North American Energy Infrastructure Fund (EMLP)
First Trust EIP Carbon Impact ETF (ECLN)
The Board approved the applicable Amendments for each Fund at a meeting held on
October 24, 2022. As part of the review process, the Board reviewed information
and had preliminary discussions with the Advisor regarding the proposed
Amendments at meetings held on April 18, 2022, June 12-13, 2022 and September
18-19, 2022. Following those preliminary discussions, the Board requested and
received information from the Advisor regarding the proposed Amendments, and
that information was considered at an executive session of the Independent
Trustees and their counsel held prior to the October 24, 2022 meeting, as well
as at the October meeting.
In reviewing the Advisory Agreement Amendment for each Fund, the Board
considered that the purpose of the Advisory Agreement Amendments is to modify
the unitary fee rate for each Fund under the applicable Advisory Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
each Fund to the Advisor will be reduced as assets of such Fund meet certain
thresholds. In reviewing the Sub-Advisory Agreement Amendment for each Fund, the
Board considered that the purpose of the Sub-Advisory Agreement Amendments is to
modify the sub-advisory fee rate for each Fund under the applicable Sub-Advisory
Agreement to reflect the modification of the unitary fee rate schedule under the
applicable Advisory Agreement Amendment. The Board noted the Advisor's
representations that the quality and quantity of the services provided to each
Fund by the Advisor under the applicable Advisory Agreement and by the
Sub-Advisor under the applicable Sub-Advisory Agreement will not be reduced or
modified as a result of the applicable Advisory Agreement Amendment and the
applicable Sub-Advisory Agreement Amendment, and that the obligations of the
Advisor under each Advisory Agreement and the obligations of the Sub-Advisor
under each Sub-Advisory Agreement will remain the same in all respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the applicable Agreements for each Fund for a one-year period
ending June 30, 2023 at a meeting held on June 12-13, 2022. The Board noted that
in connection with such approval it had determined for each Fund, based upon the
information provided, that the terms of the applicable Agreements were fair and
reasonable and that the continuation of the applicable Agreements was in the
best interests of the Fund in light of the nature, extent and quality of the
services provided and such other matters as the Board considered to be relevant
in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendments are fair and
reasonable and that the Amendments are in the best interests of each Fund.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (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 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, 2021, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Funds is $1,049,263.
This figure is comprised of $40,376 paid (or to be paid) in fixed compensation
and $1,008,887 paid (or to be paid) in variable compensation. There were a total
of 24 beneficiaries of the remuneration described above. Those amounts include
$538,832 paid (or to be paid) to senior management of First Trust Advisors L.P.
and $510,431 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.
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since January 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since January 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 EXCHANGE-TRADED FUND IV
OCTOBER 31, 2022 (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
professional 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 2022
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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
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
320 South Canal Street
Chicago, IL 60606
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FIRST TRUST
First Trust Exchange-Traded Fund IV
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First Trust Senior Loan Fund (FTSL)
Annual Report
For the Year Ended
October 31, 2022
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TABLE OF CONTENTS
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FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 20
Statement of Operations...................................................... 21
Statements of Changes in Net Assets.......................................... 22
Financial Highlights......................................................... 23
Notes to Financial Statements................................................ 24
Report of Independent Registered Public Accounting Firm...................... 32
Additional Information....................................................... 33
Board of Trustees and Officers............................................... 40
Privacy Policy............................................................... 42
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 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 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.
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SHAREHOLDER LETTER
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FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2022
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, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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)
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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 Morningstar(R) LSTA(R) US Leveraged Loan 100 Index (the
"LL 100") and the Markit iBoxx USD Liquid Leveraged Loan Index (the "MI 100") by
investing at least 80% of its net assets (including investment borrowings) in
first lien senior floating rate bank loans ("Senior Loans"). The LL 100 is a
market value-weighted index designed to measure the performance of the largest
segment of the U.S. syndicated leveraged loan market. The LL 100 consists of 100
loan facilities drawn from a larger benchmark, the Morningstar(R) LSTA(R) US
Leveraged Loan Index. The MI 100 selects the 100 most liquid Senior Loans in the
market. The Fund does not seek to track either the LL 100 or MI 100, 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 LL 100 and/or MI 100 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, such as the London Interbank Offered Rate ("LIBOR"), the Secured
Overnight Financing Rate ("SOFR"), a similar reference rate, or the prime rate
offered by one or more major U.S. banks.
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 S&P Global Ratings, 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.
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<CAPTION>
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PERFORMANCE
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AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (5/1/13) 5 Years Ended Inception (5/1/13)
10/31/22 10/31/22 to 10/31/22 10/31/22 to 10/31/22
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV -2.38% 2.45% 2.70% 12.89% 28.85%
Market Price -2.64% 2.39% 2.69% 12.55% 28.67%
INDEX PERFORMANCE
Morningstar(R) LSTA(R) US Leveraged Loan
Index(1) -1.76% 3.07% 3.39% 16.31% 37.23%
Markit iBoxx USD Liquid Leveraged Loan
Index -3.34% 1.67% 2.05% 8.66% 21.28%
Morningstar(R) LSTA(R) US Leveraged Loan
100 Index(2) -2.34% 2.72% 2.88% 14.39% 31.01%
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</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 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 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) Formerly, S&P/LSTA Leveraged Loan Index.
(2) Formerly, S&P/LSTA U.S. Leveraged Loan 100 Index.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
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% OF SENIOR LOANS
AND OTHER
INDUSTRY CLASSIFICATION SECURITIES(1)
-------------------------------------------------------
Software 24.9%
Insurance 11.7
Health Care Technology 9.8
Media 8.6
Hotels, Restaurants & Leisure 8.0
Health Care Providers & Services 8.0
Containers & Packaging 4.0
Electric Utilities 2.6
Professional Services 2.5
Diversified Telecommunication Services 1.9
Health Care Equipment & Supplies 1.8
Commercial Services & Supplies 1.7
Pharmaceuticals 1.7
Capital Markets 1.7
Specialty Retail 1.4
Wireless Telecommunication Services 1.3
Trading Companies & Distributors 1.2
Electronic Equipment, Instruments &
Components 1.2
IT Services 1.1
Diversified Consumer Services 1.0
Diversified Financial Services 1.0
Machinery 0.5
Road & Rail 0.4
Food Products 0.4
Aerospace & Defense 0.4
Auto Components 0.3
Beverages 0.3
Household Durables 0.2
Entertainment 0.2
Communications Equipment 0.1
Building Products 0.1
Life Sciences Tools & Services 0.0*
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Total 100.0%
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* Amount is less than 0.1%.
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% OF SENIOR LOANS
AND OTHER
ASSET CLASSIFICATION SECURITIES(1)
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Senior Floating-Rate Loan Interests 89.0%
Corporate Bonds and Notes 10.0
Foreign Corporate Bonds and Notes 0.9
Common Stocks 0.1
Warrants 0.0*
Rights 0.0*
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Total 100.0%
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% OF SENIOR LOANS
AND OTHER
CREDIT QUALITY (S&P RATINGS)(2) DEBT SECURITIES(1)
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BBB- 2.6%
BB+ 4.5
BB 2.2
BB- 9.1
B+ 17.4
B 41.5
B- 17.6
CCC+ 2.8
CCC 0.9
NR 1.4
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Total 100.0%
========
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% OF SENIOR LOANS
AND OTHER
TOP 10 ISSUERS SECURITIES(1)
-------------------------------------------------------
HUB International Ltd. 3.6%
Internet Brands, Inc. (WebMD/MH Sub I
LLC) 3.3
IRB Holding Corp. (Arby's/Inspire Brands) 3.2
Verscend Technologies, Inc. (Cotiviti) 3.0
Hyland Software, Inc. 2.8
AssuredPartners, Inc. 2.7
PG&E Corp. 2.6
Alliant Holdings I LLC 2.6
Charter Communications Operating LLC 2.5
USI, Inc. (fka Compass Investors, Inc.) 2.3
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Total 28.6%
========
(1) Percentages are based on long-term positions. Money market funds are
excluded.
(2) The ratings are by S&P Global Ratings. A credit rating is an assessment
provided by a nationally recognized statistical rating organization
(NRSRO) of the creditworthiness of an issuer with respect to debt
obligations 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.
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 1, 2013 - OCTOBER 31, 2022
Morningstar(R) Markit iBoxx USD Morningstar(R)
First Trust Senior LSTA(R) US Leveraged Liquid Leveraged LSTA(R) US Leveraged
Loan Fund Loan Index Loan Index Loan 100 Index
<S> <C> <C> <C> <C>
5/1/13 $10,000 $10,000 $10,000 $10,000
10/31/13 10,092 10,122 10,103 10,150
4/30/14 10,275 10,338 10,323 10,382
10/31/14 10,385 10,434 10,389 10,492
4/30/15 10,637 10,589 10,594 10,730
10/31/15 10,567 10,268 10,280 10,540
4/30/16 10,763 10,527 10,484 10,707
10/31/16 11,034 10,968 10,826 11,230
4/30/17 11,247 11,260 11,026 11,568
10/31/17 11,414 11,452 11,161 11,799
4/30/18 11,592 11,706 11,404 12,080
10/31/18 11,760 11,929 11,602 12,334
4/30/19 12,044 12,262 11,877 12,592
10/31/19 12,156 12,339 11,905 12,663
4/30/20 11,619 11,765 11,122 11,759
10/31/20 12,266 12,527 11,798 12,880
4/30/21 12,978 13,193 12,387 13,653
10/31/21 13,198 13,412 12,547 13,969
4/30/22 13,175 13,419 12,441 14,053
10/31/22 12,885 13,101 12,128 13,723
</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.
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PORTFOLIO COMMENTARY
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FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
ADVISOR
The First Trust Advisors L.P. ("First Trust") Leveraged Finance Team is
comprised of 17 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, 2022, the First
Trust Leveraged Finance Team managed or supervised approximately $5.8 billion in
senior secured bank loans and high-yield bonds. These assets are managed across
various strategies, including two closed-end funds, an open-end fund, four
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 AND PORTFOLIO MANAGER
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Mr. Housey has served as a part of the portfolio
management team of the Fund since 2013 while Mr. Scott has served as a part of
the portfolio management team of the Fund since 2020.
COMMENTARY
The First Trust Senior Loan Fund (the "Fund") is an actively managed
exchange-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
In the last 12-month ("LTM") period ended October 31, 2022, inflation remained
stubbornly elevated with the October Consumer Price Index printing 7.7% on a
year-over-year basis; meanwhile, the Federal Reserve ("Fed") continues to
reiterate its commitment to a 2.0% inflation target. The Fed increased the
Federal Funds target rate by 300 basis points ("bps") in the LTM period, moving
the upper bound from 0.25% to 3.25% over the course of five meetings. In each of
the last three meetings, the Fed increased the Federal Funds target rate by a
full 75 bps. Due to the persistence of the inflation data and how far it is from
the Fed's target inflation rate, we do not believe the Fed can "pivot" to a more
accommodative posture until either (1) inflation has tamed, or (2) a recession
is near or already underway, absent any major financial market calamity. The
10-Year U.S. Treasury yield finished the period at 4.05%, after trading from
lows of 1.34% to highs of 4.24% over the LTM period. While U.S. Equities reached
all-time highs in January 2022, investor concerns over geopolitical risks,
elevated inflation, and rapidly increasing interest rates soon dampened market
euphoria and tipped U.S. Equities into a bear market. The S&P 500(R) Index
returned -14.61% during the LTM period ended October 31, 2022.
Senior Loan Market
Senior loan spreads over the 3-month London Interbank Offered Rate ("LIBOR")
increased by 238 bps to L+654 bps during the LTM period ended October 31, 2022.
The current spread is 139 bps above the long-term average spread of L+515 bps
(December 1997 - October 2022). After experiencing six consecutive monthly
inflows, retail senior loan funds realized their sixth consecutive monthly
outflow in October 2022, bringing net inflows to $2.8 billion over the LTM
period. The market's expectation for imminent rate hikes drove strong demand for
the senior loan asset class in the first half of the period; however, as market
volatility increased, demand slowed.
In the LTM period, BB rated senior loans (+1.36%) outperformed both B rated
(-2.42%) and CCC rated senior loans (-10.66%). The average senior loan price
decreased from $98.55 at the beginning of the period to $92.19 at the end of the
period.
Default Rates
Default rates, as measured by the Morningstar(R) LSTA(R) US Leveraged Loan
Index, increased modestly over the LTM period ended October 31, 2022. The LTM
default rate of the senior loan market rose from 0.20% at the beginning of the
period to 0.83% at the end of the period, remaining well below the long-term
average of 2.76%.
FUND PERFORMANCE
The Fund returned -2.38% on a net asset value ("NAV") basis and -2.64% on a
market price basis over the LTM period ended October 31, 2022. The
Morningstar(R) LSTA(R) US Leveraged Loan Index ("the Benchmark") returned -1.76%
over the same period.
Page 5
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
The Fund held 210 individual positions diversified across 32 industries at the
end of the reporting period; by comparison, the Fund held 233 individual
positions across 35 industries at the beginning of the period. Software
(24.83%), Insurance (11.60%), and Healthcare Technology (9.95%) comprised the
Fund's top three industry exposures at the end of the period. The Fund increased
its allocation to high-yield bonds by 515 bps from 5.74% to 10.89% throughout
the period. The Fund's duration modestly increased from 0.39 years at the
beginning of the period to 0.61 years at the end of the period.
The Fund benefited from its higher quality positioning relative to the Benchmark
as the investment team increased exposure to BBB rated and BB rated credit to
reduce overall portfolio volatility and enhance liquidity. As of October 31,
2022, the Fund maintained allocations to BBB rated, BB rated, B rated, and CCC
and below rated assets (including Not Rated) of 2.59%, 15.80%, 76.52%, and
5.09%, respectively. Strong security selection within Software and Healthcare
Technology, in addition to defensive overweight positions in the Insurance
industry, benefited performance.
The Fund's allocation to high-yield bonds proved to be a headwind to performance
during the period as high-yield bonds underperformed senior loans in the LTM
period. As high-yield bond prices have fallen over the course of the period, the
Fund has increased its exposure to higher quality, relatively short dated,
high-yield bonds to bolster the Fund's liquidity and credit quality. While this
has resulted in a modest headwind, we believe this position will serve the Fund
well over time. Further, the Fund's overweight to the Health Care Providers &
Services industry detracted from performance. Healthcare providers across the
industry continue to recover from the lingering negative impacts of the COVID-19
pandemic. The Fund's lack of holdings in the Oil, Gas & Consumable Fuels
industry also detracted from performance. The industry outperformed the overall
Benchmark throughout the LTM period as crude oil prices remained elevated.
The Fund's most recent monthly distribution of $0.228 per share exceeds the
distribution paid in October 2021 by $0.103 per share. The effective yield based
on the Fund's distributions over the trailing twelve months was 4.24%, based on
NAV, at the end of the period.
The Fund experienced one default in a senior secured debt position in the LTM
period. By comparison, the Benchmark experienced 9 defaults in the LTM period.
Since inception, the Fund has experienced 10 defaults, compared to 152 within
the Benchmark over the same period. The Fund's LTM default rate of 0.82% was in
line with the Benchmark's LTM default rate of 0.83% at the end of the period.
MARKET AND FUND OUTLOOK
Our market framework centers on our view that the Fed will stay the course,
ultimately holding interest rates at such a restrictive level that it tilts the
economy into recession, most likely in the second half of 2023, in our opinion.
We therefore expect market volatility to continue as investors attempt to gauge
the ultimate Federal Funds target rate, as well as the likelihood, and timing
of, a recession. Consequently, we favor increasing credit quality while
defensively positioning in sectors with limited cyclicality. Further, we believe
improved valuations have created attractive opportunities in the corporate
credit landscape. As we assess such market opportunities, we continue to employ
our bottom-up credit underwriting process and rigorous approach to risk
management.
Page 6
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FIRST TRUST SENIOR LOAN FUND (FTSL)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD (a) PERIOD (a) (b)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST SENIOR LOAN FUND (FTSL)
Actual $1,000.00 $ 978.00 0.85% $4.24
Hypothetical (5% return before expenses) $1,000.00 $1,020.92 0.85% $4.33
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS -- 84.2%
AEROSPACE & DEFENSE -- 0.3%
$ 9,430,956 Transdigm, Inc., Tranche G Refinancing Term Loan, 3 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 5.92% 08/22/24 $ 9,268,084
---------------
APPLICATION SOFTWARE -- 17.6%
1,999,465 AppLovin Corp., Amendment No. 6 New Term Loan, 3 Mo.
LIBOR + 3.00%, 0.50% Floor................................... 6.67% 10/25/28 1,925,485
832,752 CCC Intelligent Solutions, Inc., Term Loan B, 1 Mo. LIBOR +
2.25%, 0.50% Floor........................................... 6.00% 09/21/28 813,324
15,278,188 ConnectWise LLC, Term Loan B, 3 Mo. LIBOR + 3.50%, 0.50%
Floor........................................................ 7.17% 09/30/28 14,393,275
42,395,910 Epicor Software Corp., Term Loan C (First Lien), 1 Mo. LIBOR
+ 3.25%, 0.75% Floor......................................... 7.00% 07/30/27 40,318,511
1,035,128 Flexera Software LLC, 2020 Term Loan B, 1 Mo. LIBOR +
3.75%, 0.75% Floor........................................... 7.51% 01/26/28 994,375
30,962,050 Gainwell Acquisition Corp. (fka Milano), Term Loan B, 3 Mo.
LIBOR + 4.00%, 0.75% Floor................................... 7.67% 10/01/27 29,362,241
14,351,447 Go Daddy Operating Co. LLC, Term Loan B2, 1 Mo. LIBOR +
1.75%, 0.00% Floor........................................... 5.50% 02/15/24 14,243,811
63,152,882 Greeneden U.S. Holdings II LLC (Genesys Telecommunications
Laboratories, Inc.), Initial Dollar Term Loan, 1 Mo. LIBOR +
4.00%, 0.75% Floor........................................... 7.75% 12/01/27 61,455,964
18,023,272 Hyland Software, Inc., Term Loan (Second Lien), 1 Mo. LIBOR
+ 6.25%, 0.75% Floor......................................... 10.00% 07/10/25 17,246,108
61,547,877 Hyland Software, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%,
0.75% Floor.................................................. 7.25% 07/01/24 59,958,095
2,017,964 Imprivata, Inc., Term Loan B, 1 Mo. LIBOR + 3.75%, 0.50%
Floor........................................................ 7.50% 11/30/27 1,969,411
2,872,628 Informatica Corp., Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 6.56% 10/29/28 2,792,424
23,747,670 Internet Brands, Inc. (WebMD/MH Sub I LLC), 2020 June New
Term Loan, 1 Mo. LIBOR + 3.75%, 1.00% Floor.................. 7.50% 09/15/24 22,832,435
60,521,461 Internet Brands, Inc. (WebMD/MH Sub I LLC), Initial Term
Loan, 1 Mo. LIBOR + 3.75%, 0.00% Floor....................... 7.50% 09/13/24 58,176,255
11,578,646 Internet Brands, Inc. (WebMD/MH Sub I LLC), Term Loan
(Second Lien), 1 Mo. SOFR + 6.25%, 0.00% Floor............... 9.98% 02/23/29 10,579,988
5,866,829 ION Trading Technologies Ltd., Term Loan B, 3 Mo. LIBOR +
4.75%, 0.00% Floor........................................... 8.42% 04/01/28 5,442,716
30,837,876 LogMeIn, Inc. (GoTo Group, Inc.), Term Loan B, 1 Mo. LIBOR
+ 4.75%, 0.00% Floor......................................... 8.32% 08/31/27 19,376,363
24,921,983 McAfee Corp. (Condor Merger Sub, Inc.), Term Loan B, 1 Mo.
SOFR + 3.75%, 0.50% Floor.................................... 6.87% 02/28/29 22,757,010
247,071 Micro Focus International (MA Financeco LLC), Seattle Spinco
Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00% Floor................ 6.50% 06/21/24 243,830
847,903 Open Text Corp. (GSX), Term Loan B, 1 Mo. LIBOR + 1.75%,
0.00% Floor.................................................. 5.50% 05/30/25 833,862
14,335,603 RealPage, Inc., Term Loan (Second Lien), 1 Mo. LIBOR +
6.50%, 0.75% Floor........................................... 10.25% 04/22/29 13,762,179
52,659,570 RealPage, Inc., Term Loan B, 1 Mo. LIBOR + 3.00%, 0.50%
Floor........................................................ 6.75% 04/24/28 49,401,523
58,905,824 SolarWinds Holdings, Inc., Initial Term Loan, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 6.50% 02/05/24 58,263,162
6,319,557 Solera Holdings, Inc. (Polaris Newco), Term Loan B, 3 Mo.
LIBOR + 4.00%, 0.50% Floor................................... 7.67% 06/04/28 5,759,581
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
APPLICATION SOFTWARE (CONTINUED)
$ 373,580 Tenable, Inc., Term Loan B, 3 Mo. LIBOR + 2.75%, 0.50%
Floor........................................................ 7.16% 07/07/28 $ 359,881
681,730 Ultimate Kronos Group (UKG, Inc.), 2021 Term Loan, 3 Mo.
LIBOR + 3.25%, 0.50% Floor................................... 7.00% 05/03/26 656,826
3,953,315 Veeam Software Holdings Ltd. (VS Buyer LLC), Term Loan B,
1 Mo. LIBOR + 3.00%, 0.00% Floor............................. 6.75% 02/28/27 3,837,997
---------------
517,756,632
---------------
ASSET MANAGEMENT & CUSTODY BANKS -- 1.6%
15,451,614 Edelman Financial Engines Center LLC, Term Loan (Second
Lien), 1 Mo. LIBOR + 6.75%, 0.00% Floor...................... 10.50% 07/20/26 13,925,768
35,701,619 Edelman Financial Engines Center LLC, Term Loan B, 1 Mo.
LIBOR + 3.50%, 0.75% Floor................................... 7.25% 04/07/28 33,233,923
---------------
47,159,691
---------------
AUTO PARTS & EQUIPMENT -- 0.3%
9,186,973 Clarios Global L.P. (Power Solutions), Term Loan B, 1 Mo.
LIBOR + 3.25%, 0.00% Floor................................... 7.00% 04/30/26 8,915,682
---------------
BROADCASTING -- 2.4%
1,052,397 E.W. Scripps Co., Tranche B-3 Term Loan, 1 Mo. LIBOR +
2.75%, 0.75% Floor........................................... 6.50% 01/07/28 1,034,422
7,120,978 Gray Television, Inc., Term Loan B2, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 5.62% - 5.63% 02/07/24 7,112,076
7,369,088 Gray Television, Inc., Term Loan C, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 5.63% 01/02/26 7,235,045
24,939,453 iHeartCommunications, Inc., Second Amendment Incremental
Term Loan B, 1 Mo. LIBOR + 3.25%, 0.50% Floor................ 7.00% 05/01/26 23,513,166
6,502,712 iHeartCommunications, Inc., Term Loan B, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 6.75% 05/01/26 6,128,806
10,253,627 Nexstar Broadcasting, Inc., Incremental Term Loan B-4, 1 Mo.
LIBOR + 2.50%, 0.00% Floor................................... 6.25% 09/19/26 10,135,403
15,399,985 Univision Communications, Inc., 2021 Replacement New Term
Loan (First Lien), 1 Mo. LIBOR + 3.25%, 0.75% Floor.......... 7.00% 03/15/26 14,899,486
---------------
70,058,404
---------------
BUILDING PRODUCTS -- 0.1%
2,127,437 Hunter Douglas, Inc. (Solis), Term Loan B, 3 Mo. SOFR +
3.50%, 0.50% Floor........................................... 6.34% 02/28/29 1,760,007
371,797 Quikrete Holdings, Inc., Term Loan B-1, 1 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 6.75% 03/18/29 361,903
---------------
2,121,910
---------------
CABLE & SATELLITE -- 1.2%
16,039,986 Cablevision (aka CSC Holdings LLC), March 2017 Term Loan
B-1, 1 Mo. LIBOR + 2.25%, 0.00% Floor........................ 5.66% 07/17/25 15,488,692
15,443,713 Charter Communications Operating LLC, Term Loan B1, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................... 5.51% 04/30/25 15,236,922
5,626,843 Radiate Holdco LLC (Astound), Inc., Amendment No. 6 Term
Loan, 1 Mo. LIBOR + 3.25%, 0.75% Floor....................... 7.00% 09/25/26 5,140,121
---------------
35,865,735
---------------
CASINOS & GAMING -- 2.0%
29,955,665 Caesars Resort Collection LLC, Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 6.50% 12/22/24 29,594,700
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
CASINOS & GAMING (CONTINUED)
$ 28,870,745 Golden Nugget, Inc. (Fertitta Entertainment LLC), Initial Term
Loan B, 1 Mo. SOFR + 4.00%, 0.50% Floor...................... 7.73% 01/27/29 $ 27,023,017
498,750 Light & Wonder (FKA Scientific Games International, Inc.),
Term Loan B, 1 Mo. SOFR + 3.00%, 0.50% Floor................. 6.40% 04/07/29 491,164
1,699,679 Scientific Games Holdings L.P. (Scientific Games Lottery),
Initial Dollar Term Loan, 3 Mo. SOFR + 3.50%, 0.50% Floor.... 7.10% 04/04/29 1,598,344
---------------
58,707,225
---------------
COMMUNICATIONS EQUIPMENT -- 0.1%
2,597,685 Commscope, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 7.00% 04/06/26 2,471,048
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.2%
8,154,428 Paysafe Holdings (US) Corp., Facility B1 Loan, 1 Mo. LIBOR +
2.75%, 0.50% Floor........................................... 6.50% 06/24/28 7,349,178
---------------
EDUCATION SERVICES -- 0.4%
11,887,492 Ascensus Holdings, Inc. (Mercury), Term Loan (First Lien),
3 Mo. LIBOR + 3.50%, 0.50% Floor............................. 7.19% 08/02/28 11,114,805
---------------
ELECTRIC UTILITIES -- 2.5%
74,556,427 PG&E Corp., Term Loan B, 1 Mo. LIBOR + 3.00%, 0.50%
Floor........................................................ 6.81% 06/23/25 73,233,050
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.1%
11,846,091 Chamberlain Group, Inc. (Chariot), Term Loan B, 1 Mo. LIBOR
+ 3.50%, 0.50% Floor......................................... 7.25% 11/03/28 10,733,387
24,368,948 Verifone Systems, Inc., Term Loan B, 3 Mo. LIBOR + 4.00%,
0.00% Floor.................................................. 7.00% 08/20/25 21,621,349
---------------
32,354,736
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.8%
10,801,557 GFL Environmental Inc., Term Loan B, 3 Mo. LIBOR + 3.00%,
0.50% Floor.................................................. 7.41% 05/31/25 10,732,319
14,021,097 Packers Holdings LLC (PSSI), Term Loan B, 1 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 6.56% 03/15/28 12,815,283
---------------
23,547,602
---------------
HEALTH CARE EQUIPMENT -- 0.0%
913,325 Embecta Corp., Initial Term Loan, 3 Mo. SOFR + 3.00%, 0.50%
Floor........................................................ 6.55% 03/31/29 888,784
---------------
HEALTH CARE FACILITIES -- 0.7%
16,722,045 Ardent Health Services, Inc. (AHP Health Partners, Inc.), Term
Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor..................... 7.25% 08/24/28 15,865,040
4,995,742 Select Medical Corp., Term Loan B, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 6.26% 03/06/25 4,850,566
---------------
20,715,606
---------------
HEALTH CARE SERVICES -- 4.5%
33,153,530 ADMI Corp. (Aspen Dental), 2020 Incremental Term Loan B2,
1 Mo. LIBOR + 3.38%, 0.50% Floor............................. 7.13% 12/23/27 29,490,065
12,541,864 ADMI Corp. (Aspen Dental), 2021 Incremental Term Loan B3,
1 Mo. LIBOR + 3.75%, 0.50% Floor............................. 7.50% 12/23/27 11,193,614
7,346,046 Aveanna Healthcare LLC, 2021 Term Loan B, 1 Mo. LIBOR +
3.75%, 0.50% Floor........................................... 7.32% 07/15/28 5,869,490
516,032 Aveanna Healthcare LLC, Delayed Draw Term Loan, 1 Mo.
LIBOR + 3.75%, 0.50% Floor................................... 7.32% 07/15/28 412,309
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE SERVICES (CONTINUED)
$ 19,223,985 Brightspring Health (Phoenix Guarantor, Inc.), Incremental Term
Loan B-3, 1 Mo. LIBOR + 3.50%, 0.00% Floor................... 7.25% 03/05/26 $ 18,427,920
24,203,307 CHG Healthcare Services, Inc., Term Loan B, 1 Mo. LIBOR +
3.25%, 0.50% Floor........................................... 7.00% 09/30/28 23,451,311
8,274,447 DaVita, Inc., Term Loan B, 1 Mo. LIBOR + 1.75%, 0.00%
Floor........................................................ 5.50% 08/12/26 7,986,579
12,886,828 ExamWorks Group, Inc. (Electron Bidco), Term Loan B, 1 Mo.
LIBOR + 3.00%, 0.50% Floor................................... 6.75% 10/29/28 12,439,784
10,495,060 Global Medical Response, Inc. (fka Air Medical), 2018 New
Term Loan, 1 Mo. LIBOR + 4.25%, 1.00% Floor.................. 8.00% 03/14/25 8,074,689
1,356,781 Global Medical Response, Inc. (fka Air Medical), 2021
Refinancing Term Loan, 1 Mo. LIBOR + 4.25%, 1.00% Floor...... 7.38% 10/02/25 1,044,721
1,761,425 Packaging Coordinators, Inc. (PCI Pharma), Term Loan B, 3 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.42% 11/30/27 1,699,229
2,930,589 Radnet Management, Inc., Term Loan B, 1 Mo. LIBOR + 3.00%,
0.75% Floor.................................................. 6.75% 04/22/28 2,839,008
744,599 SCP Health (Onex TSG Intermediate Corp.), Term Loan B, 3 Mo.
LIBOR + 4.75%, 0.75% Floor................................... 9.16% 02/28/28 660,832
3,608,638 Sevita (National Mentor Holdings, Inc.), Term Loan B, 1 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.51% 03/01/28 2,558,849
4,458,724 Sevita (National Mentor Holdings, Inc.), Term Loan B, 3 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.43% 03/01/28 3,161,637
247,298 Sevita (National Mentor Holdings, Inc.), Term Loan C, 3 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.43% 03/01/28 175,357
3,031,522 U.S. Anesthesia Partners Intermediate Holdings, Inc., New Term
Loan B, 1 Mo. LIBOR + 4.25%, 0.50% Floor..................... 7.38% 09/30/28 2,872,367
---------------
132,357,761
---------------
HEALTH CARE SUPPLIES -- 1.7%
54,720,007 Medline Borrower L.P. (Mozart), Initial Dollar Term Loan, 1 Mo.
LIBOR + 3.25%, 0.50% Floor................................... 7.00% 10/21/28 50,251,024
---------------
HEALTH CARE TECHNOLOGY -- 9.3%
35,920,970 athenahealth, Inc. (Minerva Merger Sub, Inc.), Term Loan B,
1 Mo. SOFR + 3.50%, 0.50% Floor.............................. 6.97% 02/15/29 32,748,071
31,077,031 Ciox Health (Healthport/CT Technologies Intermediate Holdings,
Inc.), New Term Loan B, 1 Mo. LIBOR + 4.25%, 0.75% Floor..... 8.00% 12/16/25 28,435,483
15,397,822 Ensemble RCM LLC (Ensemble Health), Term Loan B, 3 Mo.
SOFR + 3.85%, 0.00% Floor.................................... 7.94% 08/01/26 15,160,388
25,925,514 Mediware (Wellsky/Project Ruby Ultimate Parent Corp.), Term
Loan B, 1 Mo. LIBOR + 3.25%, 0.75% Floor..................... 7.00% 03/10/28 24,357,798
13,233,904 Navicure, Inc. (Waystar Technologies, Inc.), Term Loan B, 1 Mo.
LIBOR + 4.00%, 0.00% Floor................................... 7.75% 10/23/26 12,845,224
6,418,485 Press Ganey (Azalea TopCo, Inc.), 2021 Term Loan, 1 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.50% 07/25/26 5,969,191
10,017,402 Press Ganey (Azalea TopCo, Inc.), Term Loan B, 1 Mo. LIBOR +
3.50%, 0.00% Floor........................................... 7.25% 07/25/26 9,338,122
83,254,917 Verscend Technologies, Inc. (Cotiviti), New Term Loan B-1,
1 Mo. LIBOR + 4.00%, 0.00% Floor............................. 7.75% 08/27/25 82,110,162
62,198,489 Zelis Payments Buyer, Inc., New Term Loan B-1, 1 Mo. LIBOR
+ 3.50%, 0.00% Floor......................................... 7.25% 09/30/26 61,174,702
---------------
272,139,141
---------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HOTELS, RESORTS & CRUISE LINES -- 0.5%
$ 1,770,233 Alterra Mountain Company, Term Loan B-2, 1 Mo. LIBOR +
3.50%, 0.50% Floor........................................... 7.25% 08/17/28 $ 1,727,093
11,127,250 Four Seasons Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
2.00%, 0.00% Floor........................................... 5.75% 11/30/23 11,101,434
1,994,819 Wyndham Hotels & Resorts, Inc., Term Loan B, 1 Mo. LIBOR +
1.75%, 0.00% Floor........................................... 5.50% 05/30/25 1,980,217
---------------
14,808,744
---------------
HOUSEHOLD APPLIANCES -- 0.2%
6,077,994 Weber-Stephen Products LLC, Term Loan B, 1 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 7.00% 10/31/27 5,002,979
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.0%
897,369 Alight, Inc. (fka Tempo Acq.), Extended Term Loan 2022, 1 Mo.
SOFR + 3.00%, 0.50% Floor.................................... 6.73% 08/31/28 884,133
---------------
INDUSTRIAL MACHINERY -- 0.4%
9,793,930 Filtration Group Corp., 2021 Incremental Term Loan B, 1 Mo.
LIBOR + 3.50%, 0.50% Floor................................... 7.25% 10/21/28 9,438,900
2,991,850 Filtration Group Corp., Initial Term Loan, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 6.75% 03/29/25 2,924,115
58,413 Gates Global LLC, Term Loan B-3, 1 Mo. LIBOR + 2.50%,
0.75% Floor.................................................. 6.25% 03/31/27 56,673
518,612 TK Elevator Newco GMBH (Vertical U.S. Newco, Inc.), New
Term Loan B1 (USD), 6 Mo. LIBOR + 3.50%, 0.50% Floor......... 6.87% 07/31/27 491,712
---------------
12,911,400
---------------
INSURANCE BROKERS -- 10.0%
2,604,312 Alliant Holdings I LLC, 2019 New Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 7.00% 05/10/25 2,526,182
57,765,376 Alliant Holdings I LLC, Initial Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 7.00% 05/09/25 56,041,657
11,612,084 Alliant Holdings I LLC, TLB-4 New Term Loan, 1 Mo. LIBOR
+ 3.50%, 0.50% Floor......................................... 6.98% 11/06/27 11,199,391
1,447,776 AmWINS Group, Inc., Term Loan B, 1 Mo. LIBOR + 2.25%,
0.75% Floor.................................................. 6.00% 02/28/28 1,414,376
12,855,578 AssuredPartners, Inc., 2021 Term Loan B, 1 Mo. LIBOR +
3.50%, 0.50% Floor........................................... 7.25% 02/13/27 12,241,724
13,130,423 AssuredPartners, Inc., Incremental Term Loan 2022, 1 Mo. SOFR
+ 3.50%, 0.50% Floor......................................... 7.23% 02/13/27 12,506,728
43,730,098 AssuredPartners, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 7.25% 02/12/27 41,652,918
8,981,208 BroadStreet Partners, Inc., Term Loan B, 1 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 6.75% 01/27/27 8,575,617
95,339 HUB International Ltd., Initial Term Loan B, 2 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 6.98% 04/25/25 93,382
36,419,344 HUB International Ltd., Initial Term Loan B, 3 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 7.33% 04/25/25 35,672,019
118,522 HUB International Ltd., New Term Loan B-3, 2 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 7.23% 04/25/25 116,273
46,460,680 HUB International Ltd., New Term Loan B-3, 3 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 7.53% 04/25/25 45,578,856
1,846,154 HUB International Ltd., Term Loan B4, 3 Mo. SOFR + 4.00%,
0.75% Floor.................................................. 8.22% 11/10/29 1,790,769
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
INSURANCE BROKERS (CONTINUED)
$ 65,106,315 USI, Inc. (fka Compass Investors, Inc.), Term Loan B, 3 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 6.42% 05/15/24 $ 64,252,121
---------------
293,662,013
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 1.5%
11,572,789 Numericable (Altice France S.A. or SFR), Term Loan B-11,
3 Mo. LIBOR + 2.75%, 0.00% Floor............................. 7.16% 07/31/25 10,458,908
1,938,776 Numericable (Altice France S.A. or SFR), Term Loan B-12,
3 Mo. LIBOR + 3.69%, 0.00% Floor............................. 7.77% 01/31/26 1,738,849
12,710,805 Numericable (Altice France S.A. or SFR), Term Loan B-13,
3 Mo. LIBOR + 4.00%, 0.00% Floor............................. 6.91% 08/14/26 11,619,837
6,670,107 Zayo Group Holdings, Inc., Incremental Term Loan B-2, 1 Mo.
SOFR + 4.25%, 0.50% Floor.................................... 7.98% 03/09/27 5,525,983
17,001,608 Zayo Group Holdings, Inc., Initial Dollar Term Loan, 1 Mo.
LIBOR + 3.00%, 0.00% Floor................................... 6.75% 03/09/27 13,737,299
---------------
43,080,876
---------------
MANAGED HEALTH CARE -- 0.6%
18,338,705 Multiplan, Inc. (MPH), Term Loan B, 3 Mo. LIBOR + 4.25%,
0.50% Floor.................................................. 7.32% 08/31/28 17,006,214
---------------
METAL & GLASS CONTAINERS -- 1.0%
4,655,429 Altium Packaging LLC (FKA Consolidated Container), Term
Loan B, 1 Mo. LIBOR + 2.75%, 0.50% Floor..................... 6.51% 02/03/28 4,380,247
23,984,308 Berry Global, Inc., Term Loan Z, 1 Mo. LIBOR + 1.75%, 0.00%
Floor........................................................ 5.05% 07/01/26 23,615,909
725,578 PODS LLC, Term Loan B, 1 Mo. LIBOR + 3.00%, 0.75%
Floor........................................................ 6.75% 03/31/28 697,556
---------------
28,693,712
---------------
MOVIES & ENTERTAINMENT -- 0.1%
4,305,691 Delta 2 (Lux) S.A.R.L. (Formula One), New Facility Term Loan
B3, 1 Mo. LIBOR + 2.50%, 1.00% Floor......................... 6.25% 02/01/24 4,293,118
---------------
OFFICE SERVICES & SUPPLIES -- 0.6%
19,119,587 Dun & Bradstreet Corp., Refinancing Term Loan, 1 Mo. LIBOR
+ 3.25%, 0.00% Floor......................................... 6.85% 02/08/26 18,794,554
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES -- 0.0%
956,425 AlixPartners, LLP, Term Loan B, 1 Mo. LIBOR + 2.75%, 0.50%
Floor........................................................ 6.50% 02/04/28 932,916
---------------
PACKAGED FOODS & MEATS -- 0.4%
28,361 Hostess Brands LLC (HB Holdings), Term Loan B, 1 Mo.
LIBOR + 2.25%, 0.75% Floor................................... 6.00% 08/03/25 27,880
10,975,900 Hostess Brands LLC (HB Holdings), Term Loan B, 3 Mo.
LIBOR + 2.25%, 0.75% Floor................................... 6.66% 08/03/25 10,789,309
---------------
10,817,189
---------------
PAPER PACKAGING -- 2.7%
30,037,997 Graham Packaging Company L.P., Initial Term Loan, 1 Mo.
LIBOR + 3.00%, 0.75% Floor................................... 6.75% 08/04/27 29,241,088
12,743,393 Pactiv LLC/Evergreen Packaging LLC (fka Reynolds Group
Holdings), Term Loan B-2, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 7.00% 02/05/26 12,374,727
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
PAPER PACKAGING (CONTINUED)
$ 33,089,997 Pactiv LLC/Evergreen Packaging LLC (fka Reynolds Group
Holdings), Tranche B-3 U.S. Term Loan, 1 Mo. LIBOR +
3.50%, 0.50% Floor........................................... 7.25% 09/20/28 $ 32,061,891
5,860,068 Reynolds Consumer Products LLC, Initial Term Loan, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................... 5.50% 02/04/27 5,741,226
---------------
79,418,932
---------------
PHARMACEUTICALS -- 1.5%
5,028 GoodRX, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 6.50% 10/10/25 4,876
1,531,494 ICON Clinical Investments LLC, Lux Term Loan B, 3 Mo.
LIBOR + 2.25%, 0.50% Floor................................... 5.94% 07/01/28 1,514,264
381,573 ICON Clinical Investments LLC, US Term Loan B, 3 Mo.
LIBOR + 2.25%, 0.50% Floor................................... 5.94% 07/01/28 377,280
1,912,551 IQVIA, Inc. (Quintiles), Term Loan B3, 3 Mo. LIBOR + 1.75%,
0.00% Floor.................................................. 5.42% 06/11/25 1,901,803
35,564 Mallinckrodt International Finance S.A., 2017 Replacement Term
Loan, 3 Mo. LIBOR + 5.25%, 0.75% Floor (c)................... 8.73% 09/30/27 28,785
16,100,365 Nestle Skin Health (Sunshine Lux VII S.A.R.L./Galderma), 2021
Term Loan B-3, 3 Mo. LIBOR + 3.75%, 0.75% Floor.............. 7.42% 10/02/26 15,305,490
25,882,153 Parexel International Corp. (Phoenix Newco), Term Loan (First
Lien), 1 Mo. LIBOR + 3.25%, 0.50% Floor...................... 7.00% 11/15/28 24,889,055
---------------
44,021,553
---------------
RESEARCH & CONSULTING SERVICES -- 2.3%
44,588,546 Clarivate Analytics PLC (Camelot), Amendment No. 2
Incremental Term Loan, 1 Mo. LIBOR + 3.00%, 1.00%
Floor........................................................ 6.75% 10/31/26 43,826,974
15,994,452 Corelogic, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50%
Floor........................................................ 7.31% 06/02/28 11,751,444
9,294,602 J.D. Power (Project Boost Purchaser LLC), 2021 Incremental
Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor................ 7.25% 05/26/26 8,911,200
3,107,010 Veritext Corp. (VT TopCo, Inc.), Non-Fungible Term Loan (First
Lien), 1 Mo. LIBOR + 3.75%, 0.75% Floor...................... 7.50% 08/10/25 3,006,032
---------------
67,495,650
---------------
RESTAURANTS -- 4.6%
37,273,121 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........................................... 5.50% 11/14/26 36,220,155
11,047,155 1011778 B.C. Unlimited Liability Co. (Restaurant Brands) (aka
Burger King/Tim Horton's), Term Loan B-4, 3 Mo. LIBOR +
1.75%, 0.00% Floor........................................... 6.16% 11/14/26 10,735,073
20,526,250 IRB Holding Corp. (Arby's/Inspire Brands), New Term Loan B
2022, 1 Mo. SOFR + 3.10%, 0.75% Floor........................ 6.21% 12/15/27 19,966,910
66,224,426 IRB Holding Corp. (Arby's/Inspire Brands), Term Loan B, 1 Mo.
LIBOR + 2.75%, 1.00% Floor................................... 6.50% 02/05/25 65,157,550
4,505,343 Portillo's Holdings LLC, Term Loan B-3, 1 Mo. LIBOR + 5.50%,
1.00% Floor.................................................. 9.25% 09/06/24 4,437,763
---------------
136,517,451
---------------
SECURITY & ALARM SERVICES -- 0.1%
2,629,846 Garda World Security Corp., Term Loan B, 3 Mo. LIBOR +
4.25%, 0.00% Floor........................................... 7.24% 10/30/26 2,497,801
---------------
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SOFT DRINKS -- 0.3%
$ 8,987,375 Tropicana (Naked Juice LLC/Bengal Debt Merger Sub LLC),
Term Loan (First Lien), 3 Mo. SOFR + 3.25%, 0.50% Floor...... 6.90% 01/24/29 $ 8,188,038
---------------
SPECIALIZED CONSUMER SERVICES -- 0.6%
3,840,089 Aramark Services, Inc., Term Loan B-3, 1 Mo. LIBOR + 1.75%,
0.00% Floor.................................................. 5.50% 03/11/25 3,723,273
4,411,255 Asurion LLC, New B-8 Term Loan, 1 Mo. LIBOR + 3.25%,
0.00% Floor.................................................. 7.00% 12/23/26 3,913,621
12,979,453 Asurion LLC, Term Loan B-3 (Second Lien), 1 Mo. LIBOR +
5.25%, 0.00% Floor........................................... 9.00% 01/31/28 9,093,794
310,779 Driven Holdings LLC, 2021 Term Loan B, 1 Year LIBOR +
3.00%, 0.50% Floor........................................... 3.52% 11/30/28 300,679
---------------
17,031,367
---------------
SPECIALIZED FINANCE -- 0.9%
10,378,290 WCG Purchaser Corp. (WIRB-Copernicus Group), Term Loan B,
1 Mo. LIBOR + 4.00%, 1.00% Floor............................. 7.12% 01/08/27 9,814,023
17,205,891 WCG Purchaser Corp. (WIRB-Copernicus Group), Term Loan B,
3 Mo. LIBOR + 4.00%, 1.00% Floor............................. 7.67% 01/08/27 16,270,407
---------------
26,084,430
---------------
SPECIALTY STORES -- 1.3%
28,319,923 Petco Health and Wellness Co., Inc., Initial Term Loan B, 3 Mo.
LIBOR + 3.25%, 0.75% Floor................................... 6.92% 03/03/28 27,113,212
11,570,206 Petsmart, Inc., Initial Term Loan B, 1 Mo. LIBOR + 3.75%,
0.75% Floor.................................................. 7.50% 02/12/28 11,112,257
---------------
38,225,469
---------------
SYSTEMS SOFTWARE -- 5.4%
45,510,968 Applied Systems, Inc., Term Loan (First Lien), 3 Mo. LIBOR +
3.00%, 0.50% Floor........................................... 6.67% 09/19/24 44,880,641
8,629,642 Applied Systems, Inc., Term Loan (Second Lien), 3 Mo. LIBOR
+ 5.50%, 0.75% Floor......................................... 9.17% 09/19/25 8,449,887
17,475,165 BMC Software Finance, Inc. (Boxer Parent), 2021 Replacement
Dollar Term Loan, 1 Mo. LIBOR + 3.75%, 0.00% Floor........... 7.50% 10/02/25 16,771,790
2,740,623 Idera, Inc., Initial Term Loan, 3 Mo. LIBOR + 3.75%, 0.75%
Floor........................................................ 7.50% 02/15/28 2,499,448
24,278,705 Misys Financial Software Ltd. (Almonde, Inc.) (Finastra), Term
Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor..................... 6.87% 06/13/24 21,897,935
10,395,000 Proofpoint, Inc., Term Loan (Second Lien), 3 Mo. LIBOR +
6.25%, 0.50% Floor........................................... 9.32% 08/31/29 9,979,200
11,747,470 Proofpoint, Inc., Term Loan B, 3 Mo. LIBOR + 3.25%, 0.50%
Floor........................................................ 6.32% 08/31/28 11,160,096
13,519,596 Sophos Group PLC (Surf), Term Loan B, 3 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 6.67% 03/05/27 13,209,051
10,795,786 SS&C Technologies Holdings, Inc., Term Loan B-3, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................... 5.50% 04/16/25 10,556,011
9,036,429 SS&C Technologies Holdings, Inc., Term Loan B-4, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................... 5.50% 04/16/25 8,835,730
8,236,373 SS&C Technologies Holdings, Inc., Term Loan B-5, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................... 5.50% 04/16/25 8,046,772
977,215 SUSE (Marcel Lux IV S.A.R.L.), Facility Term Loan B1 USD,
SOFR + 3.25%, 0.00% Floor.................................... 6.37% 03/15/26 955,228
---------------
157,241,789
---------------
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS -- 1.2%
$ 36,061,365 SRS Distribution, Inc., 2021 Refinancing Term Loan, 1 Mo.
LIBOR + 3.50%, 0.50% Floor................................... 7.25% 06/04/28 $ 33,446,917
836,127 SRS Distribution, Inc., 2022 Refinancing Term Loan, 1 Mo.
SOFR + 3.60%, 0.50% Floor.................................... 7.33% 06/04/28 774,989
---------------
34,221,906
---------------
WIRELESS TELECOMMUNICATION SERVICES -- 1.2%
34,878,939 SBA Senior Finance II LLC, Term Loan B, 1 Mo. LIBOR +
1.75%, 0.00% Floor........................................... 5.51% 04/11/25 34,542,706
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................................... 2,472,651,038
(Cost $2,586,919,206) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 9.5%
AEROSPACE & DEFENSE -- 0.0%
1,082,000 TransDigm, Inc. (d)............................................. 6.25% 03/15/26 1,066,933
---------------
APPLICATION SOFTWARE -- 0.1%
763,000 Go Daddy Operating Co. LLC / GD Finance Co., Inc. (d)........... 5.25% 12/01/27 715,849
3,598,000 GoTo Group, Inc. (d)............................................ 5.50% 09/01/27 2,095,907
---------------
2,811,756
---------------
BROADCASTING -- 1.3%
2,148,000 Gray Television, Inc. (d)....................................... 5.88% 07/15/26 2,029,699
18,561,000 Nexstar Media, Inc. (d)......................................... 5.63% 07/15/27 17,661,441
21,204,000 Sirius XM Radio, Inc. (d)....................................... 3.13% 09/01/26 18,993,377
---------------
38,684,517
---------------
CABLE & SATELLITE -- 3.5%
57,771,000 CCO Holdings LLC / CCO Holdings Capital Corp. (d)............... 5.13% 05/01/27 53,608,888
53,853,000 CSC Holdings LLC (d)............................................ 7.50% 04/01/28 46,757,059
2,882,000 Radiate Holdco LLC / Radiate Finance, Inc. (d).................. 4.50% 09/15/26 2,441,112
---------------
102,807,059
---------------
CASINOS & GAMING -- 0.3%
4,765,000 Fertitta Entertainment LLC / Fertitta Entertainment Finance Co.,
Inc. (d)..................................................... 4.63% 01/15/29 4,153,007
5,330,000 VICI Properties L.P. / VICI Note Co., Inc. (d).................. 4.25% 12/01/26 4,809,448
---------------
8,962,455
---------------
HEALTH CARE FACILITIES -- 1.2%
3,798,000 Select Medical Corp. (d)........................................ 6.25% 08/15/26 3,608,499
10,364,000 Tenet Healthcare Corp. (d)...................................... 4.88% 01/01/26 9,787,865
2,015,000 Tenet Healthcare Corp. (d)...................................... 6.25% 02/01/27 1,926,703
16,407,000 Tenet Healthcare Corp. (d)...................................... 5.13% 11/01/27 15,152,357
3,607,000 Tenet Healthcare Corp. (d)...................................... 4.63% 06/15/28 3,180,556
1,330,000 Tenet Healthcare Corp. (d)...................................... 6.13% 10/01/28 1,155,936
---------------
34,811,916
---------------
HEALTH CARE SERVICES -- 0.7%
475,000 DaVita, Inc. (d)................................................ 3.75% 02/15/31 346,147
24,212,000 Global Medical Response, Inc. (d)............................... 6.50% 10/01/25 19,303,380
---------------
19,649,527
---------------
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
INSURANCE BROKERS -- 1.1%
$ 3,124,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (d)................................................ 4.25% 10/15/27 $ 2,819,598
2,265,000 AmWINS Group, Inc. (d).......................................... 4.88% 06/30/29 1,943,065
9,728,000 AssuredPartners, Inc. (d)....................................... 7.00% 08/15/25 9,333,828
16,858,000 HUB International Ltd. (d)...................................... 7.00% 05/01/26 16,678,378
465,000 USI, Inc. (d)................................................... 6.88% 05/01/25 452,019
---------------
31,226,888
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 0.1%
2,291,000 Zayo Group Holdings, Inc. (d)................................... 4.00% 03/01/27 1,750,044
---------------
PAPER PACKAGING -- 0.1%
4,535,000 Pactiv Evergreen Group Issuer, Inc. / Pactiv Evergreen Group
Issuer LLC (d)............................................... 4.00% 10/15/27 4,059,279
---------------
PHARMACEUTICALS -- 0.0%
843,000 Horizon Therapeutics USA, Inc. (d).............................. 5.50% 08/01/27 813,440
---------------
RESEARCH & CONSULTING SERVICES -- 0.0%
1,000,000 Clarivate Science Holdings Corp. (d)............................ 3.88% 07/01/28 860,083
---------------
RESTAURANTS -- 0.1%
3,185,000 IRB Holding Corp. (d)........................................... 7.00% 06/15/25 3,186,879
---------------
SYSTEMS SOFTWARE -- 0.6%
18,749,000 SS&C Technologies, Inc. (d)..................................... 5.50% 09/30/27 17,488,425
---------------
TRUCKING -- 0.4%
12,706,000 Hertz (The) Corp. (d)........................................... 4.63% 12/01/26 10,850,797
---------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 279,029,998
(Cost $305,827,115) ---------------
FOREIGN CORPORATE BONDS AND NOTES -- 0.8%
APPLICATION SOFTWARE -- 0.4%
13,478,000 Open Text Corp. (d)............................................. 3.88% 02/15/28 11,563,720
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.3%
10,755,000 Paysafe Finance PLC / Paysafe Holdings US Corp. (d)............. 4.00% 06/15/29 7,705,474
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.1%
2,549,000 GFL Environmental, Inc. (d)..................................... 3.75% 08/01/25 2,418,211
1,323,000 GFL Environmental, Inc. (d)..................................... 4.00% 08/01/28 1,147,927
---------------
3,566,138
---------------
RESTAURANTS -- 0.0%
793,000 1011778 BC ULC / New Red Finance, Inc. (d)...................... 4.38% 01/15/28 700,639
517,000 1011778 BC ULC / New Red Finance, Inc. (d)...................... 4.00% 10/15/30 419,597
---------------
1,120,236
---------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................................... 23,955,568
(Cost $26,488,991) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS -- 0.1%
PHARMACEUTICALS -- 0.1%
249,316 Akorn, Inc. (e) (f).......................................................................... 1,495,896
(Cost $2,858,880) ---------------
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
WARRANTS -- 0.0%
MOVIES & ENTERTAINMENT -- 0.0%
972,355 Cineworld Group PLC, expiring 11/23/25 (e) (g)............................................... $ 55,755
(Cost $0) ---------------
RIGHTS -- 0.0%
ELECTRIC UTILITIES -- 0.0%
4,887 Vistra Energy Corp., no expiration date (e) (g).............................................. 5,864
---------------
LIFE SCIENCES TOOLS & SERVICES -- 0.0%
1 New Millennium Holdco, Inc., Corporate Claim Trust, no expiration date (e) (g) (h) (i)....... 0
1 New Millennium Holdco, Inc., Lender Claim Trust, no expiration date (e) (g) (h) (i).......... 0
---------------
0
---------------
TOTAL RIGHTS................................................................................. 5,864
(Cost $8,491) ---------------
MONEY MARKET FUNDS -- 4.7%
139,529,806 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class -
2.85% (j)................................................................................. 139,529,806
(Cost $139,529,806) ---------------
TOTAL INVESTMENTS -- 99.3%................................................................... 2,916,723,925
(Cost $3,061,632,489)
NET OTHER ASSETS AND LIABILITIES -- 0.7%..................................................... 21,930,705
---------------
NET ASSETS -- 100.0%......................................................................... $ 2,938,654,630
===============
</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 SOFR obtained from
the U.S. Department of the Treasury's Office of Financial Research, (iii)
the prime rate offered by one or more United States banks or (iv) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
or SOFR floor that establishes a minimum LIBOR or SOFR rate. When a range
of rates is disclosed, the Fund holds more than one contract within the
same tranche with identical LIBOR or SOFR period, spread and floor, but
different LIBOR or SOFR reset dates.
(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) On June 16, 2022, Mallinckrodt plc completed a Bankruptcy Plan of
Reorganization. In connection with the Plan of Reorganization, the Fund
received a new replacement term loan.
(d) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended (the "1933 Act"), and may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be liquid by First Trust Advisors L.P.,
(the "Advisor"). Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is
determined based on security specific factors and assumptions, which
require subjective judgment. At October 31, 2022, securities noted as such
amounted to $302,985,566 or 10.3% of net assets.
(e) Non-income producing security.
(f) Security received in a transaction exempt from registration under the 1933
Act. The security may be resold pursuant to an exemption from registration
under the 1933 Act, typically to qualified institutional buyers (see Note
2D - Restricted Securities in the Notes to Financial Statements).
(g) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(h) This security's value was determined using significant unobservable inputs
(see Note 2A - Portfolio Valuation in the Notes to Financial Statements).
(i) This security is fair valued by the Advisor's Pricing Committee in
accordance with procedures approved by the Trust's Board of Trustees, and
in accordance with provisions of the Investment Company Act of 1940 and
rules thereunder, as amended. At October 31, 2022, securities noted as
such are valued at $0 or 0.0% of net assets.
(j) Rate shown reflects yield as of October 31, 2022.
LIBOR - London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2022 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
10/31/2022 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Senior Floating-Rate Loan Interests*............ $2,472,651,038 $ -- $2,472,651,038 $ --
Corporate Bonds and Notes*...................... 279,029,998 -- 279,029,998 --
Foreign Corporate Bonds and Notes*.............. 23,955,568 -- 23,955,568 --
Common Stocks*.................................. 1,495,896 -- 1,495,896 --
Warrants*....................................... 55,755 -- 55,755 --
Rights:
Electric Utilities........................... 5,864 -- 5,864 --
Life Sciences Tools & Services............... --** -- -- --**
Money Market Funds.............................. 139,529,806 139,529,806 -- --
-------------- -------------- -------------- --------------
Total Investments............................... $2,916,723,925 $ 139,529,806 $2,777,194,119 $ --**
============== ============== ============== ==============
</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 19
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $2,916,723,925
Cash...................................................................... 890,462
Receivables:
Investment securities sold............................................. 87,487,032
Interest............................................................... 10,263,903
Dividends.............................................................. 389,233
--------------
Total Assets........................................................... 3,015,754,555
--------------
LIABILITIES:
Payables:
Investment securities purchased........................................ 74,206,592
Investment advisory fees............................................... 2,151,113
Unrealized depreciation on unfunded loan commitments................... 742,220
--------------
Total Liabilities...................................................... 77,099,925
--------------
NET ASSETS................................................................ $2,938,654,630
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $3,258,219,376
Par value................................................................. 656,500
Accumulated distributable earnings (loss)................................. (320,221,246)
--------------
NET ASSETS................................................................ $2,938,654,630
==============
NET ASSET VALUE, per share................................................ $ 44.76
==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................. 65,650,002
==============
Investments, at cost...................................................... $3,061,632,489
==============
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 166,370,398
Dividends................................................................. 1,413,865
--------------
Total investment income................................................ 167,784,263
--------------
EXPENSES:
Investment advisory fees.................................................. 28,989,789
--------------
Total expenses......................................................... 28,989,789
--------------
NET INVESTMENT INCOME (LOSS).............................................. 138,794,474
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments................................... (101,739,244)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ (140,123,726)
Unfunded loan commitments.............................................. (735,976)
--------------
Net change in unrealized appreciation (depreciation)...................... (140,859,702)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (242,598,946)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ (103,804,472)
==============
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/2022 10/31/2021
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 138,794,474 $ 64,839,416
Net realized gain (loss).................................................. (101,739,244) 2,082,051
Net change in unrealized appreciation (depreciation)...................... (140,859,702) 48,540,282
-------------- --------------
Net increase (decrease) in net assets resulting from operations........... (103,804,472) 115,461,749
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (139,547,604) (64,316,388)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 1,150,159,765 1,550,254,032
Cost of shares redeemed................................................... (834,804,577) (11,712,176)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................................... 315,355,188 1,538,541,856
-------------- --------------
Total increase (decrease) in net assets................................... 72,003,112 1,589,687,217
NET ASSETS:
Beginning of period....................................................... 2,866,651,518 1,276,964,301
-------------- --------------
End of period............................................................. $2,938,654,630 $2,866,651,518
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 60,000,002 27,850,002
Shares sold............................................................... 24,150,000 32,400,000
Shares redeemed........................................................... (18,500,000) (250,000)
-------------- --------------
Shares outstanding, end of period......................................... 65,650,002 60,000,002
============== ==============
</TABLE>
Page 22 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,
------------------------------------------------------------------------
2022 2021 2020 2019 2018
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 47.78 $ 45.85 $ 47.15 $ 47.75 $ 48.26
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 1.89 1.54 1.67 2.13 1.87
Net realized and unrealized gain (loss)............... (3.01) 1.92 (1.27) (0.57) (0.43)
---------- ---------- ---------- ---------- ----------
Total from investment operations...................... (1.12) 3.46 0.40 1.56 1.44
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................. (1.90) (1.53) (1.67) (2.15) (1.92)
Return of capital..................................... -- -- (0.03) (0.01) (0.03)
---------- ---------- ---------- ---------- ----------
Total distributions................................... (1.90) (1.53) (1.70) (2.16) (1.95)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period........................ $ 44.76 $ 47.78 $ 45.85 $ 47.15 $ 47.75
========== ========== ========== ========== ==========
TOTAL RETURN (a)...................................... (2.38)% 7.60% 0.90% 3.37% 3.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................. $2,938,655 $2,866,652 $1,276,964 $1,603,148 $1,883,903
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................................. 4.07% 3.27% 3.63% 4.50% 3.94%
Portfolio turnover rate (c)........................... 63% 92% 76% 44% 88%
</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 23
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
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 twelve 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"). The Fund represents a separate series of shares of
beneficial interest in the Trust. Unlike conventional mutual funds, the Fund
issues and redeems shares on a continuous basis, at net asset value ("NAV"),
only in large blocks of shares known as "Creation Units."
The Fund'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
Morningstar(R) LSTA(R) US Leveraged Loan 100 Index (the "LL 100") and the Markit
iBoxx USD Liquid Leveraged Loan Index (the "MI 100") by investing at least 80%
of its net assets (including investment borrowings) in first lien senior
floating rate bank loans ("Senior Loans")(1). The LL 100 is a market
value-weighted index designed to measure the performance of the largest segment
of the U.S. syndicated leveraged loan market. The LL 100 consists of 100 loan
facilities drawn from a larger benchmark, the Morningstar(R) LSTA(R) US
Leveraged Loan Index. The MI 100 selects the 100 most liquid Senior Loans in the
market. The Fund does not seek to track either the LL 100 or MI 100, 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 LL 100 and/or MI 100 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, such as the London Interbank Offered Rate ("LIBOR"), the Secured
Overnight Financing Rate ("SOFR"), a similar reference rate, or the prime rate
offered by one or more major U.S. banks. 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 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 readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Trust" or the "Advisor"), in accordance with valuation procedures approved by
the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act
and rules thereunder. Investments valued by the Advisor's Pricing Committee, if
any, are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 24
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
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 a third-party pricing service
approved by the Advisor's Pricing Committee, 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 and other equity securities listed on any national or
foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade price.
Fixed income and other debt securities having a remaining maturity of
sixty days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Advisor's Pricing Committee at
fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended (the "1933 Act")) for
which a third-party pricing service is unable to provide a market price;
securities whose trading has been formally suspended; a security whose market or
fair value price is not available from a pre-established pricing source; a
security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of 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 25
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the most recent price provided by a pricing service;
2) the fundamental business data relating to the borrower/issuer;
3) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
4) the type, size and cost of a security;
5) the financial statements of the borrower/issuer, or the
financial condition of the country of issue;
6) the credit quality and cash flow of the borrower/issuer, or
country of issue, based on the Pricing Committee's,
sub-adviser's or portfolio manager's analysis, as applicable,
or external analysis;
7) the information as to any transactions in or offers for the
security;
8) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
9) the coupon payments;
10) the quality, value and salability of collateral, if any,
securing the security;
11) 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;
12) 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;
13) borrower's/issuer's competitive position within the industry;
14) borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
15) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
Page 26
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
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 United Kingdom's Financial Conduct Authority (the "FCA"), which regulates
the London Interbank Offered Rates ("LIBOR") announced on March 5, 2021 that it
intended to phase-out all LIBOR reference rates, beginning December 31, 2021.
Since that announcement, the FCA has ceased publication of all non-USD LIBOR
reference rates and the 1-week and 2-month USD LIBOR reference rates as of
December 31, 2021. The remaining USD LIBOR settings will cease to be published
or no longer be representative immediately after June 30, 2023. The
International Swaps and Derivatives Association, Inc. ("ISDA") confirmed that
the FCA's March 5, 2021 announcement of its intention to cease providing LIBOR
reference rates, constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
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. There is no assurance that
any alternative reference rate, including SOFR, will be similar to or produce
the same value or economic equivalence as LIBOR or that instruments using an
alternative rate will have the same volume or liquidity.
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, 2022.
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. The commitment fees are included in "Interest" on the
Statement of Operations. As of October 31, 2022, the Fund had the following
unfunded loan commitments:
<TABLE>
<CAPTION>
UNREALIZED
PRINCIPAL COMMITMENT APPRECIATION
BORROWER VALUE AMOUNT VALUE (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
athenahealth, Inc. (Minerva Merger Sub, Inc.), Term Loan $ 6,103,559 $ 6,064,024 $ 5,564,431 $ (499,593)
Aveanna Healthcare LLC, Term Loan 1,207,092 1,201,080 964,467 (236,613)
Veritext Corp. (VT TopCo, Inc.), Term Loan 207,517 206,787 200,773 (6,014)
------------ ------------ ------------
$ 7,471,891 $ 6,729,671 $ (742,220)
============ ============ ============
</TABLE>
D. RESTRICTED SECURITIES
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of October 31, 2022, the Fund held restricted
securities as shown in the following table that the Advisor has deemed illiquid
pursuant to procedures adopted by the Trust's Board of Trustees.
Page 27
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
Although market instability can result in periods of increased overall market
illiquidity, liquidity for each security is determined based on
security-specific factors and assumptions, which require subjective judgment.
The Fund does not have the right to demand that such securities be registered.
These securities are valued according to the valuation procedures as stated in
the Portfolio Valuation note (Note 2A) and are not expressed as a discount to
the carrying value of a comparable unrestricted security.
<TABLE>
<CAPTION>
ACQUISITION CURRENT CARRYING % OF NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Akorn, Inc. 10/15/2020 249,316 $ 6.00 $2,858,880 $1,495,896 0.05%
</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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
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, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 139,547,604 $ 64,316,388
Capital gains................................... -- --
Return of capital............................... -- --
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 1,035,608
Accumulated capital and other gain (loss)....... (173,963,056)
Net unrealized appreciation (depreciation)...... (147,293,798)
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 2019,
2020, 2021, and 2022 remain open to federal and state audit. As of October 31,
2022, 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, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $173,963,056.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
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, 2022, 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,
2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
-------------- -------------- ---------------
$ 316,352 $ (324,604) $ 8,252
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
$ 3,063,275,503 $ 875,898 $ (147,427,476) $ (146,551,578)
</TABLE>
G. 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 0.85% 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,
target outcome fund or an index fund.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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, 2022, the cost of purchases and proceeds
from sales of investments, excluding short-term investments and in-kind
transactions, were $2,307,437,824 and $2,033,550,086, respectively.
For the fiscal year ended October 31, 2022, there were no in-kind transactions.
5. BORROWINGS
The Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund
III and First Trust Series Fund have a $305 million Credit Agreement with The
Bank of Nova Scotia ("Scotia") as administrative agent for a group of lenders.
Between March 2, 2022 and October 30, 2022, the commitment amount was $280
million, and prior to March 2, 2022, the commitment amount was $355 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, 2022.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022
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, 2024.
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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
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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 Senior Loan Fund (the "Fund"), a series of the First Trust Exchange-Traded
Fund IV, including the portfolio of investments, as of October 31, 2022, 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, 2022, 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, 2022, 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 22, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (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, 2022 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, 2022, 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 significant
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
more broadly diversified.
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (UNAUDITED)
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (UNAUDITED)
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
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, 2023 at a meeting held on June 12-13, 2022. The Board determined that
the continuation of the Agreement is in the best interests of the Fund in light
of the nature, extent and quality of the services provided and such other
matters as the Board considered to be relevant in the exercise of its business
judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, 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 indirect benefits to the Advisor and its affiliate, First Trust
Portfolios L.P. ("FTP"); and information on the Advisor's compliance program.
The Board reviewed initial materials with the Advisor at the meeting held on
April 18, 2022, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the
April 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 12-13, 2022 meeting, as well as at the June meeting. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor continues to be a reasonable business arrangement from
the Fund's perspective. The Board determined that, given the totality of the
information provided with respect to the Agreement, the Board had received
sufficient information to renew the Agreement. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor manages the Fund and knowing the Fund's unitary fee.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (UNAUDITED)
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 April 18,
2022 meeting, described to the Board the scope of its ongoing investment in
additional personnel and infrastructure to maintain and improve the quality of
services provided to the Fund and the other funds in the First Trust Fund
Complex. In light of the information presented and the considerations made, the
Board concluded that the nature, extent and quality of the services provided to
the Trust and the Fund by the Advisor under the Agreement have been and are
expected to remain satisfactory and that the Advisor has managed the Fund
consistent with its investment objectives, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any.
The Board received and reviewed information showing the fee rates and expense
ratios of the peer funds in the Expense Group, as well as advisory and unitary
fee rates charged by the Advisor to other fund (including ETFs) and non-fund
clients, as applicable. Because the Fund pays a unitary fee, the Board
determined that expense ratios were the most relevant comparative data point.
Based on the information provided, the Board noted that the unitary fee rate for
the Fund was 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 April 18,
2022 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, 2021
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-year period
ended December 31, 2021 and outperformed the Performance Universe median for the
three- and five-year periods ended December 31, 2021. The Board also noted that
the Fund underperformed the benchmark index for the one, three- and five-year
periods ended December 31, 2021.
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 that its expenses
relating to providing advisory services to the Fund will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. 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
Page 37
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (UNAUDITED)
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, 2021 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data, for the same period. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered indirect benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered that the Advisor had identified as an indirect benefit to the Advisor
and FTP their exposure to investors and brokers who, absent their exposure to
the Fund, may have had no dealings with the Advisor or FTP, and noted that the
Advisor does not utilize soft dollars in connection with the Fund. The Board
concluded that the character and amount of potential indirect benefits to the
Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") 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 Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreement for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the continuation of the
Agreement was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
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, 2021, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $5,659,300. This
figure is comprised of $589,160 paid (or to be paid) in fixed compensation and
$5,070,140 paid (or to be paid) in variable compensation. There were a total of
24 beneficiaries of the remuneration described above. Those amounts include
$607,593 paid (or to be paid) to senior management of First Trust Advisors L.P.
and $5,051,707 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Fund (collectively, "Code Staff").
Page 38
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (UNAUDITED)
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 39
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--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 40
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 41
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2022 (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
professional 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 2022
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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, 2022
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 20
Statement of Operations...................................................... 21
Statements of Changes in Net Assets.......................................... 22
Statement of Cash Flows...................................................... 23
Financial Highlights......................................................... 24
Notes to Financial Statements................................................ 25
Report of Independent Registered Public Accounting Firm...................... 33
Additional Information....................................................... 34
Board of Trustees and Officers............................................... 40
Privacy Policy............................................................... 42
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 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 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, 2022
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, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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 TACTICAL HIGH YIELD ETF (HYLS)
The First Trust Tactical High Yield ETF's (the "Fund") investment objective 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 S&P Global Ratings, 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 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
invests no more than 15% of its net assets in Distressed Securities, as
determined at the time of investment. 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 loans other than 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 listing rules of 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)
10/31/22 10/31/22 to 10/31/22 10/31/22 to 10/31/22
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV -11.56% 1.37% 3.26% 7.02% 36.38%
Market Price -11.90% 1.36% 3.23% 6.97% 36.07%
INDEX PERFORMANCE
ICE BofA US High Yield
Constrained Index -11.44% 1.88% 3.78% 9.76% 43.15%
------------------------------------------------------------------------------------------------------------------------------------
</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 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 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 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)
-----------------------------------------------------------
Software 18.1%
Media 17.4
Insurance 12.8
Health Care Providers & Services 10.6
Hotels, Restaurants & Leisure 6.0
Health Care Technology 5.0
Containers & Packaging 3.7
Diversified Telecommunication Services 3.0
Health Care Equipment & Supplies 2.1
Electric Utilities 1.9
Building Products 1.6
Trading Companies & Distributors 1.5
Communications Equipment 1.5
Commercial Services & Supplies 1.4
Internet & Direct Marketing Retail 1.1
IT Services 1.1
Diversified Consumer Services 1.0
Specialty Retail 1.0
Entertainment 1.0
Professional Services 0.7
Pharmaceuticals 0.7
Construction & Engineering 0.7
Food Products 0.6
Life Sciences Tools & Services 0.6
Independent Power and Renewable
Electricity Producers 0.6
Diversified Financial Services 0.5
Automobiles 0.5
Capital Markets 0.5
Electronic Equipment, Instruments &
Components 0.4
Aerospace & Defense 0.4
Machinery 0.3
Road & Rail 0.3
Auto Components 0.3
Consumer Finance 0.3
Construction Materials 0.2
Household Products 0.2
Chemicals 0.1
Food & Staples Retailing 0.1
Electrical Equipment 0.1
Personal Products 0.1
Semiconductors & Semiconductor
Equipment 0.0*
Real Estate Management & Development 0.0*
Wireless Telecommunication Services 0.0*
Interactive Media & Services 0.0*
--------
Total 100.0%
========
* Amount is less than 0.1%.
-----------------------------------------------------------
% OF TOTAL LONG-TERM
ASSET CLASSIFICATION INVESTMENTS(1)
-----------------------------------------------------------
Corporate Bonds 74.6%
Senior Floating-Rate Loan Interests 17.6
Foreign Corporate Bonds 7.7
Common Stock 0.1
Warrants 0.0*
Rights 0.0*
--------
Total 100.0%
========
-----------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
CREDIT QUALITY (S&P RATINGS)(2) DEBT SECURITIES(1)
-----------------------------------------------------------
BBB 0.4%
BBB- 1.4
BB+ 2.1
BB 5.3
BB- 9.7
B+ 19.7
B 19.4
B- 15.1
CCC+ 23.7
CCC 2.6
CCC- 0.1
NR 0.5
--------
Total 100.0%
========
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP 10 ISSUERS INVESTMENTS(1)
-----------------------------------------------------------
Charter Communications Operating LLC 3.9%
HUB International Ltd. 3.8
Internet Brands, Inc. (WebMD/MH
Sub I LLC) 3.7
AssuredPartners, Inc. 3.5
Verscend Technologies, Inc. (Cotiviti) 3.4
Tenet Healthcare Corp. 3.1
Nexstar Broadcasting, Inc. 3.0
Cablevision (aka CSC Holdings LLC) 3.0
Amwins Group, Inc. 2.8
Gray Television, Inc. 2.5
--------
Total 32.7%
========
(1) Percentages are based on the long positions only. Money market funds and
short positions are excluded.
(2) The ratings are by S&P Global Ratings. A credit rating is an assessment
provided by a nationally recognized statistical rating organization
(NRSRO) of the creditworthiness of an issuer with respect to debt
obligations 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, 2022
First Trust Tactical ICE BofA US High Yield
High Yield ETF 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 13,155
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
4/30/21 15,267 15,784
10/31/21 15,421 16,164
4/30/22 14,565 14,999
10/31/22 13,638 14,315
</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, 2022 (UNAUDITED)
ADVISOR
The First Trust Advisors L.P. ("First Trust") Leveraged Finance Team is
comprised of 17 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, 2022, the First
Trust Leveraged Finance Team managed or supervised approximately $5.8 billion in
senior secured bank loans and high-yield bonds. These assets are managed across
various strategies, including two closed-end funds, an open-end fund, four
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 AND PORTFOLIO MANAGER
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Mr. Housey has served as a part of the portfolio
management team of the Fund since 2013 while Mr. Scott has served as a part of
the portfolio management team of the Fund since 2020.
COMMENTARY
The First Trust Tactical High Yield ETF (the "Fund") is an actively managed
exchange-traded fund ("ETF"). The Fund's primary investment objective is to
provide current income, with a secondary objective of capital appreciation.
MARKET RECAP
In the last 12-month ("LTM") period ended October 31, 2022, inflation remained
stubbornly elevated with the October 2022 Consumer Price Index ("CPI") printing
7.7% on a year-over-year basis; meanwhile, the Federal Reserve (the "Fed")
continues to reiterate its commitment to a 2.0% inflation target. The Fed
increased the Federal Funds target rate by 300 basis points ("bps") in the LTM
period, moving the upper bound from 0.25% to 3.25% over the course of five
meetings. In each of the last three meetings, the Fed increased the Federal
Funds target rate by a full 75 bps. Due to the persistence of the inflation data
and how far it is from the Fed's target inflation rate, we do not believe the
Fed can "pivot" to a more accommodative posture until either (1) inflation has
tamed, or (2) a recession is near or already underway, absent any major
financial market calamity. The 10-Year U.S. Treasury yield finished the period
at 4.05%, after trading from lows of 1.34% to highs of 4.24% over the LTM
period. While U.S. Equities reached all-time highs in January 2022, investor
concerns over geopolitical risks, elevated inflation, and rapidly increasing
interest rates soon dampened market euphoria and tipped U.S. Equities into a
bear market. The S&P 500(R) Index returned -14.61% during the LTM period ended
October 31, 2022.
High-Yield Bond Market
High-yield bond spreads over U.S. Treasuries increased 148 bps to T+465 bps in
the LTM period ended October 31, 2022. The current spread is 87 bps below the
long-term average spread of T+552 bps (December 1997 - October 2022). High-yield
bond funds reported their third monthly inflow of the period in October 2022,
bringing net LTM outflows to $51.8 billion.
In the LTM period, B rated bonds (-10.46%) outperformed both BB rated (-11.13%)
and CCC rated bonds (-15.89%). The average high-yield bond price decreased from
$103.67 at the beginning of the period to $85.67 at the end of the period.
Senior Loan Market
Senior loan spreads over 3-month London Interbank Offered Rate ("LIBOR")
increased by 238 bps to L+654 bps during the 12-month period ended October 31,
2022. The current spread is 139 bps above the long-term average spread of L+515
bps (December 1997 - October 2022). After experiencing six consecutive monthly
inflows, retail senior loan funds realized their sixth consecutive monthly
outflow in October 2022, bringing net inflows to $2.8 billion over the LTM
period. The market's expectation for rate hikes drove strong demand for the
senior loan asset class in the first half of the period; however, as market
volatility escalated, demand slowed.
In the LTM period, BB rated senior loans (+1.36%) outperformed both B rated
(-2.42%) and CCC rated senior loans (-10.66%). The average senior loan price
decreased from $98.55 at the beginning of the period to $92.19 at the end of the
period.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
Default Rates
Both high-yield bond and senior loan default rates increased in the LTM period
ended October 31, 2022, as measured by the JP Morgan High-Yield Bond Universe
and the Morningstar(R)LSTA(R) US Leveraged Loan Index. The LTM default rate of
the high-yield bond market rose from 0.36% at the beginning of the period to
0.84% at the end of the period. The LTM default rate of the senior loan market
rose from 0.20% at the beginning of the period to 0.83% at the end of the
period. Both high-yield and senior loan default rates remain below their
long-term average default rates of 3.07% and 2.76%, respectively.
FUND PERFORMANCE
The Fund returned -11.56% on a net asset value basis ("NAV") and -11.90% on a
market price basis over the LTM period ended October 31, 2022. The ICE BofA US
High Yield Constrained Index ("the Index") returned -11.44% over the same
period.
The Fund held 292 individual positions diversified across 44 industries at the
end of the reporting period. By comparison, the Fund held 451 individual
positions across 49 industries at the beginning of the reporting period.
Software (18.06%), Media (17.34%), and Insurance (12.80%) comprised the Fund's
three largest industry exposures at the end of the period. The Fund's duration
was 3.60 years as of October 31, 2022.
The Fund strategically decreased leverage, selling into pockets of strength as
high-yield bond prices decreased during the LTM period. The Fund's long
positions declined from 111.53% at the beginning of the period to 103.78% at the
end of the period. The Fund's allocation to senior loans enhanced performance as
senior loans outperformed high-yield bonds throughout the period. Strong
security selection within both the Technology and Electronics industry as well
as the Media industry further drove performance.
The Fund's de minimis exposure to the Energy industry, which outperformed in the
period, proved the primary headwind to performance as crude oil prices increased
3.54% to $86.53. Energy comprised 13.16% of the benchmark and 0.05% of the Fund,
on average, over the period. The Fund's security selection within the Leisure
industry also detracted from performance as its holdings in a movie theater
operator defaulted. While movie theater attendance and film slate gradually
recovered from the disruption of the COVID-19 pandemic, the theater operator was
unable to meet deferred rent payments and subsequently chose to enter the
bankruptcy process.
The Fund's most recent monthly distribution of $0.205 per share exceeds the
monthly distribution paid in October 2021 by $0.005. The effective yield, based
on the distributions over the trailing twelve months, was 7.38% based on NAV and
7.39% based on market price.
The Fund experienced one default in a senior secured debt position in the LTM
period, compared to 9 defaults within the JP Morgan High-Yield Bond Universe
over the same period. Since inception, the Fund has experienced 10 defaults; by
comparison, the JP Morgan High-Yield Bond Universe has experienced 253 defaults
over the same period. The Fund's LTM default rate of 1.18% was modestly higher
than the JP Morgan High-Yield Bond Universe's LTM default rate of 0.84% at the
end of the period.
MARKET AND FUND OUTLOOK
Our market framework centers on our view that the Fed will stay the course,
ultimately holding rates at such a restrictive level that it tilts the economy
into recession, most likely in the second half of 2023, in our opinion. We
therefore expect market volatility to continue as investors attempt to gauge the
ultimate Federal Funds target rate as well as the likelihood, and timing of, a
recession. Consequently, we favor increasing credit quality while defensively
positioning in sectors with limited cyclicality. Depending on market
circumstances, the Fund may increase its utilization of derivatives in the
coming months, including through the use of credit default swap indices.
Further, we believe improved valuations have created attractive opportunities in
the corporate credit landscape. As we assess such market opportunities, we will
continue to employ our bottom-up credit underwriting process and rigorous
approach to risk management.
Page 6
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD SIX-MONTH PERIOD (a)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
Actual $1,000.00 $ 936.40 1.27% $6.20
Hypothetical (5% return before expenses) $1,000.00 $1,018.80 1.27% $6.46
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 77.1%
AEROSPACE & DEFENSE -- 0.5%
$ 342,000 Booz Allen Hamilton, Inc. (a)................................... 3.88% 09/01/28 $ 303,416
3,802,000 Science Applications International Corp. (a).................... 4.88% 04/01/28 3,467,580
3,412,000 TransDigm, Inc. (a)............................................. 6.25% 03/15/26 3,364,488
---------------
7,135,484
---------------
AGRICULTURAL PRODUCTS -- 0.1%
1,877,000 Lamb Weston Holdings, Inc. (a).................................. 4.88% 05/15/28 1,747,757
---------------
ALTERNATIVE CARRIERS -- 0.2%
2,000,000 Level 3 Financing, Inc. (a)..................................... 4.25% 07/01/28 1,655,460
2,000,000 Level 3 Financing, Inc. (a)..................................... 3.63% 01/15/29 1,529,890
---------------
3,185,350
---------------
APPAREL RETAIL -- 0.6%
8,080,000 Nordstrom, Inc. (b)............................................. 4.00% 03/15/27 6,889,025
2,854,000 Nordstrom, Inc.................................................. 4.38% 04/01/30 2,194,969
---------------
9,083,994
---------------
APPLICATION SOFTWARE -- 1.8%
12,000,000 Condor Merger Sub, Inc. (a)..................................... 7.38% 02/15/30 9,944,764
5,500,000 Go Daddy Operating Co. LLC / GD Finance Co., Inc. (a) (b)....... 5.25% 12/01/27 5,160,120
987,000 Go Daddy Operating Co. LLC / GD Finance Co., Inc. (a)........... 3.50% 03/01/29 821,110
13,254,000 GoTo Group, Inc. (a) (b)........................................ 5.50% 09/01/27 7,720,720
5,685,000 Open Text Holdings, Inc. (a).................................... 4.13% 02/15/30 4,568,438
---------------
28,215,152
---------------
AUTOMOBILE MANUFACTURERS -- 0.5%
6,631,000 Ford Motor Co. (b).............................................. 9.63% 04/22/30 7,420,263
500,000 Ford Motor Credit Co. LLC....................................... 5.13% 06/16/25 484,595
667,000 Penske Automotive Group, Inc.................................... 3.50% 09/01/25 620,938
---------------
8,525,796
---------------
AUTOMOTIVE RETAIL -- 0.3%
167,000 Group 1 Automotive, Inc. (a).................................... 4.00% 08/15/28 137,679
5,339,000 IAA, Inc. (a)................................................... 5.50% 06/15/27 5,003,029
250,000 Lithia Motors, Inc. (a)......................................... 3.88% 06/01/29 202,119
100,000 Sonic Automotive, Inc. (a)...................................... 4.63% 11/15/29 78,583
100,000 Sonic Automotive, Inc. (a)...................................... 4.88% 11/15/31 76,197
---------------
5,497,607
---------------
BROADCASTING -- 10.8%
21,673,000 Diamond Sports Group LLC / Diamond Sports Finance
Co. (a) (b).................................................. 6.63% 08/15/27 1,137,832
28,294,000 Gray Television, Inc. (a) (b)................................... 5.88% 07/15/26 26,735,708
12,429,000 Gray Television, Inc. (a) (b)................................... 7.00% 05/15/27 11,952,472
3,591,000 Gray Television, Inc. (a)....................................... 4.75% 10/15/30 2,845,419
30,936,000 iHeartCommunications, Inc. (b).................................. 8.38% 05/01/27 27,842,941
5,787,000 iHeartCommunications, Inc. (a) (b).............................. 5.25% 08/15/27 5,282,374
40,562,000 Nexstar Media, Inc. (a) (b)..................................... 5.63% 07/15/27 38,596,163
13,255,000 Nexstar Media, Inc. (a) (b)..................................... 4.75% 11/01/28 11,663,605
1,389,000 Scripps Escrow II, Inc. (a)..................................... 3.88% 01/15/29 1,149,154
8,355,000 Scripps Escrow, Inc. (a) (b).................................... 5.88% 07/15/27 7,580,492
15,319,000 Sinclair Television Group, Inc. (a) (b)......................... 5.13% 02/15/27 12,895,228
5,000,000 Sinclair Television Group, Inc. (a)............................. 5.50% 03/01/30 3,747,491
1,000,000 Sinclair Television Group, Inc. (a)............................. 4.13% 12/01/30 772,080
5,509,000 Sirius XM Radio, Inc. (a)....................................... 3.13% 09/01/26 4,934,659
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
BROADCASTING (CONTINUED)
$ 857,000 Sirius XM Radio, Inc. (a)....................................... 5.50% 07/01/29 $ 785,933
2,000,000 Sirius XM Radio, Inc. (a)....................................... 4.13% 07/01/30 1,633,830
9,107,000 Univision Communications, Inc. (a) (b).......................... 5.13% 02/15/25 8,814,756
4,768,000 Univision Communications, Inc. (a) (b).......................... 6.63% 06/01/27 4,718,127
---------------
173,088,264
---------------
BUILDING PRODUCTS -- 0.5%
1,000,000 American Builders & Contractors Supply Co., Inc. (a)............ 4.00% 01/15/28 884,345
500,000 American Builders & Contractors Supply Co., Inc. (a)............ 3.88% 11/15/29 411,330
100,000 Beacon Roofing Supply, Inc. (a)................................. 4.13% 05/15/29 82,874
100,000 Builders FirstSource, Inc. (a).................................. 4.25% 02/01/32 80,189
1,392,000 Standard Industries, Inc. (a)................................... 5.00% 02/15/27 1,262,829
1,426,000 Standard Industries, Inc. (a)................................... 4.75% 01/15/28 1,253,055
2,492,000 Standard Industries, Inc. (a)................................... 4.38% 07/15/30 2,029,385
1,000,000 Standard Industries, Inc. (a)................................... 3.38% 01/15/31 750,590
1,000,000 TopBuild Corp. (a).............................................. 3.63% 03/15/29 796,044
---------------
7,550,641
---------------
CABLE & SATELLITE -- 7.5%
1,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.50% 05/01/26 963,865
2,828,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.13% 05/01/27 2,624,257
9,738,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.00% 02/01/28 8,854,179
23,466,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.38% 06/01/29 20,964,055
20,653,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.75% 03/01/30 17,393,234
9,707,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.50% 08/15/30 7,960,711
5,445,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.25% 02/01/31 4,324,174
1,000,000 CCO Holdings LLC / CCO Holdings Capital Corp.................... 4.50% 05/01/32 786,956
819,000 CSC Holdings LLC (a)............................................ 5.50% 04/15/27 769,774
13,619,000 CSC Holdings LLC (a)............................................ 7.50% 04/01/28 11,824,492
42,608,000 CSC Holdings LLC (a) (b)........................................ 5.75% 01/15/30 33,035,474
4,167,000 CSC Holdings LLC (a)............................................ 4.63% 12/01/30 3,007,188
1,000,000 CSC Holdings LLC (a)............................................ 5.00% 11/15/31 716,665
357,000 DIRECTV Financing LLC / DIRECTV Financing Co.,
Inc. (a)..................................................... 5.88% 08/15/27 322,185
2,851,000 Radiate Holdco LLC / Radiate Finance, Inc. (a).................. 4.50% 09/15/26 2,414,854
6,216,000 Radiate Holdco LLC / Radiate Finance, Inc. (a).................. 6.50% 09/15/28 3,931,154
---------------
119,893,217
---------------
CASINOS & GAMING -- 3.5%
500,000 Boyd Gaming Corp................................................ 4.75% 12/01/27 461,920
6,062,000 Boyd Gaming Corp. (a)........................................... 4.75% 06/15/31 5,141,061
6,926,000 Caesars Entertainment, Inc. (a) (b)............................. 8.13% 07/01/27 6,747,690
8,662,000 Caesars Entertainment, Inc. (a)................................. 4.63% 10/15/29 6,927,853
179,000 CDI Escrow Issuer, Inc. (a)..................................... 5.75% 04/01/30 161,816
29,783,000 Fertitta Entertainment LLC / Fertitta Entertainment Finance Co.,
Inc. (a)..................................................... 6.75% 01/15/30 23,444,135
430,000 MGM Resorts International....................................... 6.75% 05/01/25 426,201
2,440,000 MGM Resorts International....................................... 5.75% 06/15/25 2,379,964
716,000 Scientific Games Holdings LP/Scientific Games US FinCo,
Inc. (a)..................................................... 6.63% 03/01/30 617,202
3,903,000 Station Casinos LLC (a)......................................... 4.50% 02/15/28 3,337,863
5,952,000 VICI Properties L.P. / VICI Note Co., Inc. (a).................. 4.25% 12/01/26 5,370,700
140,000 VICI Properties L.P. / VICI Note Co., Inc. (a).................. 3.75% 02/15/27 122,976
100,000 VICI Properties L.P. / VICI Note Co., Inc. (a).................. 3.88% 02/15/29 84,479
---------------
55,223,860
---------------
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
COMMUNICATIONS EQUIPMENT -- 1.5%
$ 26,334,000 CommScope Technologies LLC (a) (b).............................. 6.00% 06/15/25 $ 24,618,603
---------------
CONSTRUCTION & ENGINEERING -- 0.8%
500,000 Atkore, Inc. (a)................................................ 4.25% 06/01/31 407,035
13,490,000 Pike Corp. (a) (b).............................................. 5.50% 09/01/28 11,550,880
---------------
11,957,915
---------------
CONSTRUCTION MATERIALS -- 0.2%
176,000 GYP Holdings III Corp. (a)...................................... 4.63% 05/01/29 139,242
3,623,000 Summit Materials LLC / Summit Materials Finance Corp. (a)....... 5.25% 01/15/29 3,317,508
---------------
3,456,750
---------------
CONSUMER FINANCE -- 0.3%
1,889,000 Black Knight InfoServ LLC (a)................................... 3.63% 09/01/28 1,641,069
3,000,000 FirstCash, Inc. (a)............................................. 4.63% 09/01/28 2,606,535
---------------
4,247,604
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.0%
500,000 Block, Inc...................................................... 2.75% 06/01/26 448,365
250,000 Block, Inc...................................................... 3.50% 06/01/31 201,897
---------------
650,262
---------------
ELECTRIC UTILITIES -- 1.9%
19,077,000 PG&E Corp. (b).................................................. 5.00% 07/01/28 17,407,858
1,348,000 PG&E Corp....................................................... 5.25% 07/01/30 1,197,570
5,000,000 Vistra Operations Co. LLC (a)................................... 5.63% 02/15/27 4,774,050
3,189,000 Vistra Operations Co. LLC (a)................................... 5.00% 07/31/27 2,947,417
5,000,000 Vistra Operations Co. LLC (a)................................... 4.38% 05/01/29 4,288,550
---------------
30,615,445
---------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.0%
667,000 Sensata Technologies, Inc. (a).................................. 3.75% 02/15/31 532,700
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.6%
4,595,000 Allied Universal Holdco LLC / Allied Universal Finance
Corp. (a).................................................... 9.75% 07/15/27 3,970,023
7,938,000 Allied Universal Holdco LLC / Allied Universal Finance
Corp. (a) (b)................................................ 6.00% 06/01/29 5,529,861
---------------
9,499,884
---------------
FERTILIZERS & AGRICULTURAL CHEMICALS -- 0.1%
250,000 Scotts Miracle-Gro (The) Co..................................... 4.50% 10/15/29 203,000
1,000,000 Scotts Miracle-Gro (The) Co..................................... 4.00% 04/01/31 767,500
---------------
970,500
---------------
FINANCIAL EXCHANGES & DATA -- 0.0%
750,000 MSCI, Inc. (a).................................................. 4.00% 11/15/29 652,500
---------------
FOOD DISTRIBUTORS -- 0.1%
1,397,000 US Foods, Inc. (a).............................................. 4.75% 02/15/29 1,240,562
---------------
HEALTH CARE EQUIPMENT -- 0.3%
3,471,000 Baxter International, Inc....................................... 1.32% 11/29/24 3,194,844
1,435,000 Embecta Corp. (a)............................................... 5.00% 02/15/30 1,232,134
300,000 Teleflex, Inc. (a).............................................. 4.25% 06/01/28 273,235
---------------
4,700,213
---------------
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
HEALTH CARE FACILITIES -- 6.1%
$ 1,000,000 Acadia Healthcare Co., Inc. (a)................................. 5.50% 07/01/28 $ 929,140
1,290,000 Acadia Healthcare Co., Inc. (a)................................. 5.00% 04/15/29 1,156,457
3,652,000 CHS/Community Health Systems, Inc. (a).......................... 5.25% 05/15/30 2,536,113
2,284,000 Encompass Health Corp........................................... 5.75% 09/15/25 2,264,989
1,300,000 Encompass Health Corp........................................... 4.50% 02/01/28 1,166,620
6,080,000 Encompass Health Corp........................................... 4.75% 02/01/30 5,170,371
500,000 Encompass Health Corp........................................... 4.63% 04/01/31 418,005
3,840,000 HCA, Inc........................................................ 5.88% 02/15/26 3,805,287
1,324,000 HCA, Inc........................................................ 5.38% 09/01/26 1,288,524
3,000,000 HCA, Inc........................................................ 3.50% 09/01/30 2,494,905
26,514,000 Select Medical Corp. (a) (b).................................... 6.25% 08/15/26 25,191,084
10,005,000 Tenet Healthcare Corp. (a)...................................... 4.88% 01/01/26 9,448,822
9,689,000 Tenet Healthcare Corp. (a) (b).................................. 5.13% 11/01/27 8,948,082
4,850,000 Tenet Healthcare Corp. (a)...................................... 4.63% 06/15/28 4,276,601
33,352,000 Tenet Healthcare Corp. (a) (b).................................. 6.13% 10/01/28 28,987,057
---------------
98,082,057
---------------
HEALTH CARE SERVICES -- 2.9%
24,415,000 DaVita, Inc. (a) (b)............................................ 4.63% 06/01/30 19,074,707
908,000 DaVita, Inc. (a)................................................ 3.75% 02/15/31 661,687
25,976,000 Global Medical Response, Inc. (a) (b)........................... 6.50% 10/01/25 20,709,756
718,000 ModivCare Escrow Issuer, Inc. (a)............................... 5.00% 10/01/29 612,027
5,022,000 Pediatrix Medical Group, Inc. (a)............................... 5.38% 02/15/30 4,326,076
100,000 Service Corp. International..................................... 3.38% 08/15/30 80,968
---------------
45,465,221
---------------
HEALTH CARE SUPPLIES -- 1.9%
200,000 180 Medical, Inc. (a)........................................... 3.88% 10/15/29 169,292
25,872,000 Medline Borrower L.P. (a)....................................... 3.88% 04/01/29 21,257,729
10,908,000 Medline Borrower L.P. (a) (b)................................... 5.25% 10/01/29 8,513,585
770,000 Owens & Minor, Inc. (a)......................................... 4.50% 03/31/29 597,668
---------------
30,538,274
---------------
HEALTH CARE TECHNOLOGY -- 2.8%
15,722,000 AthenaHealth Group, Inc. (a).................................... 6.50% 02/15/30 12,271,335
4,503,000 HealthEquity, Inc. (a).......................................... 4.50% 10/01/29 3,968,269
27,758,000 Verscend Escrow Corp. (a) (b)................................... 9.75% 08/15/26 27,873,196
---------------
44,112,800
---------------
HOTELS, RESORTS & CRUISE LINES -- 0.3%
706,000 Boyne USA, Inc. (a)............................................. 4.75% 05/15/29 619,314
4,898,000 Midwest Gaming Borrower LLC / Midwest Gaming Finance
Corp. (a).................................................... 4.88% 05/01/29 4,157,281
711,000 Wyndham Hotels & Resorts, Inc. (a).............................. 4.38% 08/15/28 630,444
125,000 XHR L.P. (a).................................................... 4.88% 06/01/29 108,045
---------------
5,515,084
---------------
HOUSEHOLD PRODUCTS -- 0.2%
200,000 Central Garden & Pet Co......................................... 4.13% 10/15/30 165,595
2,154,000 Energizer Holdings, Inc. (a).................................... 6.50% 12/31/27 1,973,549
1,350,000 Energizer Holdings, Inc. (a).................................... 4.38% 03/31/29 1,090,125
---------------
3,229,269
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.6%
10,427,000 Calpine Corp. (a) (b)........................................... 5.13% 03/15/28 9,265,092
---------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
INDUSTRIAL MACHINERY -- 0.4%
$ 5,573,000 Gates Global LLC / Gates Corp. (a).............................. 6.25% 01/15/26 $ 5,362,591
250,000 Roller Bearing Co. of America, Inc. (a)......................... 4.38% 10/15/29 219,683
---------------
5,582,274
---------------
INSURANCE BROKERS -- 13.0%
38,556,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (a) (b)............................................ 6.75% 10/15/27 35,224,569
1,790,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (a)................................................ 5.88% 11/01/29 1,513,736
54,652,000 AmWINS Group, Inc. (a) (b)...................................... 4.88% 06/30/29 46,884,056
25,001,000 AssuredPartners, Inc. (a) (b)................................... 7.00% 08/15/25 23,987,976
36,774,000 AssuredPartners, Inc. (a) (b)................................... 5.63% 01/15/29 30,277,137
8,120,000 BroadStreet Partners, Inc. (a) (b).............................. 5.88% 04/15/29 6,542,969
3,761,000 GTCR AP Finance, Inc. (a)....................................... 8.00% 05/15/27 3,586,919
46,507,000 HUB International Ltd. (a) (b).................................. 7.00% 05/01/26 46,011,468
14,730,000 HUB International Ltd. (a)...................................... 5.63% 12/01/29 12,649,314
535,000 USI, Inc. (a)................................................... 6.88% 05/01/25 520,065
---------------
207,198,209
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 1.2%
500,000 Ciena Corp. (a)................................................. 4.00% 01/31/30 420,807
1,910,000 Zayo Group Holdings, Inc. (a)................................... 4.00% 03/01/27 1,459,007
25,891,000 Zayo Group Holdings, Inc. (a) (b)............................... 6.13% 03/01/28 17,269,297
---------------
19,149,111
---------------
INTERACTIVE HOME ENTERTAINMENT -- 0.2%
4,601,000 Playtika Holding Corp. (a)...................................... 4.25% 03/15/29 3,841,698
---------------
INTERACTIVE MEDIA & SERVICES -- 0.0%
500,000 Match Group Holdings II LLC (a)................................. 4.63% 06/01/28 446,125
---------------
INTERNET & DIRECT MARKETING RETAIL -- 1.1%
20,909,000 Cars.com, Inc. (a) (b).......................................... 6.38% 11/01/28 18,148,176
---------------
INVESTMENT BANKING & BROKERAGE -- 0.1%
1,455,000 LPL Holdings, Inc. (a).......................................... 4.63% 11/15/27 1,342,203
---------------
IT CONSULTING & OTHER SERVICES -- 0.0%
250,000 Gartner, Inc. (a)............................................... 4.50% 07/01/28 232,186
250,000 Gartner, Inc. (a)............................................... 3.75% 10/01/30 210,737
---------------
442,923
---------------
LEISURE FACILITIES -- 0.1%
250,000 Cedar Fair L.P.................................................. 5.25% 07/15/29 220,314
850,000 Cedar Fair L.P. / Canada's Wonderland Co. / Magnum
Management Corp. / Millennium Op............................. 5.38% 04/15/27 802,413
717,000 SeaWorld Parks & Entertainment, Inc. (a)........................ 5.25% 08/15/29 617,712
---------------
1,640,439
---------------
MANAGED HEALTH CARE -- 1.5%
7,782,000 Centene Corp.................................................... 4.25% 12/15/27 7,200,451
1,000,000 Molina Healthcare, Inc. (a)..................................... 4.38% 06/15/28 898,430
100,000 Molina Healthcare, Inc. (a)..................................... 3.88% 11/15/30 85,241
6,523,000 MPH Acquisition Holdings LLC (a) (b)............................ 5.50% 09/01/28 5,648,967
12,124,000 MPH Acquisition Holdings LLC (a) (b)............................ 5.75% 11/01/28 9,399,814
---------------
23,232,903
---------------
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
METAL & GLASS CONTAINERS -- 1.3%
$ 10,648,000 Ball Corp....................................................... 2.88% 08/15/30 $ 8,287,338
3,864,000 Berry Global, Inc. (a).......................................... 4.50% 02/15/26 3,599,219
981,000 Berry Global, Inc. (a).......................................... 5.63% 07/15/27 931,803
175,000 Crown Americas LLC (a).......................................... 5.25% 04/01/30 160,350
6,050,000 Owens-Brockway Glass Container, Inc. (a) (b).................... 6.38% 08/15/25 5,670,363
2,200,000 Silgan Holdings, Inc............................................ 4.13% 02/01/28 2,018,742
---------------
20,667,815
---------------
MOVIES & ENTERTAINMENT -- 0.7%
5,494,000 Live Nation Entertainment, Inc. (a)............................. 5.63% 03/15/26 5,254,242
523,000 Live Nation Entertainment, Inc. (a)............................. 6.50% 05/15/27 522,876
5,895,000 Live Nation Entertainment, Inc. (a)............................. 4.75% 10/15/27 5,253,683
1,000,000 WMG Acquisition Corp. (a)....................................... 3.00% 02/15/31 782,410
---------------
11,813,211
---------------
PACKAGED FOODS & MEATS -- 0.6%
2,190,000 B&G Foods, Inc.................................................. 5.25% 04/01/25 1,995,758
750,000 Performance Food Group, Inc. (a)................................ 5.50% 10/15/27 710,891
2,116,000 Post Holdings, Inc. (a)......................................... 5.75% 03/01/27 2,050,764
4,434,000 Post Holdings, Inc. (a)......................................... 5.63% 01/15/28 4,151,111
---------------
8,908,524
---------------
PAPER PACKAGING -- 2.5%
30,696,000 Graham Packaging Co., Inc. (a) (b).............................. 7.13% 08/15/28 25,207,485
2,000,000 Graphic Packaging International LLC (a)......................... 3.50% 03/15/28 1,732,298
1,000,000 Graphic Packaging International LLC (a)......................... 3.50% 03/01/29 846,184
11,095,000 Pactiv Evergreen Group Issuer, Inc. / Pactiv Evergreen Group
Issuer LLC (a)............................................... 4.00% 10/15/27 9,931,134
420,000 Pactiv LLC...................................................... 7.95% 12/15/25 391,663
376,000 Sealed Air Corp. (a)............................................ 5.50% 09/15/25 368,969
1,434,000 Sealed Air Corp. (a)............................................ 5.00% 04/15/29 1,310,067
---------------
39,787,800
---------------
PERSONAL PRODUCTS -- 0.1%
250,000 Prestige Brands, Inc. (a)....................................... 5.13% 01/15/28 232,726
750,000 Prestige Brands, Inc. (a)....................................... 3.75% 04/01/31 603,131
---------------
835,857
---------------
PHARMACEUTICALS -- 0.6%
500,000 Catalent Pharma Solutions, Inc. (a)............................. 5.00% 07/15/27 470,270
250,000 Catalent Pharma Solutions, Inc. (a)............................. 3.13% 02/15/29 204,942
950,000 Charles River Laboratories International, Inc. (a).............. 4.25% 05/01/28 865,497
1,000,000 Charles River Laboratories International, Inc. (a).............. 3.75% 03/15/29 862,410
1,000,000 Charles River Laboratories International, Inc. (a).............. 4.00% 03/15/31 842,538
1,333,000 Emergent BioSolutions, Inc. (a)................................. 3.88% 08/15/28 800,285
4,343,000 Horizon Therapeutics USA, Inc. (a) (b).......................... 5.50% 08/01/27 4,190,713
800,000 IQVIA, Inc. (a)................................................. 5.00% 10/15/26 764,664
1,278,000 IQVIA, Inc. (a)................................................. 5.00% 05/15/27 1,219,538
---------------
10,220,857
---------------
REAL ESTATE SERVICES -- 0.0%
290,000 Tri Pointe Homes, Inc........................................... 5.25% 06/01/27 250,039
500,000 Tri Pointe Homes, Inc........................................... 5.70% 06/15/28 428,310
---------------
678,349
---------------
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
RESEARCH & CONSULTING SERVICES -- 0.5%
$ 325,000 Clarivate Science Holdings Corp. (a)............................ 4.88% 07/01/29 $ 272,018
12,324,000 CoreLogic, Inc. (a) (b)......................................... 4.50% 05/01/28 8,314,849
---------------
8,586,867
---------------
RESTAURANTS -- 0.6%
661,000 Brinker International, Inc. (a)................................. 5.00% 10/01/24 642,101
9,310,000 IRB Holding Corp. (a) (b)....................................... 7.00% 06/15/25 9,315,493
---------------
9,957,594
---------------
SECURITY & ALARM SERVICES -- 0.2%
1,200,000 Brink's (The) Co. (a)........................................... 5.50% 07/15/25 1,166,574
2,061,000 Brink's (The) Co. (a)........................................... 4.63% 10/15/27 1,909,815
---------------
3,076,389
---------------
SEMICONDUCTORS -- 0.1%
1,000,000 Qorvo, Inc. (a)................................................. 3.38% 04/01/31 754,690
---------------
SPECIALIZED CONSUMER SERVICES -- 0.3%
4,000,000 Aramark Services, Inc. (a)...................................... 6.38% 05/01/25 3,967,560
1,055,000 Aramark Services, Inc. (a)...................................... 5.00% 02/01/28 965,214
775,000 Carriage Services, Inc. (a)..................................... 4.25% 05/15/29 597,556
---------------
5,530,330
---------------
SPECIALIZED FINANCE -- 0.1%
1,776,000 Park Intermediate Holdings LLC / PK Domestic Property LLC /
PK Finance Co-Issuer (a)..................................... 4.88% 05/15/29 1,519,190
---------------
SPECIALTY CHEMICALS -- 0.5%
8,157,000 Avantor Funding, Inc. (a)....................................... 4.63% 07/15/28 7,386,857
500,000 Axalta Coating Systems LLC (a).................................. 3.38% 02/15/29 414,320
250,000 HB Fuller Co.................................................... 4.25% 10/15/28 216,610
---------------
8,017,787
---------------
SPECIALTY STORES -- 0.0%
350,000 PetSmart, Inc. / PetSmart Finance Corp. (a)..................... 4.75% 02/15/28 320,253
---------------
SYSTEMS SOFTWARE -- 3.5%
8,407,000 Boxer Parent Co., Inc. (a) (b).................................. 9.13% 03/01/26 8,042,216
2,500,000 Crowdstrike Holdings, Inc....................................... 3.00% 02/15/29 2,113,470
4,204,000 Oracle Corp..................................................... 6.50% 04/15/38 4,044,730
250,000 PTC, Inc. (a)................................................... 3.63% 02/15/25 237,368
41,967,000 SS&C Technologies, Inc. (a) (b)................................. 5.50% 09/30/27 39,145,380
1,600,000 VMware, Inc..................................................... 1.00% 08/15/24 1,475,516
---------------
55,058,680
---------------
TECHNOLOGY DISTRIBUTORS -- 0.0%
750,000 CDW LLC / CDW Finance Corp...................................... 3.25% 02/15/29 614,865
---------------
TRADING COMPANIES & DISTRIBUTORS -- 0.7%
2,715,000 SRS Distribution, Inc. (a)...................................... 6.13% 07/01/29 2,213,027
9,816,000 SRS Distribution, Inc. (a) (b).................................. 6.00% 12/01/29 8,026,592
127,000 United Rentals North America, Inc............................... 5.50% 05/15/27 123,037
---------------
10,362,656
---------------
TRUCKING -- 0.3%
6,481,000 Hertz (The) Corp. (a)........................................... 4.63% 12/01/26 5,534,709
---------------
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES -- 0.0%
$ 500,000 SBA Communications Corp......................................... 3.88% 02/15/27 $ 452,187
---------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 1,232,220,528
(Cost $1,412,569,000) ---------------
FOREIGN CORPORATE BONDS AND NOTES -- 8.0%
APPLICATION SOFTWARE -- 1.1%
4,318,000 ION Trading Technologies S.A.R.L. (a)........................... 5.75% 05/15/28 3,439,115
11,860,000 Open Text Corp. (a)............................................. 3.88% 02/15/28 10,175,524
4,892,000 Open Text Corp. (a)............................................. 3.88% 12/01/29 3,906,482
---------------
17,521,121
---------------
AUTO PARTS & EQUIPMENT -- 0.3%
4,432,000 Clarios Global L.P. / Clarios US Finance Co. (a)................ 8.50% 05/15/27 4,371,126
---------------
BUILDING PRODUCTS -- 1.2%
15,022,000 Cemex SAB de C.V. (a) (b)....................................... 7.38% 06/05/27 14,907,082
1,304,000 Cemex SAB de C.V. (a)........................................... 5.45% 11/19/29 1,140,494
2,000,000 Cemex SAB de C.V. (a)........................................... 5.20% 09/17/30 1,704,730
1,000,000 Masonite International Corp. (a)................................ 5.38% 02/01/28 916,890
---------------
18,669,196
---------------
CABLE & SATELLITE -- 0.0%
250,000 Virgin Media Finance PLC (a).................................... 5.00% 07/15/30 200,813
---------------
CASINOS & GAMING -- 0.0%
500,000 International Game Technology PLC (a)........................... 5.25% 01/15/29 460,037
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.7%
15,159,000 Paysafe Finance PLC / Paysafe Holdings US Corp. (a) (b)......... 4.00% 06/15/29 10,860,741
---------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.0%
500,000 Sensata Technologies B.V. (a)................................... 4.00% 04/15/29 421,903
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.7%
500,000 GFL Environmental, Inc. (a)..................................... 5.13% 12/15/26 476,720
9,173,000 GFL Environmental, Inc. (a) (b)................................. 4.00% 08/01/28 7,959,137
1,784,000 GFL Environmental, Inc. (a)..................................... 4.75% 06/15/29 1,558,926
1,000,000 GFL Environmental, Inc. (a)..................................... 4.38% 08/15/29 848,485
---------------
10,843,268
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 1.0%
2,989,000 Altice France S.A. (a).......................................... 5.50% 01/15/28 2,404,232
500,000 Altice France S.A. (a).......................................... 5.13% 07/15/29 377,500
17,387,000 Altice France S.A. (a) (b)...................................... 5.50% 10/15/29 13,291,058
---------------
16,072,790
---------------
LIFE SCIENCES TOOLS & SERVICES -- 0.1%
2,604,000 Grifols Escrow Issuer S.A. (a).................................. 4.75% 10/15/28 2,037,825
---------------
METAL & GLASS CONTAINERS -- 0.1%
200,000 Ardagh Packaging Finance PLC / Ardagh Holdings USA,
Inc. (a)..................................................... 4.13% 08/15/26 173,411
1,403,000 Trivium Packaging Finance B.V. (a).............................. 5.50% 08/15/26 1,291,167
---------------
1,464,578
---------------
PHARMACEUTICALS -- 0.0%
286,000 Jazz Securities DAC (a)......................................... 4.38% 01/15/29 254,546
---------------
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
RESEARCH & CONSULTING SERVICES -- 0.2%
$ 3,774,000 Camelot Finance S.A. (a)........................................ 4.50% 11/01/26 $ 3,535,686
---------------
RESTAURANTS -- 1.6%
2,674,000 1011778 BC ULC / New Red Finance, Inc. (a)...................... 4.38% 01/15/28 2,362,559
27,458,000 1011778 BC ULC / New Red Finance, Inc. (a)...................... 4.00% 10/15/30 22,284,913
---------------
24,647,472
---------------
SPECIALIZED FINANCE -- 0.0%
710,000 Ardagh Metal Packaging Finance USA LLC / Ardagh Metal
Packaging Finance PLC (a).................................... 6.00% 06/15/27 682,388
---------------
SPECIALTY CHEMICALS -- 0.1%
1,000,000 Axalta Coating Systems LLC / Axalta Coating Systems Dutch
Holding B B.V. (a)........................................... 4.75% 06/15/27 913,829
---------------
TRADING COMPANIES & DISTRIBUTORS -- 0.9%
6,779,000 VistaJet Malta Finance PLC / XO Management Holding,
Inc. (a)..................................................... 7.88% 05/01/27 6,149,977
9,742,000 VistaJet Malta Finance PLC / XO Management Holding,
Inc. (a)..................................................... 6.38% 02/01/30 8,128,822
---------------
14,278,799
---------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................................... 127,236,118
(Cost $143,703,259) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (c) MATURITY (d) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS -- 18.2%
APPLICATION SOFTWARE -- 11.8%
3,000,000 Epicor Software Corp., Term Loan (Second Lien), 1 Mo. LIBOR
+ 7.75%, 1.00% Floor......................................... 11.50% 07/30/28 2,933,430
21,340,414 Gainwell Acquisition Corp. (fka Milano), Term Loan B, 3 Mo.
LIBOR + 4.00%, 0.75% Floor................................... 7.67% 10/01/27 20,237,755
23,370,911 Greeneden U.S. Holdings II LLC (Genesys Telecommunications
Laboratories, Inc.), Initial Dollar Term Loan, 1 Mo. LIBOR +
4.00%, 0.75% Floor........................................... 7.75% 12/01/27 22,742,935
15,752,668 Hyland Software, Inc., Term Loan (Second Lien), 1 Mo. LIBOR
+ 6.25%, 0.75% Floor......................................... 10.00% 07/10/25 15,073,413
14,748,363 Hyland Software, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%,
0.75% Floor.................................................. 7.25% 07/01/24 14,367,412
21,085,227 Internet Brands, Inc. (WebMD/MH Sub I LLC), 2020 June New
Term Loan, 1 Mo. LIBOR + 3.75%, 1.00% Floor.................. 7.50% 09/15/24 20,272,602
24,168,650 Internet Brands, Inc. (WebMD/MH Sub I LLC), Initial Term
Loan, 1 Mo. LIBOR + 3.75%, 0.00% Floor....................... 7.50% 09/13/24 23,232,115
19,021,355 Internet Brands, Inc. (WebMD/MH Sub I LLC), Term Loan
(Second Lien), 1 Mo. SOFR + 6.25%, 0.00% Floor............... 9.98% 02/23/29 17,380,763
1,048,645 ION Trading Technologies Ltd., Term Loan B, 3 Mo. LIBOR +
4.75%, 0.00% Floor........................................... 8.42% 04/01/28 972,839
14,947,479 LogMeIn, Inc. (GoTo Group, Inc.), Term Loan B, 1 Mo. LIBOR
+ 4.75%, 0.00% Floor......................................... 8.32% 08/31/27 9,391,949
8,944,728 RealPage, Inc., Term Loan (Second Lien), 1 Mo. LIBOR +
6.50%, 0.75% Floor........................................... 10.25% 04/22/29 8,586,939
33,933,813 SolarWinds Holdings, Inc., Initial Term Loan, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 6.50% 02/05/24 33,563,625
---------------
188,755,777
---------------
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (c) MATURITY (d) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
ASSET MANAGEMENT & CUSTODY BANKS -- 0.4%
$ 7,000,000 Edelman Financial Engines Center LLC, Term Loan (Second
Lien), 1 Mo. LIBOR + 6.75%, 0.00% Floor...................... 10.50% 07/20/26 $ 6,308,750
---------------
EDUCATION SERVICES -- 0.0%
357,709 Ascensus Holdings, Inc. (Mercury), Term Loan (Second Lien),
3 Mo. LIBOR + 6.50%, 0.50% Floor............................. 10.25% 08/02/29 316,572
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.4%
7,457,910 Verifone Systems, Inc., Term Loan B, 3 Mo. LIBOR + 4.00%,
0.00% Floor.................................................. 7.00% 08/20/25 6,617,030
---------------
HEALTH CARE FACILITIES -- 0.1%
1,366,000 Select Medical Corp., Term Loan B, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 6.26% 03/06/25 1,326,304
---------------
HEALTH CARE SERVICES -- 0.4%
1,033,511 SCP Health (Onex TSG Intermediate Corp.), Term Loan B, 3 Mo.
LIBOR + 4.75%, 0.75% Floor................................... 9.16% 02/28/28 917,241
3,401,788 Sevita (National Mentor Holdings, Inc.), Term Loan B, 1 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.51% 03/01/28 2,412,174
4,203,145 Sevita (National Mentor Holdings, Inc.), Term Loan B, 3 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.43% 03/01/28 2,980,408
232,765 Sevita (National Mentor Holdings, Inc.), Term Loan C, 3 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.43% 03/01/28 165,051
---------------
6,474,874
---------------
HEALTH CARE TECHNOLOGY -- 2.4%
8,061,732 Ciox Health (Healthport/CT Technologies Intermediate Holdings,
Inc.), New Term Loan B, 1 Mo. LIBOR + 4.25%, 0.75%
Floor........................................................ 8.00% 12/16/25 7,376,485
2,249,672 Navicure, Inc. (Waystar Technologies, Inc.), Term Loan B, 1 Mo.
LIBOR + 4.00%, 0.00% Floor................................... 7.75% 10/23/26 2,183,600
1,333,209 Press Ganey (Azalea TopCo, Inc.), 2021 Term Loan, 1 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 7.50% 07/25/26 1,239,884
28,037,446 Verscend Technologies, Inc. (Cotiviti), New Term Loan B-1,
1 Mo. LIBOR + 4.00%, 0.00% Floor............................. 7.75% 08/27/25 27,651,932
---------------
38,451,901
---------------
INSURANCE BROKERS -- 0.2%
8,830 HUB International Ltd., New Term Loan B-3, 2 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 7.23% 04/25/25 8,663
3,461,509 HUB International Ltd., New Term Loan B-3, 3 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 7.53% 04/25/25 3,395,809
---------------
3,404,472
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 0.3%
3,258,316 Numericable (Altice France S.A. or SFR), Term Loan B-13,
3 Mo. LIBOR + 4.00%, 0.00% Floor............................. 6.91% 08/14/26 2,978,655
1,894,000 Zayo Group Holdings, Inc., Initial Dollar Term Loan, 1 Mo.
LIBOR + 3.00%, 0.00% Floor................................... 6.75% 03/09/27 1,530,352
---------------
4,509,007
---------------
RESTAURANTS -- 0.1%
1,882,659 Portillo's Holdings LLC, Term Loan B-3, 1 Mo. LIBOR + 5.50%,
1.00% Floor.................................................. 9.25% 09/06/24 1,854,419
---------------
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (c) MATURITY (d) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SPECIALIZED CONSUMER SERVICES -- 0.7%
$ 15,966,625 Asurion LLC, Term Loan B-3 (Second Lien), 1 Mo. LIBOR +
5.25%, 0.00% Floor........................................... 9.00% 01/31/28 $ 11,186,696
---------------
SPECIALIZED FINANCE -- 0.4%
2,531,317 WCG Purchaser Corp. (WIRB-Copernicus Group), Term Loan B,
1 Mo. LIBOR + 4.00%, 1.00% Floor............................. 7.75% 01/08/27 2,393,690
4,196,604 WCG Purchaser Corp. (WIRB-Copernicus Group), Term Loan B,
3 Mo. LIBOR + 4.00%, 1.00% Floor............................. 7.67% 01/08/27 3,968,434
---------------
6,362,124
---------------
SYSTEMS SOFTWARE -- 1.0%
1,221,902 Applied Systems, Inc., Term Loan (Second Lien), 3 Mo. LIBOR
+ 5.50%, 0.75% Floor......................................... 9.17% 09/19/25 1,196,450
5,948,782 BMC Software Finance, Inc. (Boxer Parent), 2021 Replacement
Dollar Term Loan, 1 Mo. LIBOR + 3.75%, 0.00% Floor........... 7.50% 10/02/25 5,709,344
9,169,954 Misys Financial Software Ltd. (Almonde, Inc.) (Finastra), Term
Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor..................... 6.87% 06/13/24 8,270,748
---------------
15,176,542
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................................... 290,744,468
(Cost $313,087,849) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS -- 0.1%
PHARMACEUTICALS -- 0.1%
259,956 Akorn, Inc. (e) (f).......................................................................... 1,559,736
(Cost $2,979,179) ---------------
WARRANTS -- 0.0%
MOVIES & ENTERTAINMENT -- 0.0%
828,940 Cineworld Group PLC, expiring 11/23/25 (e) (g)............................................... 47,532
(Cost $0) ---------------
RIGHTS -- 0.0%
ELECTRIC UTILITIES -- 0.0%
1,629 Vistra Energy Corp., no expiration date (e) (g).............................................. 1,955
(Cost $2,830) ---------------
MONEY MARKET FUNDS -- 0.5%
7,723,711 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class -
2.85% (h)................................................................................. 7,723,711
(Cost $7,723,711) ---------------
TOTAL INVESTMENTS -- 103.9%.................................................................. 1,659,534,048
(Cost $1,880,065,828) ---------------
BORROWINGS -- (7.2)%......................................................................... (115,708,737)
NET OTHER ASSETS AND LIABILITIES -- 3.3%..................................................... 52,833,624
---------------
NET ASSETS -- 100.0%......................................................................... $ 1,596,658,935
===============
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
(a) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended (the "1933 Act"), and may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be liquid by First Trust Advisors L.P.
("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, 2022, securities noted
as such amounted to $1,239,037,133 or 77.6% of net assets.
(b) This security or a portion of this security is segregated as collateral
for borrowings.
(c) 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 SOFR obtained from
the U.S. Department of the Treasury's Office of Financial Research, (iii)
the prime rate offered by one or more United States banks or (iv) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
or SOFR floor that establishes a minimum LIBOR or SOFR rate. When a range
of rates is disclosed, the Fund holds more than one contract within the
same tranche with identical LIBOR or SOFR period, spread and floor, but
different LIBOR or SOFR reset dates.
(d) 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.
(e) Non-income producing security.
(f) Security received in a transaction exempt from registration under the 1933
Act. The security may be resold pursuant to an exemption from registration
under the 1933 Act, typically to qualified institutional buyers (see Note
2F - Restricted Securities in the Notes to Financial Statements).
(g) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(h) Rate shown reflects yield as of October 31, 2022.
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,
2022 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
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Corporate Bonds and Notes*......................... $ 1,232,220,528 $ -- $ 1,232,220,528 $ --
Foreign Corporate Bonds and Notes*................. 127,236,118 -- 127,236,118 --
Senior Floating-Rate Loan Interests*............... 290,744,468 -- 290,744,468 --
Common Stocks*..................................... 1,559,736 -- 1,559,736 --
Warrants*.......................................... 47,532 -- 47,532 --
Rights*............................................ 1,955 -- 1,955 --
Money Market Funds................................. 7,723,711 7,723,711 -- --
--------------- --------------- --------------- ---------------
Total Investments.................................. $ 1,659,534,048 $ 7,723,711 $ 1,651,810,337 $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $ 1,659,534,048
Cash...................................................................... 230,727
Receivables:
Investment securities sold............................................. 38,058,429
Interest............................................................... 26,049,501
Capital shares sold.................................................... 19,740
Dividends.............................................................. 13,238
---------------
Total Assets........................................................... 1,723,905,683
---------------
LIABILITIES:
Borrowings................................................................ 115,708,737
Payables:
Capital shares redeemed ............................................... 7,895,778
Investment securities purchased........................................ 2,206,250
Investment advisory fees............................................... 1,283,832
Margin interest expense................................................ 152,151
---------------
Total Liabilities...................................................... 127,246,748
---------------
NET ASSETS................................................................ $ 1,596,658,935
===============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $ 1,983,636,171
Par value................................................................. 404,500
Accumulated distributable earnings (loss)................................. (387,381,736)
---------------
NET ASSETS................................................................ $ 1,596,658,935
===============
NET ASSET VALUE, per share................................................ $ 39.47
===============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................. 40,450,002
---------------
Investments, at cost...................................................... $ 1,880,065,828
===============
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 140,084,711
Margin interest rebate.................................................... 710,938
Dividends................................................................. 64,818
---------------
Total investment income................................................ 140,860,467
---------------
EXPENSES:
Investment advisory fees.................................................. 18,193,995
Margin interest expense................................................... 6,141,166
---------------
Total expenses......................................................... 24,335,161
---------------
NET INVESTMENT INCOME (LOSS).............................................. 116,525,306
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................ (116,465,162)
Investments sold short................................................. 13,544
---------------
Net realized gain (loss).................................................. (116,451,618)
---------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ (241,531,702)
Investments sold short................................................. (10,087)
Unfunded loan commitments.............................................. 2,897
---------------
Net change in unrealized appreciation (depreciation)...................... (241,538,892)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (357,990,510)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ (241,465,204)
===============
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2022 10/31/2021
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 116,525,306 $ 116,232,335
Net realized gain (loss).................................................. (116,451,618) 16,759,767
Net change in unrealized appreciation (depreciation)...................... (241,538,892) 18,501,627
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........... (241,465,204) 151,493,729
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (121,509,986) (123,580,505)
Return of capital......................................................... (5,652,770) --
--------------- ---------------
Total distributions to shareholders....................................... (127,162,756) (123,580,505)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 249,122,772 406,718,627
Cost of shares redeemed................................................... (590,275,979) (102,317,490)
--------------- ---------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................................... (341,153,207) 304,401,137
--------------- ---------------
Total increase (decrease) in net assets................................... (709,781,167) 332,314,361
NET ASSETS:
Beginning of period....................................................... 2,306,440,102 1,974,125,741
--------------- ---------------
End of period............................................................. $ 1,596,658,935 $ 2,306,440,102
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 48,300,002 42,000,002
Shares sold............................................................... 5,700,000 8,400,000
Shares redeemed........................................................... (13,550,000) (2,100,000)
--------------- ---------------
Shares outstanding, end of period......................................... 40,450,002 48,300,002
=============== ===============
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net increase (decrease) in net assets resulting from operations ........... $ (241,465,204)
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments............................................ (1,686,255,429)
Borrowed investments sold short..................................... 3,493,500,557
Cost to cover short positions....................................... (3,789,665,405)
Sales, maturities and paydowns of investments....................... 2,213,172,143
Net amortization/accretion of premiums/discounts on investments..... 743,040
Net realized gain/loss on investments............................... 116,465,162
Net realized gain/loss on investments sold short.................... (13,544)
Net change in unrealized appreciation/depreciation on investments and
unfunded loan commitments........................................ 241,528,805
Net change in unrealized appreciation/depreciation on investments
sold short....................................................... 10,087
CHANGES IN ASSETS AND LIABILITIES
Decrease in interest receivable..................................... 1,044,565
Increase in dividends receivable.................................... (13,164)
Increase in margin interest expense payable......................... 23,941
Decrease in investment advisory fees payable........................ (585,257)
---------------
CASH PROVIDED BY OPERATING ACTIVITIES..................................... $ 348,490,297
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares sold........................................... 249,103,033
Cost of shares redeemed............................................. (582,380,201)
Distributions to shareholders from investment operations............ (121,509,986)
Distributions to shareholders from return of capital................ (5,652,770)
Net proceeds from borrowings........................................ 112,055,810
---------------
CASH USED IN FINANCING ACTIVITIES......................................... (348,384,114)
---------------
Decrease in cash and restricted cash...................................... 106,183
Cash and restricted cash at beginning of period........................... 124,544
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD................................. $ 230,727
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................................. $ 6,117,225
===============
CASH AND RESTRICTED CASH RECONCILIATION:
Cash................................................................ $ 230,727
Restricted Cash..................................................... --
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD:................................ $ 230,727
===============
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2022 2021 2020 2019 2018
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 47.75 $ 47.00 $ 48.06 $ 47.02 $ 48.95
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 2.63 2.47 2.33 2.49 2.52
Net realized and unrealized gain (loss) (8.00) 0.91 (1.00) 1.13 (1.76)
---------- ---------- ---------- ---------- ----------
Total from investment operations (5.37) 3.38 1.33 3.62 0.76
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (2.78) (2.63) (2.39) (2.56) (2.69)
Return of capital (0.13) -- -- (0.02) (0.00) (a)
---------- ---------- ---------- ---------- ----------
Total distributions (2.91) (2.63) (2.39) (2.58) (2.69)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 39.47 $ 47.75 $ 47.00 $ 48.06 $ 47.02
========== ========== ========== ========== ==========
TOTAL RETURN (b) (11.56)% 7.25% 2.92% 7.90% 1.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,596,659 $2,306,440 $1,974,126 $1,432,088 $1,253,035
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.27% 1.05% 1.01% 1.23% 1.16%
Ratio of net 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 6.08% 5.11% 5.02% 5.22% 5.26%
Portfolio turnover rate (c) 39% 50% 68% 50% 52%
</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.
Page 24 See Notes to Financial Statements
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
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 twelve 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"). The Fund represents a separate series of
beneficial interest in the Trust. Unlike conventional mutual funds, the Fund
issues and redeems shares on a continuous basis, at net asset value ("NAV"),
only in large blocks of shares known as "Creation Units."
The primary investment objective of the Fund is to 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 S&P Global Ratings, 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 readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Trust" or the "Advisor"), in accordance with valuation procedures approved by
the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act
and rules thereunder. Investments valued by the Advisor's Pricing Committee, if
any, are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
Corporate bonds, corporate notes, U.S. government securities and other
debt securities are fair valued on the basis of valuations provided by a
third-party pricing service approved by the Advisor's Pricing Committee,
which may use the following valuation inputs when available:
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 25
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
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 primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade 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 Advisor's Pricing Committee at
fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended (the "1933 Act")) for
which a third-party pricing service is unable to provide a market price;
securities whose trading has been formally suspended; a security whose market or
fair value price is not available from a pre-established pricing source; a
security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the most recent price provided by a pricing service;
2) the fundamental business data relating to the borrower/issuer;
3) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
4) the type, size and cost of a security;
5) the financial statements of the borrower/issuer, or the
financial condition of the country of issue;
6) the credit quality and cash flow of the issuer/borrower, or
the country of issue, based on the Pricing Committee's,
sub-adviser's or portfolio manager's analysis, as applicable,
or external analysis;
7) the information as to any transactions in or offers for the
security;
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 26
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
8) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
9) the coupon payments;
10) the quality, value and salability of collateral, if any,
securing the security;
11) 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;
12) 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;
13) borrower's/issuer's competitive position within the industry;
14) borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
15) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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 United Kingdom's Financial Conduct Authority (the "FCA"), which regulates
the London Interbank Offered Rates ("LIBOR") announced on March 5, 2021 that it
intended to phase-out all LIBOR reference rates, beginning December 31, 2021.
Since that announcement, the FCA has ceased publication of all non-USD LIBOR
reference rates and the 1-week and 2-month USD LIBOR reference rates as of
December 31, 2021. The remaining USD LIBOR settings will cease to be published
or no longer be representative immediately after June 30, 2023. The
International Swaps and Derivatives Association, Inc. ("ISDA") confirmed that
the FCA's March 5, 2021 announcement of its intention to cease providing LIBOR
reference rates, constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
Page 27
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
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. There is no assurance that
any alternative reference rate, including SOFR, will be similar to or produce
the same value or economic equivalence as LIBOR or that instruments using an
alternative rate will have the same volume or liquidity.
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, 2022.
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
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. There were no short sales outstanding as of October
31, 2022.
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, 2022, the Fund had
$115,708,737 in borrowings, which approximates fair value, as shown in
"Borrowings" on the Statement of Assets and Liabilities. The borrowings are
categorized as Level 2 within the fair value hierarchy. 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, 2022, the Fund had a debit
margin balance of $115,708,737 with an interest rate of 3.82%. For the fiscal
year ended October 31, 2022, the Fund had margin interest expense of $6,141,166,
as shown on the Statement of Operations. For the fiscal year ended October 31,
2022, the average margin balance and interest rates were $361,400,312 and 1.78%,
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. There was no restricted cash held as of
October 31, 2022.
Page 28
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
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. The commitment fees are included in "Interest" on the
Statement of Operations. As of October 31, 2022, the Fund had no unfunded loan
commitments.
F. RESTRICTED SECURITIES
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of October 31, 2022, the Fund held restricted
securities as shown in the following table that the Advisor has deemed illiquid
pursuant to procedures adopted by the Trust's Board of Trustees. Although market
instability can result in periods of increased overall market illiquidity,
liquidity for each security is determined based on security-specific factors and
assumptions, which require subjective judgment. The Fund does not have the right
to demand that such securities be registered. These securities are valued
according to the valuation procedures as stated in the Portfolio Valuation note
(Note 2A) and are not expressed as a discount to the carrying value of a
comparable unrestricted security.
<TABLE>
<CAPTION>
ACQUISITION CURRENT CARRYING % OF NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Akorn, Inc. 10/15/2020 259,956 $6.00 $2,979,179 $1,559,736 0.10%
</TABLE>
G. 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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
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.
The tax character of distributions paid during the fiscal years ended October
31, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 121,509,986 $ 123,580,505
Capital gains................................... -- --
Return of capital............................... 5,652,770 --
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ --
Accumulated capital and other gain (loss)....... (160,242,757)
Net unrealized appreciation (depreciation)...... (227,138,979)
H. 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 TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
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,
2020, 2021, and 2022 remain open to federal and state audit. As of October 31,
2022, 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, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $160,242,757.
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, 2022, 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,
2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
-------------- -------------- ---------------
$ 6,281,983 $ (6,178,140) $ (103,843)
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$1,886,673,027 $ 643,438 $ (227,782,417) $ (227,138,979)
</TABLE>
I. 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.
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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
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 target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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, 2022, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, investments sold
short and in-kind transactions, were $871,871,292 and $1,437,362,407,
respectively. The cost of purchases to cover short sales and the proceeds of
short sales were $3,789,665,405 and $3,493,500,557, respectively.
For the fiscal year ended October 31, 2022, the cost of in-kind purchases and
proceeds from in-kind sales were $2,497,586 and $0, respectively.
5. BORROWINGS
The Trust, on behalf of the Fund, along with the First Trust Series Fund and
First Trust Variable Insurance Trust, has a $200 million Credit Agreement with
BNYM ("Line of Credit"), to be a liquidity backstop during periods of high
redemption volume. 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
will be charged by BNYM, which First Trust allocates amongst the funds that have
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, 2022 associated
with the Line of Credit.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund's service providers to
purchase and redeem Fund shares directly with the Fund in large blocks of shares
known as "Creation Units." Prior to the start of trading on every business day,
the Fund publishes through the National Securities Clearing Corporation ("NSCC")
the "basket" of securities, cash or other assets that it will accept in exchange
for a Creation Unit of the Fund's shares. An Authorized Participant that wishes
to effectuate a creation of the Fund's shares deposits with the Fund the
"basket" of securities, cash or other assets identified by the Fund that day,
and then receives the Creation Unit of the Fund's shares in return for those
assets. After purchasing a Creation Unit, the Authorized Participant may
continue to hold the Fund's shares or sell them in the secondary market. The
redemption process is the reverse of the purchase process: the Authorized
Participant redeems a Creation Unit of the Fund's shares for a basket of
securities, cash or other assets. The combination of the creation and redemption
process with secondary market trading in the Fund's shares and underlying
securities provides arbitrage opportunities that are designed to help keep the
market price of the Fund's shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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, 2024.
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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
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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, 2022, the related statements 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, 2022, 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, 2022, 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 22, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (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, 2022 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, 2022, 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 significant
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
more broadly diversified.
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (UNAUDITED)
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (UNAUDITED)
There is no assurance that any alternative reference rate, including the Secured
Overnight Financing Rate ("SOFR") will be similar to or produce the same value
or economic equivalence as LIBOR or that instruments using an alternative rate
will have the same volume or liquidity. 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, and
they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round
Page 36
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (UNAUDITED)
lots. If a fund sells certain of its investments in an odd lot transaction, the
sale price may be less than the value at which such securities have been held by
the fund. Odd lots often trade at lower prices than institutional round lots.
There is no assurance that the fund will be able to sell a portfolio security at
the price established by the pricing service, which could result in a loss to
the fund.
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, 2023 at a meeting held on June 12-13, 2022. The Board
determined that the continuation of the Agreement is in the best interests of
the Fund in light of the nature, extent and quality of the services provided and
such other matters as the Board considered to be relevant in the exercise of its
business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, 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 indirect benefits to the Advisor and its affiliate, First Trust
Portfolios L.P. ("FTP"); and information on the Advisor's compliance program.
The Board reviewed initial materials with the Advisor at the meeting held on
April 18, 2022, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the
April 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 12-13, 2022 meeting, as well as at the June meeting. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor continues to be a reasonable business arrangement from
the Fund's perspective. The Board determined that, given the totality of the
information provided with respect to the Agreement, the Board had received
sufficient information to renew the Agreement. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor manages the Fund and knowing the Fund's unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality
of the services provided by the Advisor under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and the Fund and reviewed all of the services
provided by the Advisor to the Fund, as well as the background and experience of
the persons responsible for such services. The Board noted that the Fund is an
actively managed ETF and noted that the Advisor's 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 April 18,
2022 meeting, described to the Board the scope of its ongoing investment in
additional personnel and infrastructure to maintain and improve the quality of
services provided to the Fund and the other funds in the First Trust Fund
Complex. In light of the information presented and the considerations made, the
Board concluded that the nature, extent and quality of the services provided to
the Trust and the Fund by the Advisor under the Agreement have been and are
expected to remain satisfactory and that the Advisor has managed the Fund
consistent with its investment objective, policies and restrictions.
Page 37
<PAGE>
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (UNAUDITED)
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 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 April 18,
2022 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 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, 2021
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-, three- and five-year periods ended December 31, 2021.
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 that its expenses
relating to providing advisory services to the Fund will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. 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, 2021 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data, for the same period. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered indirect benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered that the Advisor had identified as an indirect benefit to the Advisor
and FTP their exposure to investors and brokers who, absent their exposure to
the Fund, may have had no dealings with the Advisor or FTP, and noted that the
Advisor does not utilize soft dollars in connection with the Fund. The Board
concluded that the character and amount of potential indirect benefits to the
Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") 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 Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
Page 38
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (UNAUDITED)
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreement for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the continuation of the
Agreement was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
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, 2021, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $5,751,173. This
figure is comprised of $598,725 paid (or to be paid) in fixed compensation and
$5,152,448 paid (or to be paid) in variable compensation. There were a total of
31 beneficiaries of the remuneration described above. Those amounts include
$617,457 paid (or to be paid) to senior management of First Trust Advisors L.P.
and $5,133,716 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Fund (collectively, "Code Staff ").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 39
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 40
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 41
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2022 (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
professional 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 2022
Page 42
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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
320 South Canal Street
Chicago, IL 60606
<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, 2022
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 27
Statement of Operations...................................................... 28
Statements of Changes in Net Assets.......................................... 29
Financial Highlights......................................................... 30
Notes to Financial Statements................................................ 31
Report of Independent Registered Public Accounting Firm...................... 38
Additional Information....................................................... 39
Board of Trustees and Officers............................................... 46
Privacy Policy............................................................... 48
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 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 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, 2022
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, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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 First Trust Enhanced Short Maturity ETF's (the "Fund") 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. 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)
10/31/22 10/31/22 to 10/31/22 10/31/22 to 10/31/22
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 0.08% 1.24% 1.10% 6.36% 9.44%
Market Price 0.11% 1.24% 1.10% 6.36% 9.44%
INDEX PERFORMANCE
ICE BofA 0-1 Year U.S. Treasury Index -0.06% 1.15% 0.88% 5.89% 7.45%
------------------------------------------------------------------------------------------------------------------------------------
</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 Total
Returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
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
--------------------------------------------------------
Commercial Paper 44.0%
Corporate Bonds and Notes 32.1
Foreign Corporate Bonds and Notes 7.8
U.S. Government Bonds and Notes 6.7
Asset-Backed Securities 3.9
U.S. Government Agency Mortgage-
Backed Securities 2.7
Certificates of Deposit 1.4
Mortgage-Backed Securities 1.3
Cash 0.1
-------
Total 100.0%
=======
--------------------------------------------------------
% OF TOTAL
CREDIT QUALITY(1) INVESTMENTS & CASH
--------------------------------------------------------
Government and Agency 9.5%
AAA 2.9
AA+ 0.5
AA- 0.8
A+ 1.1
A 4.7
A- 9.9
BBB+ 11.8
BBB 8.1
BBB- 4.1
BB+ 0.0*
Not Rated 46.5
Cash 0.1
-------
Total 100.0%
=======
* Amount is less than 0.1%.
--------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
--------------------------------------------------------
U.S. Treasury Note, 0.13%, 11/30/22 1.3%
U.S. Treasury Note, 2.50%, 08/15/23 1.2
U.S. Treasury Note, 1.63%, 11/15/22 1.0
U.S. Treasury Note, 2.50%, 03/31/23 0.9
U.S. Treasury Note, 1.75%, 05/15/23 0.8
U.S. Treasury Note, 2.00%, 02/15/23 0.6
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2013-K032, Class A2,
3.31%, 05/25/23 0.6
Dominion Energy, Inc., 3.97%-4.23%,
11/22/22 0.5
Enterprise Products Operating LLC, 3.35%,
03/15/23 0.5
Zoetis, Inc., 3.25%, 02/01/23 0.5
-------
Total 7.9%
=======
-----------------------------
(1) The ratings are by S&P Global Ratings. A credit rating is an assessment
provided by a nationally recognized statistical rating organization
(NRSRO) of the creditworthiness of an issuer with respect to debt
obligations. Ratings are measured 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, 2022
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 10,138 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
4/30/21 10,932 10,749
10/31/21 10,936 10,751
4/30/22 10,884 10,720
10/31/22 10,944 10,745
</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.
Performance in securitized product investment strategies can be impacted from
the benefits of purchasing odd lot positions. The impact of these investments
can be particularly meaningful when funds have limited assets under management
and may not be a sustainable source of performance as a fund grows in size.
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, 2022 (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 AND PORTFOLIO MANAGER
JEREMIAH CHARLES - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
JAMES SNYDER - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
ERIC R. MAISEL, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as part of the
portfolio management team of the Fund since 2014, except for Eric R. Maisel who
has served as part of the portfolio management team of the Fund since 2015.
COMMENTARY
The Fund is an actively managed exchange-traded fund that seeks current income,
consistent with preservation of capital and daily liquidity.
MARKET RECAP
As the 12-month period ended October 31, 2022 got underway, financial markets
were responding to rising inflation that surprised the Federal Reserve (the
"Fed") and caused it to pivot abruptly and take a more hawkish stance toward the
path of monetary policy. At the December 2021 Federal Open Market Committee
("FOMC") meeting, the Fed shifted forward the timeline for rate hikes and backed
away from its view that inflation was "transitory."
The hawkish shift drove interest rates higher during the first quarter of 2022
as the market aggressively repriced the path of monetary policy. The prospect of
tighter financial conditions, in turn, set a negative framework for the
performance of risk assets. After hitting a record high the first week of 2022,
the S&P 500(R) Index trended steadily lower while credit spreads widened
materially. The Consumer Price Index ("CPI") continued to increase, validating
the Fed's pivot and the spike in commodity prices resulting from the outbreak of
war in Ukraine in late February 2022 only added fuel to the inflationary fire.
The second quarter saw a continuation of these market themes and a surprisingly
strong inflation reading in June 2022 pushed the Fed to hike the Federal Funds
target rate by 75 basis points ("bps") rather than the previously expected 50
bps. Reflecting tighter monetary policy, real rates, as measured by U.S.
Treasury TIPS yields, climbed steadily during the quarter and moved above 0.0%
after being deeply negative to start the year. Similarly, the amount of negative
yielding debt globally fell to $2 trillion from over $12 trillion. Bond funds
experienced a string of outflows in the wake of rising yields and negative
returns.
Because inflation continued to be elevated, there was no letup to rising yields
during the third quarter and into October 2022. Inflation remained stubbornly
high with the CPI printing 8.2% in September - the seventh consecutive month
over 8%. The FOMC continued to insist that bringing down inflation was its
primary objective, and rightly so. Even with stricter financial conditions, the
U.S. labor market showed little sign of weakness with nearly five million more
job vacancies than unemployed persons. So far in 2022, the Fed has raised the
Federal Funds target rate from 0.25% to 3.25% - including three hikes of 75 bps
at successive FOMC meetings. Despite the ongoing debate within financial markets
as to how far the Fed will push interest rate policy, Fed Chairman Jerome Powell
made the Fed's position abundantly clear in a speech at the Fed's Jackson Hole
Symposium in late August 2022. He noted that "the historical record cautions
strongly against prematurely loosening policy," despite the pain that may be
felt by households and businesses.
For the 12-month period ending October 31, 2022, the 10-Year Treasury yield
increased 252 bps to 4.07%, the 2-Year Treasury yield increased 401 bps to
4.50%, and the 1-Year Treasury yield increased 450 bps to 4.62%. Commercial
paper yields also moved higher on the back of rate hikes by the Fed. The average
yield on 90-day Tier 1 commercial paper ended the third quarter of 2022 at 4.4%,
up 430 bps from a year ago. The impact of rising yields was felt across the
market with the S&P 500(R) Index and the Bloomberg U.S. Aggregate Bond Index
posting 12-month returns of -14.61% and -15.68%, respectively.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
PERFORMANCE ANALYSIS
The Fund's net asset value ("NAV") and market price performance were 0.08% and
0.11%, respectively for the 12-month period ended October 31, 2022, versus the
ICE BofA 0-1 Year U.S. Treasury Index's (the "Benchmark") return of -0.06%.
The Fund's defensive duration positioning was the key driver of outperformance
relative to the Benchmark. In a period of rapidly rising interest rates, the
impact of rising rates on Fund performance was mitigated by maintaining a low
duration posture through a large allocation to cash equivalents and
floating-rate securities. The allocations to commercial paper, floating-rate
corporate bonds, Treasury securities, and Non-Agency Commercial Mortgage-Backed
Securities were the leading sources of outperformance. The allocation to
fixed-rate corporate bonds, asset-backed securities, and collateralized mortgage
obligations were the main detractors. Within corporate credit, industries
delivering the best results were communications, energy, and electric utilities
while consumer non-cyclical, technology, and basics were the leading detractors.
From a rating quality perspective, BBB-rated bonds delivered slightly better
returns compared to those with an A rating due to better contribution from
credit spreads.
Throughout the reporting period 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 eight months and
effective duration approximately five months. By maintaining a low duration and
low average maturity, the strategy successfully achieved its objective of
seeking current income. By capturing rising interest rates, the Fund was able to
raise its distribution rate during the period from an annualized rate of 0.28%
to 2.77%.
MARKET AND FUND OUTLOOK
In this environment, our preference is to maintain low interest rate exposure
and capture yield with floating-rate securities, cash equivalents, and
short-maturity fixed rate bonds. As the Fed focuses on raising its target policy
rate to combat sustained inflation, bond investors, in our view, should avoid
fighting the Fed. In our opinion, higher rates will ultimately result in demand
destruction and eventually lower inflationary pressures. However, given how
monetary policy operates with a lag, the impact from both recent and future
hikes remains unknown, in our view. Our market framework centers on the Fed
staying the course, raising the policy rate to 4.5%-5.0%, then holding rates at
a restrictive level. Given the Fed's focus on inflation and employment, both of
which are lagging economic indicators, recession risk in 2023 remains
significantly elevated, in our opinion. With the volatility in rates likely to
continue, we believe extending duration is not yet warranted, but that time will
likely come midway through next year. Valuations in short-maturity corporate
bonds remain attractive, as market yields continue to exceed durations and
all-in yields are well above average over the prior two decades. Additionally,
we continue to favor credits in defensive sectors, including healthcare,
software, and regulated utilities. Our focus is on high quality issuers with
proven business models and durable cash flows.
We expect curve allocation to be an important component of total return in the
year ahead, as well as security selection, sector allocation and the yield
advantage the Fund enjoys above its Benchmark. Strategic positioning across the
yield curve and among market sectors will complement rigorous credit
underwriting that goes into in the security selection process.
We expect the Fund will maintain its duration underweight relative to its
Benchmark, at least over the near term, while keeping corporate credit (both
commercial paper and corporate bonds) as the largest exposure. The Fund will
also seek to maintain its allocation to securitized debt (asset-backed
securities/mortgage-backed securities) for diversification purposes and where
valuations represent compelling opportunities relative to U.S. Treasuries and
corporate credit. As always, the focus will be in the senior part of the capital
structure.
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. We believe the Fund is well positioned to add value
relative compared to its Benchmark.
Page 6
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD (a) PERIOD (b)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
Actual $1,000.00 $1,005.50 0.25% $1.26
Hypothetical (5% return before expenses) $1,000.00 $1,023.95 0.25% $1.28
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 44.6%
AEROSPACE/DEFENSE -- 1.1%
$ 18,400,000 L3Harris Technologies, Inc...................................... 3.55% 11/01/22 $ 18,400,000
20,000,000 L3Harris Technologies, Inc...................................... 4.23% 12/02/22 19,928,412
15,000,000 Northrop Grumman Corp........................................... 3.60% 11/02/22 14,998,521
10,800,000 Raytheon Technologies Corp...................................... 3.91% 11/08/22 10,791,906
10,000,000 Raytheon Technologies Corp...................................... 3.74% 12/01/22 9,969,391
----------------
74,088,230
----------------
AUTO MANUFACTURERS -- 2.8%
15,000,000 American Honda Finance Corp..................................... 3.06% 11/04/22 14,996,233
10,000,000 American Honda Finance Corp..................................... 3.00% 11/07/22 9,995,033
10,000,000 American Honda Finance Corp..................................... 3.52% 11/08/22 9,993,262
10,000,000 American Honda Finance Corp..................................... 3.64% 11/16/22 9,985,066
5,000,000 General Motors Financial Co., Inc,.............................. 3.87% 11/04/22 4,998,412
10,000,000 General Motors Financial Co., Inc,.............................. 3.92% 11/09/22 9,991,425
10,000,000 General Motors Financial Co., Inc,.............................. 4.02% 11/17/22 9,982,406
10,000,000 General Motors Financial Co., Inc,.............................. 4.18% 12/06/22 9,960,071
10,000,000 General Motors Financial Co., Inc,.............................. 4.23% 12/07/22 9,958,447
10,000,000 General Motors Financial Co., Inc,.............................. 4.43% 12/08/22 9,955,265
20,000,000 Harley-Davidson Financial Services, Inc......................... 4.46% 11/17/22 19,960,445
15,000,000 Mercedes-Benz Finance North America LLC......................... 4.12% 11/29/22 14,952,713
10,000,000 Mercedes-Benz Finance North America LLC......................... 3.85% 11/30/22 9,969,492
15,000,000 VW Credit, Inc.................................................. 3.56% 11/02/22 14,998,539
20,000,000 VW Credit, Inc.................................................. 3.63% 11/08/22 19,986,079
11,700,000 VW Credit, Inc.................................................. 3.81% 11/10/22 11,689,016
----------------
191,371,904
----------------
BANKS -- 3.3%
25,000,000 Australia & New Zealand Banking Group Ltd., SOFR +
0.41% (a).................................................... 3.45% 12/19/22 25,000,000
10,000,000 Australia & New Zealand Banking Group Ltd., SOFR +
0.43% (a).................................................... 3.48% 06/06/23 10,000,000
10,000,000 Barclays Bank PLC............................................... 4.57% 01/27/23 9,892,272
15,000,000 Canadian Imperial Bank of Commerce.............................. 1.75% 11/03/22 14,998,565
10,000,000 Commonwealth Bank of Australia, SOFR + 0.42% (a)................ 3.43% 01/23/23 9,999,772
15,000,000 Commonwealth Bank of Australia, SOFR + 0.66% (a)................ 3.71% 05/02/23 15,000,000
4,500,000 Cooperatieve Rabobank UA, SOFR + 0.59% (a)...................... 3.57% 03/29/23 4,504,254
10,000,000 Lloyds Bank PLC................................................. 4.53% 01/19/23 9,902,839
10,000,000 Macquarie Bank Ltd., SOFR + 0.60% (a)........................... 3.64% 03/02/23 10,000,000
15,000,000 Royal Bank of Canada, Fed Funds + 0.45% (a)..................... 3.53% 03/24/23 15,000,000
10,000,000 Royal Bank of Canada............................................ 3.91% 07/19/23 10,000,000
15,000,000 Skandinaviska Enskilda Banken AB, SOFR + 0.41% (a).............. 3.45% 11/21/22 15,000,000
10,000,000 Svenska Handelsbanken AB, SOFR + 0.40% (a)...................... 3.36% 03/01/23 10,000,000
25,000,000 Toronto-Dominion Bank (The), SOFR + 0.40% (a)................... 2.67% 11/21/22 25,000,000
10,000,000 Toronto-Dominion Bank (The), SOFR + 0.50% (a)................... 2.77% 03/06/23 10,000,000
10,000,000 Toronto-Dominion Bank (The)..................................... 3.95% 07/19/23 10,000,000
10,000,000 UBS AG, SOFR + 0.52% (a)........................................ 3.43% 03/08/23 10,000,000
15,000,000 UBS AG/London, SOFR + 0.42% (a)................................. 3.47% 04/20/23 15,000,000
----------------
229,297,702
----------------
BEVERAGES -- 0.9%
20,000,000 Constellation Brands, Inc....................................... 3.86% 11/02/22 19,997,887
29,500,000 Constellation Brands, Inc....................................... 3.93% - 3.96% 11/04/22 29,490,456
14,000,000 Constellation Brands, Inc....................................... 4.16% 11/07/22 13,990,429
----------------
63,478,772
----------------
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
BUILDING MATERIALS -- 0.5%
$ 12,589,000 Vulcan Materials Co............................................. 4.12% 11/15/22 $ 12,569,143
25,000,000 Vulcan Materials Co............................................. 3.97% - 4.22% 11/17/22 24,955,504
----------------
37,524,647
----------------
CHEMICALS -- 4.7%
5,000,000 DuPont de Nemours, Inc.......................................... 3.72% 11/08/22 4,996,435
10,000,000 DuPont de Nemours, Inc.......................................... 3.75% 11/10/22 9,990,755
15,000,000 DuPont de Nemours, Inc.......................................... 4.15% 11/15/22 14,976,187
15,000,000 DuPont de Nemours, Inc.......................................... 3.95% 11/16/22 14,975,716
10,000,000 DuPont de Nemours, Inc.......................................... 4.33% 12/05/22 9,959,842
10,000,000 DuPont de Nemours, Inc.......................................... 4.10% 12/06/22 9,960,855
22,000,000 Eastman Chemical Co............................................. 4.06% 11/03/22 21,995,109
15,000,000 Ecolab, Inc..................................................... 3.76% 11/15/22 14,978,374
10,000,000 EI du Pont de Nemours and Co.................................... 3.60% 11/16/22 9,985,240
7,000,000 EI du Pont de Nemours and Co.................................... 3.73% 11/18/22 6,987,845
12,000,000 EI du Pont de Nemours and Co.................................... 3.71% 11/21/22 11,975,650
15,000,000 EI du Pont de Nemours and Co.................................... 3.38% 12/13/22 14,942,075
10,000,000 EI du Pont de Nemours and Co.................................... 4.08% 12/14/22 9,952,153
26,600,000 FMC Corp........................................................ 3.60% 11/01/22 26,600,000
10,000,000 FMC Corp........................................................ 3.86% 11/02/22 9,998,941
10,000,000 International Flavors & Fragrances, Inc......................... 4.26% 11/07/22 9,992,999
10,750,000 International Flavors & Fragrances, Inc......................... 4.27% 11/18/22 10,728,644
10,000,000 International Flavors & Fragrances, Inc......................... 4.32% 11/21/22 9,976,358
15,000,000 Nutrien Ltd..................................................... 3.77% 11/14/22 14,979,903
10,000,000 Nutrien Ltd..................................................... 3.72% 11/16/22 9,984,747
10,000,000 Nutrien Ltd..................................................... 3.77% 11/18/22 9,982,477
8,200,000 Nutrien Ltd..................................................... 3.99% 12/01/22 8,173,172
10,000,000 Nutrien Ltd..................................................... 3.93% 12/06/22 9,962,461
10,000,000 Nutrien Ltd..................................................... 4.23% 12/09/22 9,956,129
15,000,000 PPG Industries, Inc............................................. 3.77% 11/07/22 14,990,712
19,500,000 Sherwin-Williams (The) Co....................................... 4.07% - 4.11% 11/17/22 19,464,993
----------------
320,467,772
----------------
COMMERCIAL SERVICES -- 0.9%
10,000,000 ERAC USA Finance LLC............................................ 3.55% 11/02/22 9,999,027
29,991,000 S&P Global, Inc................................................. 3.70% 11/01/22 29,991,000
20,000,000 S&P Global, Inc................................................. 3.80% 11/03/22 19,995,831
----------------
59,985,858
----------------
COSMETICS/PERSONAL CARE -- 0.4%
10,000,000 Procter & Gamble (The) Co....................................... 4.48% 02/17/23 9,869,295
10,000,000 Procter & Gamble (The) Co....................................... 4.48% 02/27/23 9,857,210
5,000,000 Procter & Gamble (The) Co....................................... 4.48% 03/01/23 4,927,403
----------------
24,653,908
----------------
DIVERSIFIED FINANCIAL SERVICES -- 0.6%
10,000,000 Citigroup Global Markets, Inc., SOFR + 0.52% (a)................ 3.56% 06/16/23 10,000,000
10,000,000 Nasdaq, Inc..................................................... 3.76% 11/16/22 9,984,552
20,000,000 Nasdaq, Inc..................................................... 3.83% 11/28/22 19,943,556
----------------
39,928,108
----------------
ELECTRIC -- 6.1%
7,000,000 American Electric Power Co., Inc................................ 3.85% 11/02/22 6,999,261
10,000,000 American Electric Power Co., Inc................................ 3.79% 11/03/22 9,997,926
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
ELECTRIC (CONTINUED)
$ 10,000,000 American Electric Power Co., Inc................................ 3.82% 11/16/22 $ 9,984,344
10,000,000 American Electric Power Co., Inc................................ 4.27% 11/22/22 9,975,477
10,000,000 American Electric Power Co., Inc................................ 3.98% 11/28/22 9,970,618
10,000,000 American Electric Power Co., Inc................................ 3.87% 11/29/22 9,970,379
10,000,000 CenterPoint Energy, Inc......................................... 3.81% 11/09/22 9,991,655
10,000,000 Consolidated Edison Co. of New York, Inc........................ 3.64% 11/01/22 10,000,000
10,000,000 Consolidated Edison Co. of New York, Inc........................ 3.64% 11/04/22 9,996,983
10,000,000 Consolidated Edison Co. of New York, Inc........................ 3.63% 11/07/22 9,994,033
15,000,000 Consolidated Edison Co. of New York, Inc........................ 3.97% 11/16/22 14,975,596
10,000,000 Consolidated Edison Co. of New York, Inc........................ 3.68% 11/18/22 9,982,871
15,000,000 Consolidated Edison Co. of New York, Inc........................ 4.54% 12/19/22 14,910,945
15,000,000 Dominion Energy, Inc............................................ 4.27% 11/14/22 14,977,239
35,000,000 Dominion Energy, Inc............................................ 3.97% - 4.23% 11/22/22 34,918,040
20,000,000 DTE Electric Co................................................. 3.86% 11/09/22 19,983,092
15,000,000 DTE Electric Co................................................. 3.96% 11/14/22 14,978,850
22,400,000 Duke Energy Corp................................................ 3.48% - 3.53% 11/01/22 22,400,000
20,000,000 Duke Energy Corp................................................ 3.53% 11/03/22 19,996,133
15,000,000 Duke Energy Corp................................................ 3.53% 11/07/22 14,991,303
15,000,000 Duke Energy Corp................................................ 3.57% 11/09/22 14,988,271
10,000,000 Entergy Corp.................................................... 4.08% 11/29/22 9,968,823
10,000,000 Entergy Corp.................................................... 3.34% 12/01/22 9,972,616
7,024,000 Entergy Corp.................................................... 4.18% 12/02/22 6,999,142
10,000,000 NextEra Energy Capital Holdings, Inc............................ 3.71% 11/10/22 9,990,861
10,000,000 NextEra Energy Capital Holdings, Inc............................ 4.02% 11/14/22 9,985,717
14,000,000 NextEra Energy Capital Holdings, Inc............................ 3.92% 11/18/22 13,974,509
15,000,000 Sempra Energy................................................... 3.91% 11/07/22 14,990,364
10,000,000 Sempra Energy................................................... 3.91% 11/09/22 9,991,437
10,000,000 Southern California Edison Co................................... 3.87% 11/01/22 10,000,000
20,000,000 Southern Co. Funding Corp....................................... 3.86% 11/04/22 19,993,659
10,000,000 Southern Co. Funding Corp....................................... 3.91% 11/09/22 9,991,434
----------------
419,841,578
----------------
ELECTRONICS -- 1.6%
15,000,000 Arrow Electronics, Inc.......................................... 4.01% 11/10/22 14,985,174
18,750,000 Honeywell International, Inc.................................... 4.25% 02/01/23 18,551,374
7,000,000 Honeywell International, Inc.................................... 4.37% 02/14/23 6,913,116
8,000,000 Honeywell International, Inc.................................... 4.42% 02/23/23 7,890,976
10,000,000 Jabil, Inc...................................................... 3.90% 11/01/22 10,000,000
10,000,000 Jabil, Inc...................................................... 4.12% 11/04/22 9,996,615
10,000,000 Jabil, Inc...................................................... 4.12% 11/08/22 9,992,109
10,000,000 Jabil, Inc...................................................... 4.44% 11/16/22 9,981,767
15,000,000 Jabil, Inc...................................................... 4.17% 11/17/22 14,972,620
10,000,000 Jabil, Inc...................................................... 4.43% 11/18/22 9,979,424
----------------
113,263,175
----------------
ENVIRONMENTAL CONTROL -- 1.2%
15,000,000 Republic Services, Inc.......................................... 3.86% 11/08/22 14,988,900
10,000,000 Republic Services, Inc.......................................... 3.71% 11/10/22 9,990,857
10,000,000 Republic Services, Inc.......................................... 4.12% 11/17/22 9,981,976
10,000,000 Republic Services, Inc.......................................... 3.88% 12/05/22 9,964,012
20,000,000 Waste Management, Inc........................................... 4.11% 11/10/22 19,979,736
20,000,000 Waste Management, Inc........................................... 4.17% 11/18/22 19,961,243
----------------
84,866,724
----------------
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
FOOD -- 2.7%
$ 10,000,000 Campbell Soup Co................................................ 3.71% 11/04/22 $ 9,996,950
15,000,000 Campbell Soup Co................................................ 3.95% 11/14/22 14,978,927
15,000,000 General Mills, Inc.............................................. 3.49% 11/04/22 14,995,704
15,000,000 General Mills, Inc.............................................. 3.73% 11/08/22 14,989,280
11,000,000 General Mills, Inc.............................................. 4.24% 11/16/22 10,980,879
15,000,000 General Mills, Inc.............................................. 3.99% - 4.00% 11/18/22 14,972,162
20,000,000 McCormick & Co., Inc............................................ 3.50% - 3.51% 11/02/22 19,998,079
15,400,000 McCormick & Co., Inc............................................ 4.27% 12/02/22 15,344,297
15,000,000 McCormick & Co., Inc............................................ 4.09% 12/12/22 14,931,381
10,000,000 Mondelez International, Inc..................................... 3.64% 11/09/22 9,992,029
15,000,000 Mondelez International, Inc..................................... 3.97% 12/01/22 14,951,155
10,000,000 Mondelez International, Inc..................................... 4.18% 12/05/22 9,961,216
10,000,000 Mondelez International, Inc..................................... 4.30% 12/06/22 9,958,967
10,000,000 Mondelez International, Inc..................................... 4.18% 12/08/22 9,957,794
----------------
186,008,820
----------------
GAS -- 0.8%
15,000,000 CenterPoint Energy Resources Corp............................... 3.61% - 3.65% 11/07/22 14,991,071
20,000,000 CenterPoint Energy Resources Corp............................... 4.30% 11/28/22 19,936,513
20,000,000 DTE Gas Co...................................................... 3.65% 11/03/22 19,995,997
----------------
54,923,581
----------------
HEALTH CARE PRODUCTS -- 0.5%
15,000,000 Baxter International, Inc....................................... 3.91% 11/21/22 14,967,959
20,000,000 Medtronic Global Holdings SCA................................... 4.01% 11/17/22 19,964,866
----------------
34,932,825
----------------
HEALTH CARE SERVICES -- 0.6%
10,000,000 Humana, Inc..................................................... 3.77% 11/10/22 9,990,724
15,000,000 Humana, Inc..................................................... 3.87% 11/14/22 14,979,371
15,000,000 UnitedHealth Group, Inc......................................... 3.71% 11/16/22 14,977,155
----------------
39,947,250
----------------
HOUSEHOLD PRODUCTS/WARES -- 0.8%
22,000,000 Church & Dwight Co., Inc........................................ 3.78% 11/08/22 21,984,065
10,000,000 Church & Dwight Co., Inc........................................ 3.93% 12/07/22 9,961,380
20,000,000 Reckitt Benckiser Treasury Services PLC......................... 3.98% 11/16/22 19,967,309
----------------
51,912,754
----------------
INSURANCE -- 0.1%
8,000,000 Aon Corp........................................................ 3.87% 11/14/22 7,988,976
----------------
MEDIA -- 1.1%
20,000,000 Comcast Corp.................................................... 4.30% 11/29/22 19,934,192
20,000,000 Comcast Corp.................................................... 4.30% 01/18/23 19,817,702
10,000,000 Comcast Corp.................................................... 4.31% 01/19/23 9,907,682
20,000,000 Comcast Corp.................................................... 4.69% 01/24/23 19,786,544
10,000,000 Comcast Corp.................................................... 4.72% 01/26/23 9,890,027
----------------
79,336,147
----------------
MINING -- 0.3%
10,000,000 Glencore Funding LLC............................................ 3.76% 11/09/22 9,991,757
10,000,000 Glencore Funding LLC............................................ 3.89% 11/17/22 9,982,977
----------------
19,974,734
----------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
MISCELLANEOUS MANUFACTURING -- 0.8%
$ 5,000,000 Parker-Hannifin Corp............................................ 3.87% 11/28/22 $ 4,985,720
13,345,000 Parker-Hannifin Corp............................................ 3.98% - 4.01% 12/08/22 13,291,244
5,000,000 Parker-Hannifin Corp............................................ 4.01% 12/12/22 4,977,552
15,000,000 Parker-Hannifin Corp............................................ 4.08% 12/16/22 14,924,841
10,000,000 Parker-Hannifin Corp............................................ 4.34% 12/19/22 9,943,233
5,000,000 Parker-Hannifin Corp............................................ 4.72% 01/23/23 4,946,884
----------------
53,069,474
----------------
OIL & GAS -- 1.3%
15,000,000 BP Capital Markets PLC.......................................... 4.96% 02/21/23 14,774,916
10,000,000 Suncor Energy, Inc.............................................. 3.66% 11/01/22 10,000,000
10,000,000 Suncor Energy, Inc.............................................. 3.71% 11/02/22 9,998,983
10,000,000 Suncor Energy, Inc.............................................. 3.83% 11/10/22 9,990,555
10,000,000 Suncor Energy, Inc.............................................. 3.67% 11/21/22 9,979,914
15,000,000 Suncor Energy, Inc.............................................. 4.38% 12/07/22 14,935,492
10,000,000 Suncor Energy, Inc.............................................. 4.18% 12/09/22 9,956,624
10,000,000 Suncor Energy, Inc.............................................. 4.19% 12/12/22 9,953,204
----------------
89,589,688
----------------
PHARMACEUTICALS -- 0.1%
10,000,000 Becton Dickinson and Co......................................... 3.89% 12/12/22 9,956,516
----------------
PIPELINES -- 4.8%
15,000,000 Enbridge US, Inc................................................ 3.74% 11/03/22 14,996,929
4,831,000 Enbridge US, Inc................................................ 3.91% 11/10/22 4,826,345
15,000,000 Enbridge US, Inc................................................ 4.41% 12/02/22 14,944,064
15,000,000 Enbridge US, Inc................................................ 4.20% 12/13/22 14,927,776
15,000,000 Enbridge US, Inc................................................ 4.10% 12/14/22 14,927,854
14,800,000 Enbridge US, Inc................................................ 4.46% 12/16/22 14,719,096
30,000,000 Energy Transfer, L.P............................................ 3.75% 11/01/22 30,000,000
15,000,000 Enterprise Products Operating LLC............................... 4.11% 11/09/22 14,986,498
10,000,000 ONEOK, Inc...................................................... 4.07% 11/04/22 9,996,660
10,000,000 ONEOK, Inc...................................................... 4.12% 11/08/22 9,992,101
10,000,000 ONEOK, Inc...................................................... 4.43% 11/17/22 9,980,625
10,000,000 ONEOK, Inc...................................................... 4.43% 11/23/22 9,973,375
15,000,000 ONEOK, Inc...................................................... 4.43% 11/28/22 14,951,021
10,000,000 ONEOK, Inc...................................................... 4.43% 11/29/22 9,966,134
10,000,000 ONEOK, Inc...................................................... 4.43% 11/30/22 9,964,907
11,000,000 Plains All American Pipeline, L.P............................... 3.75% 11/01/22 11,000,000
16,000,000 Targa Resources Corp............................................ 4.12% 11/09/22 15,985,568
16,000,000 Targa Resources Corp............................................ 4.17% 11/10/22 15,983,564
15,000,000 Targa Resources Corp............................................ 4.47% 11/18/22 14,968,818
10,000,000 TransCanada PipeLines Ltd....................................... 3.56% 11/01/22 10,000,000
10,000,000 TransCanada PipeLines Ltd....................................... 3.31% 11/07/22 9,994,557
15,000,000 TransCanada PipeLines Ltd....................................... 3.71% 11/08/22 14,989,324
10,000,000 TransCanada PipeLines Ltd....................................... 4.28% 12/08/22 9,956,793
10,000,000 TransCanada PipeLines Ltd....................................... 4.40% 12/12/22 9,950,765
10,000,000 TransCanada PipeLines Ltd....................................... 4.24% 12/15/22 9,949,196
10,000,000 TransCanada PipeLines Ltd....................................... 4.89% 01/26/23 9,885,990
----------------
331,817,960
----------------
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS -- 1.5%
$ 20,000,000 Alexandria Real Estate Equities, Inc............................ 3.60% 11/02/22 $ 19,998,025
10,000,000 Alexandria Real Estate Equities, Inc............................ 3.96% 11/09/22 9,991,328
17,800,000 Crown Castle, Inc............................................... 4.04% - 4.06% 11/03/22 17,796,050
15,000,000 Crown Castle, Inc............................................... 4.10% 11/08/22 14,988,210
15,000,000 Crown Castle, Inc............................................... 4.14% 11/10/22 14,984,703
15,000,000 Crown Castle, Inc............................................... 4.41% 11/16/22 14,972,892
10,650,000 Crown Castle, Inc............................................... 4.41% 11/22/22 10,623,061
----------------
103,354,269
----------------
RETAIL -- 1.1%
15,000,000 Alimentation Couche-Tard, Inc................................... 3.91% 11/08/22 14,988,762
20,000,000 Alimentation Couche-Tard, Inc................................... 3.94% 11/14/22 19,971,990
10,000,000 Alimentation Couche-Tard, Inc................................... 4.17% 11/17/22 9,981,767
16,100,000 Dollar General Corp............................................. 4.23% 12/05/22 16,036,861
15,000,000 Walgreens Boots Alliance, Inc................................... 3.66% 11/02/22 14,998,496
----------------
75,977,876
----------------
SOFTWARE -- 2.2%
20,000,000 Fidelity National Information Services, Inc..................... 4.11% 11/07/22 19,986,498
20,000,000 Fidelity National Information Services, Inc..................... 4.02% 11/17/22 19,964,839
15,000,000 Fidelity National Information Services, Inc..................... 4.27% 11/25/22 14,957,966
15,000,000 Fiserv, Inc..................................................... 3.86% 11/09/22 14,987,309
10,000,000 Fiserv, Inc..................................................... 3.91% 11/10/22 9,990,362
15,000,000 Fiserv, Inc..................................................... 4.27% 11/18/22 14,970,233
10,000,000 Oracle Corp..................................................... 3.97% 11/14/22 9,985,886
10,000,000 Oracle Corp..................................................... 4.24% 11/17/22 9,981,453
10,000,000 Oracle Corp..................................................... 4.24% 11/18/22 9,980,294
10,000,000 Oracle Corp..................................................... 4.24% 11/21/22 9,976,816
15,000,000 Oracle Corp..................................................... 4.24% 11/22/22 14,963,486
----------------
149,745,142
----------------
TELECOMMUNICATIONS -- 1.7%
10,000,000 AT&T, Inc....................................................... 3.83% 11/28/22 9,971,778
15,000,000 AT&T, Inc....................................................... 4.03% 12/09/22 14,937,286
10,000,000 AT&T, Inc....................................................... 4.04% 12/15/22 9,951,536
15,000,000 AT&T, Inc....................................................... 4.24% 12/16/22 14,922,023
10,000,000 AT&T, Inc....................................................... 4.82% 01/20/23 9,895,474
10,000,000 Bell Telephone Co. of Canada or Bell Canada (The)............... 3.56% 11/04/22 9,997,075
10,000,000 Bell Telephone Co. of Canada or Bell Canada (The)............... 3.56% 11/10/22 9,991,232
10,000,000 Bell Telephone Co. of Canada or Bell Canada (The)............... 3.97% 11/14/22 9,985,894
10,000,000 Verizon Communications, Inc..................................... 3.56% 11/08/22 9,993,171
15,000,000 Verizon Communications, Inc..................................... 3.56% 11/09/22 14,988,292
----------------
114,633,761
----------------
TRANSPORTATION -- 0.1%
10,000,000 Union Pacific Corp.............................................. 3.51% 11/07/22 9,994,234
----------------
TOTAL COMMERCIAL PAPER....................................................................... 3,071,932,385
(Cost $3,071,932,385) ----------------
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 32.5%
AEROSPACE/DEFENSE -- 1.0%
$ 7,001,000 Boeing (The) Co................................................. 1.17% 02/04/23 $ 6,932,559
2,361,000 Boeing (The) Co................................................. 4.51% 05/01/23 2,351,647
6,765,000 General Dynamics Corp........................................... 3.38% 05/15/23 6,707,636
26,458,000 L3Harris Technologies, Inc...................................... 3.85% 06/15/23 26,226,933
24,138,000 Northrop Grumman Corp........................................... 3.25% 08/01/23 23,812,046
----------------
66,030,821
----------------
AIRLINES -- 0.2%
14,744,000 Southwest Airlines Co........................................... 2.75% 11/16/22 14,732,596
----------------
AUTO MANUFACTURERS -- 2.0%
20,000,000 American Honda Finance Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.37% (a)............................................ 3.28% 05/10/23 19,999,301
4,000,000 BMW US Capital LLC (b).......................................... 3.80% 04/06/23 3,980,630
6,159,000 BMW US Capital LLC, SOFR Compounded Index +
0.53% (a) (b)................................................ 3.58% 04/01/24 6,133,830
4,000,000 Daimler Trucks Finance North America LLC (b).................... 1.13% 12/14/23 3,812,153
5,000,000 Daimler Trucks Finance North America LLC, SOFR +
0.60% (a) (b)................................................ 3.58% 12/14/23 4,977,496
7,000,000 General Motors Financial Co., Inc............................... 3.25% 01/05/23 6,979,878
3,900,000 General Motors Financial Co., Inc............................... 4.15% 06/19/23 3,868,046
15,000,000 General Motors Financial Co., Inc., SOFR + 0.76% (a)............ 3.67% 03/08/24 14,739,268
9,690,000 Hyundai Capital America (b)..................................... 1.15% 11/10/22 9,681,721
12,600,000 Hyundai Capital America (b)..................................... 2.38% 02/10/23 12,492,303
7,000,000 Hyundai Capital America (b)..................................... 1.00% 09/17/24 6,337,860
7,773,000 Mercedes-Benz Finance North America LLC (b)..................... 3.35% 02/22/23 7,735,990
11,530,000 Mercedes-Benz Finance North America LLC (b)..................... 1.75% 03/10/23 11,410,431
3,000,000 Nissan Motor Acceptance Co. LLC, 3 Mo. LIBOR +
0.64% (a) (b)................................................ 3.81% 03/08/24 2,951,666
1,000,000 Toyota Motor Credit Corp........................................ 2.50% 03/22/24 966,456
10,000,000 Toyota Motor Credit Corp., Series B, SOFR + 0.29% (a)........... 3.23% 09/13/24 9,882,340
1,868,000 Volkswagen Group of America Finance LLC (b)..................... 0.75% 11/23/22 1,862,760
10,407,000 Volkswagen Group of America Finance LLC (b)..................... 3.13% 05/12/23 10,287,202
----------------
138,099,331
----------------
BANKS -- 4.0%
9,720,000 Bank of America Corp. (c)....................................... 3.00% 12/20/23 9,685,124
20,589,000 Bank of America Corp. (c)....................................... 3.55% 03/05/24 20,419,169
10,000,000 Bank of America Corp., SOFR + 0.69% (a)......................... 3.75% 04/22/25 9,834,134
1,000,000 Bank of America Corp., Medium-Term Note, 3 Mo. LIBOR +
0.79% (a).................................................... 3.95% 03/05/24 995,258
15,000,000 Bank of America Corp., Medium-Term Note, 3 Mo. Bloomberg
Short Term Bank Yield + 0.43% (a)............................ 3.34% 05/28/24 14,774,550
18,400,000 Bank of America Corp., Medium-Term Note (c)..................... 3.86% 07/23/24 18,129,954
4,136,000 Citigroup, Inc. (c)............................................. 1.68% 05/15/24 4,046,028
6,100,000 Citigroup, Inc. (c)............................................. 4.04% 06/01/24 6,037,634
4,300,000 Discover Bank................................................... 3.35% 02/06/23 4,280,138
10,588,000 Fifth Third Bancorp............................................. 1.63% 05/05/23 10,396,794
3,000,000 Fifth Third Bancorp............................................. 3.65% 01/25/24 2,929,643
3,000,000 Goldman Sachs Group, (The), Inc................................. 0.52% 03/08/23 2,952,933
3,000,000 Goldman Sachs Group, (The), Inc. (c)............................ 0.63% 11/17/23 2,992,312
7,000,000 Goldman Sachs Group, (The), Inc................................. 1.22% 12/06/23 6,698,117
12,500,000 Goldman Sachs Group, (The), Inc., SOFR + 0.50% (a).............. 3.43% 09/10/24 12,269,488
4,000,000 Goldman Sachs Group, (The), Inc., SOFR + 0.49% (a).............. 3.55% 10/21/24 3,915,104
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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 JPMorgan Chase & Co............................................. 3.38% 05/01/23 $ 10,915,695
12,000,000 JPMorgan Chase & Co., SOFR + 0.58% (a).......................... 3.56% 03/16/24 11,905,440
20,762,000 JPMorgan Chase & Co. (c)........................................ 3.56% 04/23/24 20,562,233
24,157,000 JPMorgan Chase & Co. (c)........................................ 3.80% 07/23/24 23,813,784
10,000,000 JPMorgan Chase & Co., SOFR + 0.54% (a).......................... 3.39% 06/01/25 9,791,832
2,000,000 Morgan Stanley (c).............................................. 0.73% 04/05/24 1,951,316
14,762,000 Morgan Stanley (c).............................................. 3.74% 04/24/24 14,616,307
5,540,000 Morgan Stanley, Global Medium-Term Note......................... 3.13% 01/23/23 5,521,474
15,000,000 Morgan Stanley, Global Medium-Term Note (c)..................... 0.79% 01/22/25 14,004,045
5,000,000 Morgan Stanley, Medium-Term Note................................ 4.10% 05/22/23 4,975,456
9,507,000 Morgan Stanley, Medium-Term Note (c)............................ 0.53% 01/25/24 9,364,952
3,000,000 Truist Bank, SOFR + 0.73% (a)................................... 3.65% 03/09/23 2,999,511
12,000,000 Truist Financial Corp., Medium-Term Note, SOFR +
0.40% (a).................................................... 3.32% 06/09/25 11,745,329
2,401,000 Wells Fargo & Co., Medium-Term Note (c)......................... 1.65% 06/02/24 2,345,656
----------------
274,869,410
----------------
BEVERAGES -- 0.1%
5,000,000 Anheuser-Busch InBev Worldwide, Inc., 3 Mo. LIBOR +
0.74% (a).................................................... 4.66% 01/12/24 5,000,966
850,000 Constellation Brands, Inc....................................... 3.60% 05/09/24 831,780
----------------
5,832,746
----------------
BIOTECHNOLOGY -- 1.2%
11,524,000 Amgen, Inc...................................................... 2.25% 08/19/23 11,273,242
27,571,000 Gilead Sciences, Inc............................................ 2.50% 09/01/23 26,974,875
15,613,000 Gilead Sciences, Inc............................................ 0.75% 09/29/23 15,031,546
28,505,000 Illumina, Inc................................................... 0.55% 03/23/23 27,980,052
----------------
81,259,715
----------------
BUILDING MATERIALS -- 0.1%
9,509,000 Martin Marietta Materials, Inc.................................. 0.65% 07/15/23 9,199,671
----------------
CHEMICALS -- 0.1%
6,140,000 International Flavors & Fragrances, Inc......................... 3.20% 05/01/23 6,079,886
3,140,000 Westlake Chemical Corp.......................................... 0.88% 08/15/24 2,913,574
----------------
8,993,460
----------------
COMMERCIAL SERVICES -- 0.4%
13,043,000 Global Payments, Inc............................................ 3.75% 06/01/23 12,912,037
11,720,000 Global Payments, Inc............................................ 4.00% 06/01/23 11,627,657
3,200,000 PayPal Holdings, Inc............................................ 1.35% 06/01/23 3,131,872
----------------
27,671,566
----------------
COSMETICS/PERSONAL CARE -- 0.1%
4,000,000 Unilever Capital Corp........................................... 3.13% 03/22/23 3,975,285
----------------
DIVERSIFIED FINANCIAL SERVICES -- 0.7%
7,280,000 American Express Co............................................. 3.70% 08/03/23 7,205,798
2,292,000 American Express Co., 3 Mo. LIBOR + 0.75% (a)................... 5.21% 08/03/23 2,289,459
3,766,000 American Express Co............................................. 3.38% 05/03/24 3,653,153
4,000,000 Capital One Financial Corp...................................... 3.20% 01/30/23 3,981,974
8,000,000 Capital One Financial Corp., SOFR + 0.69% (a)................... 3.60% 12/06/24 7,796,290
25,204,000 Nasdaq, Inc..................................................... 0.45% 12/21/22 25,058,088
----------------
49,984,762
----------------
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
ELECTRIC -- 3.9%
$ 4,485,000 Alabama Power Co., Series S..................................... 5.88% 12/01/22 $ 4,493,544
7,224,000 American Electric Power Co., Inc., Series A, 3 Mo. LIBOR +
0.48% (a).................................................... 4.92% 11/01/23 7,175,478
8,385,000 American Electric Power Co., Inc., Series F..................... 2.95% 12/15/22 8,365,347
18,860,000 Baltimore Gas and Electric Co................................... 3.35% 07/01/23 18,645,835
7,070,000 CenterPoint Energy, Inc., SOFR Compounded Index +
0.65% (a).................................................... 3.34% 05/13/24 6,924,309
13,573,000 Dominion Energy, Inc., Series D, 3 Mo. LIBOR + 0.53% (a)........ 3.82% 09/15/23 13,520,770
8,000,000 DTE Energy Co................................................... 2.25% 11/01/22 8,000,000
16,265,000 DTE Energy Co., Series H........................................ 0.55% 11/01/22 16,265,000
3,000,000 Duke Energy Corp., SOFR + 0.25% (a)............................. 3.18% 06/10/23 2,981,080
26,335,000 Georgia Power Co., Series A..................................... 2.10% 07/30/23 25,755,395
19,800,000 Metropolitan Edison Co. (b)..................................... 3.50% 03/15/23 19,659,851
27,686,000 NextEra Energy Capital Holdings, Inc............................ 0.65% 03/01/23 27,302,142
5,260,000 NextEra Energy Capital Holdings, Inc., SOFR Compounded
Index + 0.54% (a)............................................ 3.39% 03/01/23 5,253,252
10,000,000 NextEra Energy Capital Holdings, Inc., SOFR Compounded
Index + 0.40% (a)............................................ 3.46% 11/03/23 9,882,445
11,950,000 Northern States Power Co........................................ 2.60% 05/15/23 11,808,299
15,000,000 Oklahoma Gas and Electric Co.................................... 0.55% 05/26/23 14,623,876
6,018,000 Pacific Gas and Electric Co., SOFR Compounded Index +
1.15% (a).................................................... 3.84% 11/14/22 6,013,810
4,200,000 PPL Electric Utilities Corp., SOFR + 0.33% (a).................. 3.38% 06/24/24 4,142,030
5,637,000 Public Service Electric and Gas Co., Medium-Term Note........... 2.38% 05/15/23 5,553,541
6,481,000 Public Service Enterprise Group, Inc............................ 2.65% 11/15/22 6,475,963
11,285,000 Public Service Enterprise Group, Inc............................ 0.84% 11/08/23 10,752,672
15,000,000 Southern California Edison Co., SOFR Compounded Index +
0.64% (a).................................................... 3.69% 04/03/23 14,953,129
4,000,000 Southern California Edison Co., Series J........................ 0.70% 08/01/23 3,861,381
7,550,000 Southern (The) Co., Series 2021, SOFR Compounded Index +
0.37% (a).................................................... 3.04% 05/10/23 7,517,901
2,599,000 Virginia Electric and Power Co.................................. 3.45% 02/15/24 2,543,332
8,764,000 Virginia Electric and Power Co., Series C....................... 2.75% 03/15/23 8,681,671
----------------
271,152,053
----------------
ENVIRONMENTAL CONTROL -- 0.7%
27,646,000 Republic Services, Inc.......................................... 4.75% 05/15/23 27,600,916
23,751,000 Waste Management, Inc........................................... 2.40% 05/15/23 23,466,429
----------------
51,067,345
----------------
FOOD -- 0.3%
10,738,000 ConAgra Brands, Inc............................................. 3.20% 01/25/23 10,689,769
10,000,000 ConAgra Brands, Inc............................................. 0.50% 08/11/23 9,623,032
----------------
20,312,801
----------------
GAS -- 0.4%
17,033,000 CenterPoint Energy Resources Corp............................... 0.70% 03/02/23 16,798,331
5,864,000 CenterPoint Energy Resources Corp., 3 Mo. LIBOR +
0.50% (a).................................................... 3.60% 03/02/23 5,842,825
5,000,000 Southern California Gas Co., 3 Mo. LIBOR + 0.35% (a)............ 3.62% 09/14/23 4,979,067
----------------
27,620,223
----------------
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
HEALTH CARE PRODUCTS -- 1.3%
$ 8,000,000 Baxter International, Inc....................................... 0.87% 12/01/23 $ 7,648,036
10,000,000 Baxter International, Inc., SOFR Compounded Index +
0.26% (a).................................................... 3.11% 12/01/23 9,912,931
10,000,000 Baxter International, Inc., SOFR Compounded Index +
0.44% (a).................................................... 3.25% 11/29/24 9,746,831
16,000,000 PerkinElmer, Inc................................................ 0.55% 09/15/23 15,381,563
3,042,000 Stryker Corp.................................................... 0.60% 12/01/23 2,897,672
7,681,000 Thermo Fisher Scientific, Inc., SOFR Compounded Index +
0.35% (a).................................................... 3.41% 04/18/23 7,669,574
24,595,000 Thermo Fisher Scientific, Inc................................... 0.80% 10/18/23 23,617,591
10,000,000 Thermo Fisher Scientific, Inc., SOFR Compounded Index +
0.39% (a).................................................... 3.45% 10/18/23 9,961,437
1,000,000 Thermo Fisher Scientific, Inc., SOFR Compounded Index +
0.53% (a).................................................... 3.59% 10/18/24 989,558
----------------
87,825,193
----------------
HEALTH CARE SERVICES -- 2.2%
31,769,000 Aetna, Inc...................................................... 2.80% 06/15/23 31,310,492
16,500,000 Elevance Health, Inc............................................ 2.95% 12/01/22 16,478,697
31,673,000 Elevance Health, Inc............................................ 3.30% 01/15/23 31,568,871
15,134,000 Elevance Health, Inc............................................ 0.45% 03/15/23 14,884,674
5,260,000 Humana, Inc..................................................... 3.15% 12/01/22 5,254,058
13,393,000 Humana, Inc..................................................... 2.90% 12/15/22 13,352,826
33,000,000 Humana, Inc..................................................... 0.65% 08/03/23 31,886,112
4,799,000 UnitedHealth Group, Inc......................................... 3.50% 06/15/23 4,763,590
----------------
149,499,320
----------------
INSURANCE -- 1.7%
15,035,000 Allstate (The) Corp............................................. 3.15% 06/15/23 14,873,279
5,000,000 Athene Global Funding, SOFR Compounded Index +
0.70% (a) (b)................................................ 3.49% 05/24/24 4,901,425
3,000,000 Brighthouse Financial Global Funding, SOFR + 0.76% (a) (b)...... 3.82% 04/12/24 2,968,894
13,635,000 Marsh & McLennan Cos., Inc...................................... 3.30% 03/14/23 13,546,787
25,000,000 MET Tower Global Funding, SOFR + 0.55% (a) (b).................. 3.61% 01/17/23 24,994,466
2,000,000 Metropolitan Life Global Funding I, SOFR + 0.57% (a) (b)........ 3.63% 01/13/23 2,000,624
7,000,000 Metropolitan Life Global Funding I, SOFR + 0.30% (a) (b)........ 3.35% 09/27/24 6,893,206
25,000,000 New York Life Global Funding, 3 Mo. LIBOR + 0.28% (a) (b)....... 4.19% 01/10/23 24,970,004
5,000,000 New York Life Global Funding, SOFR Compounded Index +
0.43% (a) (b)................................................ 3.30% 06/06/24 4,965,950
13,054,000 Principal Life Global Funding II, SOFR + 0.45% (a) (b).......... 3.51% 04/12/24 12,976,208
5,000,000 Principal Life Global Funding II, SOFR + 0.38% (a) (b).......... 3.17% 08/23/24 4,932,898
----------------
118,023,741
----------------
LODGING -- 0.0%
3,000,000 Hyatt Hotels Corp............................................... 1.30% 10/01/23 2,882,387
----------------
MACHINERY-DIVERSIFIED -- 0.3%
3,955,000 John Deere Capital Corp., Global Medium-Term Note, 3 Mo.
LIBOR + 0.55% (a)............................................ 3.69% 06/07/23 3,956,472
15,000,000 Rockwell Automation, Inc........................................ 0.35% 08/15/23 14,464,428
----------------
18,420,900
----------------
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
MEDIA -- 0.2%
$ 11,612,000 Charter Communications Operating LLC / Charter
Communications Operating Capital, 3 Mo. LIBOR +
1.65% (a).................................................... 6.09% 02/01/24 $ 11,690,314
----------------
MISCELLANEOUS MANUFACTURING -- 0.2%
5,300,000 Parker-Hannifin Corp............................................ 3.65% 06/15/24 5,155,131
9,100,000 Teledyne Technologies, Inc...................................... 0.65% 04/01/23 8,938,530
----------------
14,093,661
----------------
OIL & GAS -- 0.0%
3,165,000 Phillips 66..................................................... 3.70% 04/06/23 3,148,541
----------------
PHARMACEUTICALS -- 4.1%
32,618,000 AbbVie, Inc..................................................... 2.90% 11/06/22 32,606,349
14,000,000 AbbVie, Inc., 3 Mo. LIBOR + 0.65% (a)........................... 3.63% 11/21/22 13,990,209
31,847,000 AbbVie, Inc..................................................... 2.85% 05/14/23 31,480,472
20,518,000 AmerisourceBergen Corp.......................................... 0.74% 03/15/23 20,199,537
19,780,000 Astrazeneca Finance LLC......................................... 0.70% 05/28/24 18,505,724
17,825,000 Bayer US Finance II LLC (b)..................................... 3.88% 12/15/23 17,481,042
8,918,000 Bristol-Myers Squibb Co......................................... 3.25% 11/01/23 8,794,538
4,000,000 Cigna Corp...................................................... 3.05% 11/30/22 3,992,701
18,690,000 Cigna Corp...................................................... 3.00% 07/15/23 18,431,800
31,381,000 Cigna Corp...................................................... 3.75% 07/15/23 31,064,417
3,000,000 CVS Health Corp................................................. 4.00% 12/05/23 2,973,216
24,983,000 McKesson Corp................................................... 2.70% 12/15/22 24,913,400
21,947,000 Mylan, Inc. (b)................................................. 3.13% 01/15/23 21,811,903
34,013,000 Zoetis, Inc..................................................... 3.25% 02/01/23 33,857,170
----------------
280,102,478
----------------
PIPELINES -- 2.1%
12,141,000 Energy Transfer, L.P............................................ 3.45% 01/15/23 12,103,047
25,460,000 Energy Transfer, L.P............................................ 3.60% 02/01/23 25,353,103
34,670,000 Enterprise Products Operating LLC............................... 3.35% 03/15/23 34,482,968
5,218,000 Enterprise Products Operating LLC............................... 3.90% 02/15/24 5,118,243
2,989,000 Kinder Morgan Energy Partners, L.P.............................. 3.45% 02/15/23 2,973,865
18,591,000 Kinder Morgan, Inc.............................................. 3.15% 01/15/23 18,502,893
32,163,000 Plains All American Pipeline, L.P. / PAA Finance Corp........... 2.85% 01/31/23 31,955,428
12,685,000 Southern Natural Gas Co. LLC (b)................................ 0.63% 04/28/23 12,352,195
----------------
142,841,742
----------------
REAL ESTATE INVESTMENT TRUSTS -- 0.4%
12,619,000 Crown Castle, Inc............................................... 3.15% 07/15/23 12,425,978
15,190,000 Public Storage, SOFR + 0.47% (a)................................ 3.53% 04/23/24 15,066,998
----------------
27,492,976
----------------
RETAIL -- 0.5%
14,612,000 AutoZone, Inc................................................... 2.88% 01/15/23 14,565,840
3,000,000 AutoZone, Inc................................................... 3.13% 07/15/23 2,957,226
5,000,000 Lowe's Cos., Inc................................................ 3.88% 09/15/23 4,944,180
15,327,000 O'reilly Automotive, Inc........................................ 3.85% 06/15/23 15,198,507
----------------
37,665,753
----------------
SEMICONDUCTORS -- 0.8%
9,955,000 Marvell Technology, Inc......................................... 4.20% 06/22/23 9,884,120
16,156,000 Microchip Technology, Inc....................................... 4.33% 06/01/23 16,054,957
5,820,000 Microchip Technology, Inc....................................... 0.98% 09/01/24 5,342,164
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
SEMICONDUCTORS (CONTINUED)
$ 1,727,000 Qorvo, Inc. (b)................................................. 1.75% 12/15/24 $ 1,577,070
25,108,000 Skyworks Solutions, Inc......................................... 0.90% 06/01/23 24,393,584
----------------
57,251,895
----------------
SOFTWARE -- 2.1%
22,233,000 Autodesk, Inc................................................... 3.60% 12/15/22 22,210,894
4,192,000 Cadence Design Systems, Inc..................................... 4.38% 10/15/24 4,127,582
3,545,000 Fidelity National Information Services, Inc..................... 0.38% 03/01/23 3,490,050
27,457,000 Fiserv, Inc..................................................... 3.80% 10/01/23 27,056,607
19,467,000 Infor, Inc. (b)................................................. 1.45% 07/15/23 18,771,118
33,959,000 Oracle Corp..................................................... 2.63% 02/15/23 33,733,033
16,919,000 Roper Technologies, Inc......................................... 3.65% 09/15/23 16,709,085
18,366,000 VMware, Inc..................................................... 0.60% 08/15/23 17,687,063
3,000,000 VMware, Inc..................................................... 1.00% 08/15/24 2,766,591
----------------
146,552,023
----------------
TELECOMMUNICATIONS -- 0.5%
9,936,000 AT&T, Inc., SOFR Compounded Index + 0.64% (a)................... 3.69% 03/25/24 9,879,532
10,000,000 AT&T, Inc., 3 Mo. LIBOR + 1.18% (a)............................. 4.42% 06/12/24 10,035,081
11,421,000 Verizon Communications, Inc., SOFR Compounded Index +
0.50% (a).................................................... 3.53% 03/22/24 11,328,570
----------------
31,243,183
----------------
TRANSPORTATION -- 0.8%
26,512,000 Norfolk Southern Corp........................................... 2.90% 02/15/23 26,368,188
3,254,000 Union Pacific Corp.............................................. 2.75% 04/15/23 3,221,917
22,265,000 Union Pacific Corp.............................................. 3.50% 06/08/23 22,073,653
3,000,000 United Parcel Service, Inc...................................... 2.50% 04/01/23 2,970,522
----------------
54,634,280
----------------
TRUCKING & LEASING -- 0.1%
5,108,000 Penske Truck Leasing Co., L.P. / PTL Finance Corp. (b).......... 4.25% 01/17/23 5,098,883
----------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 2,239,269,055
(Cost $2,265,333,414) ----------------
FOREIGN CORPORATE BONDS AND NOTES -- 7.9%
BANKS -- 4.9%
4,000,000 Australia & New Zealand Banking Group Ltd., 3 Mo. LIBOR +
0.49% (a) (b)................................................ 3.47% 11/21/22 3,998,656
10,000,000 Bank of Montreal, Medium-Term Note, SOFR Compounded
Index + 0.32% (a)............................................ 3.38% 07/09/24 9,833,636
25,000,000 Bank of Nova Scotia (The), SOFR Compounded Index +
0.45% (a).................................................... 3.50% 04/15/24 24,756,288
8,000,000 Bank of Nova Scotia (The), SOFR + 0.38% (a)..................... 3.44% 07/31/24 7,898,256
5,000,000 Banque Federative du Credit Mutuel S.A., SOFR Compounded
Index + 0.41% (a) (b)........................................ 3.03% 02/04/25 4,883,826
15,623,000 Barclays PLC (c)................................................ 4.34% 05/16/24 15,415,238
17,625,000 Canadian Imperial Bank of Commerce, SOFR + 0.80% (a)............ 3.82% 03/17/23 17,620,012
8,500,000 Canadian Imperial Bank of Commerce, SOFR + 0.34% (a)............ 3.37% 06/22/23 8,481,345
18,275,000 Cooperatieve Rabobank UA (b).................................... 3.88% 09/26/23 18,013,903
5,000,000 Credit Suisse AG/New York NY.................................... 0.52% 08/09/23 4,738,439
10,000,000 Credit Suisse AG/New York NY, SOFR Compounded Index +
0.38% (a).................................................... 3.03% 08/09/23 9,730,480
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 5,000,000 Credit Suisse Group AG (b) (c).................................. 3.00% 12/14/23 $ 4,850,893
1,044,000 Danske Bank A/S (b) (c)......................................... 1.17% 12/08/23 1,037,750
5,000,000 Danske Bank A/S (b) (c)......................................... 0.98% 09/10/25 4,487,174
4,014,000 Deutsche Bank AG/New York NY.................................... 3.30% 11/16/22 4,009,945
4,992,000 Deutsche Bank AG/New York NY.................................... 3.95% 02/27/23 4,957,965
10,000,000 Deutsche Bank AG/New York NY, Series E, SOFR +
0.50% (a).................................................... 3.14% 11/08/23 9,844,480
6,000,000 DNB Bank ASA, 3 Mo. LIBOR + 0.62% (a) (b)....................... 3.72% 12/02/22 5,998,331
6,200,000 Federation des Caisses Desjardins du Quebec, SOFR +
0.43% (a) (b)................................................ 3.21% 05/21/24 6,109,602
6,000,000 ING Groep N.V., 3 Mo. LIBOR + 1.00% (a)......................... 4.74% 10/02/23 5,997,452
11,282,000 Lloyds Banking Group PLC........................................ 4.05% 08/16/23 11,150,678
22,570,000 Lloyds Banking Group PLC (c).................................... 2.91% 11/07/23 22,559,655
10,000,000 Macquarie Group Ltd. (b) (c).................................... 3.19% 11/28/23 9,982,900
5,000,000 Macquarie Group Ltd., SOFR + 0.71% (a) (b)...................... 3.77% 10/14/25 4,850,892
10,991,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.74% (a).................................................... 3.84% 03/02/23 10,990,655
3,306,000 Mizuho Financial Group, Inc. (c)................................ 0.85% 09/08/24 3,158,606
3,945,000 National Australia Bank Ltd., 3 Mo. LIBOR + 0.41% (a) (b)....... 3.66% 12/13/22 3,941,069
5,000,000 National Bank of Canada, SOFR + 0.49% (a)....................... 3.12% 08/06/24 4,899,761
7,615,000 NatWest Group PLC (c)........................................... 2.36% 05/22/24 7,409,049
14,885,000 NatWest Markets PLC, SOFR + 0.53% (a) (b)....................... 3.21% 08/12/24 14,595,816
8,000,000 Royal Bank of Canada, SOFR Compounded Index +
0.36% (a).................................................... 3.42% 07/29/24 7,894,634
18,454,000 Royal Bank of Canada, Global Medium-Term Note, SOFR
Compounded Index + 0.30% (a)................................. 3.36% 01/19/24 18,279,022
4,000,000 Skandinaviska Enskilda Banken AB, 3 Mo. LIBOR +
0.65% (a) (b)................................................ 3.88% 12/12/22 3,997,412
4,607,000 Sumitomo Mitsui Financial Group, Inc............................ 3.10% 01/17/23 4,591,810
10,000,000 Sumitomo Mitsui Trust Bank Ltd., SOFR + 0.44% (a) (b)........... 3.40% 09/16/24 9,914,793
3,000,000 Toronto-Dominion Bank (The), Medium-Term Note................... 2.35% 03/08/24 2,884,409
10,000,000 Toronto-Dominion Bank (The), Medium-Term Note, SOFR +
0.91% (a).................................................... 3.82% 03/08/24 9,974,783
5,000,000 UBS AG/London, SOFR + 0.45% (a) (b)............................. 3.10% 08/09/24 4,959,081
2,315,000 UBS Group AG (b) (c)............................................ 1.01% 07/30/24 2,228,129
8,000,000 Westpac Banking Corp., 3 Mo. LIBOR + 0.39% (a).................. 4.33% 01/13/23 7,992,327
----------------
338,919,152
----------------
BEVERAGES -- 0.4%
16,632,000 Heineken N.V. (b)............................................... 2.75% 04/01/23 16,465,135
11,000,000 JDE Peet's N.V. (b)............................................. 0.80% 09/24/24 9,981,066
----------------
26,446,201
----------------
BIOTECHNOLOGY -- 0.3%
19,943,000 Royalty Pharma PLC.............................................. 0.75% 09/02/23 19,137,014
----------------
CHEMICALS -- 0.3%
17,605,000 Nutrien Ltd..................................................... 1.90% 05/13/23 17,280,117
----------------
HEALTH CARE PRODUCTS -- 0.4%
28,626,000 DH Europe Finance II Sarl....................................... 2.05% 11/15/22 28,600,421
----------------
MEDIA -- 0.0%
2,102,000 Sky Ltd. (b).................................................... 3.13% 11/26/22 2,099,722
----------------
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
OIL & GAS -- 0.3%
$ 22,592,000 Canadian Natural Resources Ltd.................................. 2.95% 01/15/23 $ 22,504,172
----------------
PHARMACEUTICALS -- 0.7%
12,000,000 AstraZeneca PLC................................................. 3.50% 08/17/23 11,867,051
23,393,000 Shire Acquisitions Investments Ireland DAC...................... 2.88% 09/23/23 22,874,378
10,568,000 Takeda Pharmaceutical Co., Ltd.................................. 4.40% 11/26/23 10,460,613
----------------
45,202,042
----------------
PIPELINES -- 0.3%
2,000,000 Enbridge, Inc., SOFR + 0.40% (a)................................ 3.13% 02/17/23 1,996,470
5,442,000 Enbridge, Inc................................................... 0.55% 10/04/23 5,203,172
3,000,000 Enbridge, Inc., SOFR Compounded Index + 0.63% (a)............... 3.34% 02/16/24 2,967,397
14,000,000 Transcanada Pipelines Ltd....................................... 3.75% 10/16/23 13,777,639
----------------
23,944,678
----------------
SEMICONDUCTORS -- 0.1%
3,636,000 Broadcom Corp. / Broadcom Cayman Finance Ltd.................... 2.65% 01/15/23 3,617,117
----------------
TRANSPORTATION -- 0.2%
8,916,000 Canadian Pacific Railway Co..................................... 4.45% 03/15/23 8,883,251
5,000,000 Canadian Pacific Railway Co..................................... 1.35% 12/02/24 4,615,365
----------------
13,498,616
----------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES..................................................... 541,249,252
(Cost $549,011,123) ----------------
U.S. GOVERNMENT BONDS AND NOTES -- 6.8%
70,000,000 U.S. Treasury Note.............................................. 1.63% 11/15/22 69,957,844
93,000,000 U.S. Treasury Note.............................................. 0.13% 11/30/22 92,742,909
45,000,000 U.S. Treasury Note.............................................. 2.00% 02/15/23 44,717,882
60,000,000 U.S. Treasury Note.............................................. 2.50% 03/31/23 59,565,271
10,000,000 U.S. Treasury Note.............................................. 2.75% 04/30/23 9,920,945
60,000,000 U.S. Treasury Note.............................................. 1.75% 05/15/23 59,124,993
85,000,000 U.S. Treasury Note.............................................. 2.50% 08/15/23 83,575,475
25,000,000 U.S. Treasury Note.............................................. 2.88% 10/31/23 24,592,987
25,000,000 U.S. Treasury Note.............................................. 3.00% 07/31/24 24,329,102
----------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES........................................................ 468,527,408
(Cost $472,395,442) ----------------
ASSET-BACKED SECURITIES -- 4.0%
American Credit Acceptance Receivables Trust
1,915,620 Series 2021-4, Class A (b)................................... 0.45% 09/15/25 1,904,509
4,748,232 Series 2022-1, Class A (b)................................... 0.99% 12/15/25 4,679,383
Avis Budget Rental Car Funding AESOP LLC
16,295,833 Series 2017-2A, Class A (b).................................. 2.97% 03/20/24 16,217,121
BMW Vehicle Owner Trust
15,647,000 Series 2022-A, Class A2A..................................... 2.52% 12/26/24 15,453,617
Carvana Auto Receivables Trust
8,853 Series 2021-P2, Class A2..................................... 0.30% 07/10/24 8,844
Chase Auto Owner Trust
13,200,000 Series 2022-AA, Class A2 (b)................................. 3.86% 10/27/25 13,050,185
Drive Auto Receivables Trust
1,394,611 Series 2021-3, Class A2...................................... 0.52% 01/15/25 1,391,895
DT Auto Owner Trust
4,102,581 Series 2021-4A, Class A (b).................................. 0.56% 09/15/25 4,019,873
6,413,990 Series 2022-1A, Class A (b).................................. 1.58% 04/15/26 6,278,426
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Exeter Automobile Receivables Trust
$ 4,860,016 Series 2020-3A, Class C...................................... 1.32% 07/15/25 $ 4,801,214
3,329,323 Series 2022-1A, Class A2..................................... 1.15% 06/17/24 3,320,737
First Investors Auto Owner Trust
2,172,205 Series 2021-1A, Class A (b).................................. 0.45% 03/16/26 2,141,276
Flagship Credit Auto Trust
1,544,647 Series 2020-4, Class A (b)................................... 0.53% 04/15/25 1,540,350
5,892,422 Series 2021-3, Class A (b)................................... 0.36% 07/15/27 5,666,604
Ford Credit Auto Owner Trust
5,750,000 Series 2022-B, Class A2A..................................... 3.44% 02/15/25 5,694,400
Foursight Capital Automobile Receivables Trust
1,359,013 Series 2021-2, Class A2 (b).................................. 0.40% 04/15/25 1,353,406
2,691,913 Series 2022-1, Class A2 (b).................................. 1.15% 09/15/25 2,632,164
GLS Auto Receivables Issuer Trust
3,706,950 Series 2021-3A, Class A (b).................................. 0.42% 01/15/25 3,671,990
4,211,694 Series 2021-4A, Class A (b).................................. 0.84% 07/15/25 4,141,433
GLS Auto Receivables Trust
244,743 Series 2021-2A, Class A (b).................................. 0.31% 11/15/24 244,371
3,456,795 Series 2022-1A, Class A (b).................................. 1.98% 08/15/25 3,396,918
GM Financial Automobile Leasing Trust
1,471,000 Series 2022-3, Class A2A..................................... 4.01% 10/21/24 1,457,173
GM Financial Consumer Automobile Receivables Trust
12,427,914 Series 2022-2, Class A2...................................... 2.52% 05/16/25 12,258,886
GSAA Home Equity Trust
4,592 Series 2005-MTR1, Class A4, 1 Mo. LIBOR + 0.74% (a).......... 4.33% 10/25/35 4,590
Honda Auto Receivables Owner Trust
14,100,000 Series 2022-2, Class A2...................................... 3.81% 03/18/25 13,947,788
Hyundai Auto Receivables Trust
5,457,406 Series 2022-A, Class A2A..................................... 1.81% 02/18/25 5,356,487
John Deere Owner Trust
20,000,000 Series 2022-C, Class A2...................................... 4.98% 08/15/25 19,937,378
MVW Owner Trust
1,680,363 Series 2018-1A, Class A (b).................................. 3.45% 01/21/36 1,623,784
OSCAR US Funding Trust IX LLC
1,508,961 Series 2018-2A, Class A4 (b)................................. 3.63% 09/10/25 1,512,683
OSCAR US Funding Trust VIII LLC
342,698 Series 2018-1A, Class A4 (b)................................. 3.50% 05/12/25 343,204
OSCAR US Funding XIII LLC
8,217,880 Series 2021-2A, Class A2 (b)................................. 0.39% 08/12/24 8,102,807
OSCAR US Funding XIV LLC
8,794,360 Series 2022-1A, Class A2 (b)................................. 1.60% 03/10/25 8,657,851
Santander Retail Auto Lease Trust
1,699,906 Series 2021-B, Class A2 (b).................................. 0.31% 01/22/24 1,688,882
Sierra Timeshare Receivables Funding LLC
4,267,302 Series 2018-2A, Class A (b).................................. 3.50% 06/20/35 4,194,429
Toyota Auto Receivables Owner Trust
7,500,000 Series 2022-C, Class A2A..................................... 3.83% 08/15/25 7,407,022
Tricolor Auto Securitization Trust
898,371 Series 2021-1A, Class A (b).................................. 0.74% 04/15/24 895,723
Verizon Master Trust
3,000,000 Series 2022-1, Class A (d)................................... 1.04% 01/20/27 2,911,780
20,862,000 Series 2022-3, Class A, steps up to 3.76% on 11/20/23 (d).... 3.01% 05/20/27 20,388,556
14,000,000 Series 2022-5, Class A1A, steps up to 4.47% on
01/20/24 (d).............................................. 3.72% 07/20/27 13,737,160
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Westlake Automobile Receivables Trust
$ 4,770,636 Series 2021-2A, Class A2A (b)................................ 0.32% 04/15/25 $ 4,702,985
6,874,272 Series 2021-3A, Class A2 (b)................................. 0.57% 09/16/24 6,810,234
6,000,000 Series 2022-1A, Class A3 (b)................................. 2.42% 07/15/25 5,822,514
World Omni Auto Receivables Trust
15,000,000 Series 2022-B, Class A2A..................................... 2.77% 10/15/25 14,736,718
15,000,000 Series 2022-C, Class A2...................................... 3.73% 03/16/26 14,781,707
----------------
TOTAL ASSET-BACKED SECURITIES................................................................ 272,889,057
(Cost $277,153,861) ----------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 2.8%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.2%
Federal Home Loan Mortgage Corporation
157,980 Series 2003-2723, Class KN................................... 5.00% 12/15/23 157,513
305,670 Series 2004-2783, Class YB................................... 5.00% 04/15/24 304,457
180,956 Series 2014-4387, Class DE................................... 2.00% 01/15/32 178,811
5,465,138 Series 2017-4671, Class CA................................... 3.50% 08/15/43 5,351,945
Federal National Mortgage Association
598 Series 2009-14, Class EB..................................... 4.50% 03/25/24 594
323 Series 2009-52, Class AJ..................................... 4.00% 07/25/24 321
2 Series 2011-15, Class HT..................................... 5.50% 03/25/26 2
290,454 Series 2013-74, Class EL..................................... 3.00% 04/25/41 288,241
2,339,842 Series 2014-20, Class NA..................................... 3.00% 06/25/33 2,237,320
2,116,546 Series 2015-28, Class GC..................................... 2.50% 06/25/34 2,012,254
3,682,178 Series 2017-18, Class VB..................................... 3.00% 05/25/40 3,620,138
----------------
14,151,596
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 2.6%
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates
5,836,742 Series 2013-K027, Class A2................................... 2.64% 01/25/23 5,818,579
14,769,750 Series 2013-K030, Class A2................................... 3.25% 04/25/23 14,677,513
24,023,749 Series 2013-K031, Class A2................................... 3.30% 04/25/23 23,820,078
414,261 Series 2013-K032, Class A1................................... 3.02% 02/25/23 412,959
41,100,000 Series 2013-K032, Class A2................................... 3.31% 05/25/23 40,669,309
29,988,290 Series 2013-K034, Class A2................................... 3.53% 07/25/23 29,646,069
27,466,906 Series 2013-K035, Class A2................................... 3.46% 08/25/23 27,131,840
745,383 Series 2013-KSMC, Class A1................................... 1.95% 01/25/23 741,962
1,625,213 Series 2014-K036, Class A1................................... 2.78% 04/25/23 1,618,598
16,960,000 Series 2014-K036, Class A2................................... 3.53% 10/25/23 16,711,858
7,715,122 Series 2014-K041, Class A1................................... 2.72% 08/25/24 7,636,765
4,817,375 Series 2015-K046, Class A1................................... 2.70% 01/25/25 4,734,823
3,798,985 Series 2017-KJ12, Class A2................................... 3.04% 08/25/24 3,738,022
----------------
177,358,375
----------------
PASS-THROUGH SECURITIES -- 0.0%
Federal Home Loan Mortgage Corporation
2 Pool G13204.................................................. 6.00% 11/01/22 1
2,452 Pool G15435.................................................. 5.00% 11/01/24 2,449
2,278 Pool G15821.................................................. 5.00% 07/01/25 2,275
5,613 Pool G15874.................................................. 5.00% 06/01/26 5,605
Federal National Mortgage Association
652 Pool 890403.................................................. 6.00% 05/01/23 651
6,276 Pool 962078.................................................. 4.50% 03/01/23 6,216
23 Pool AE0237.................................................. 5.50% 11/01/23 23
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 4,237 Pool AE0812.................................................. 5.00% 07/01/25 $ 4,226
10,652 Pool AL5764.................................................. 5.00% 09/01/25 10,624
1,018 Pool AL5812.................................................. 5.50% 05/01/25 1,015
3,178 Pool AL6212.................................................. 4.50% 01/01/27 3,143
9,590 Pool AL6798.................................................. 5.00% 09/01/25 9,564
23 Pool AL8539.................................................. 4.50% 01/01/27 23
86,377 Pool BM1299.................................................. 5.00% 03/01/27 86,148
Government National Mortgage Association
3,832 Pool 783524.................................................. 5.00% 09/15/24 3,842
----------------
135,805
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................................... 191,645,776
(Cost $193,350,017) ----------------
CERTIFICATES OF DEPOSIT -- 1.4%
BANKS -- 1.4%
7,000,000 Bank of Montreal, SOFR + 0.25% (a).............................. 3.30% 12/02/22 7,000,485
10,000,000 Bank of Montreal, SOFR + 0.52% (a).............................. 3.57% 03/03/23 9,999,108
15,000,000 Bank of Montreal, SOFR + 0.65% (a).............................. 3.70% 07/03/23 14,991,667
15,000,000 Barclays Bank PLC, SOFR + 0.45% (a)............................. 3.50% 12/01/22 15,003,396
10,000,000 Nordea Bank Abp, SOFR + 0.42% (a)............................... 3.47% 12/07/22 10,002,333
15,000,000 Royal Bank of Canada, SOFR + 0.50% (a).......................... 3.55% 03/16/23 14,996,848
10,000,000 Svenska Handelsbanken, SOFR + 0.48% (a)......................... 3.53% 01/27/23 9,999,400
15,000,000 Toronto-Dominion Bank (The), SOFR + 0.49% (a)................... 2.02% 02/27/23 14,998,008
----------------
TOTAL CERTIFICATES OF DEPOSIT................................................................ 96,991,245
(Cost $96,998,726) ----------------
MORTGAGE-BACKED SECURITIES -- 1.3%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.7%
BRAVO Residential Funding Trust
6,786,708 Series 2021-NQM1, Class A1 (b)............................... 0.94% 02/25/49 6,224,229
CIM Trust
1,429,106 Series 2019-INV1, Class A2, 1 Mo. LIBOR + 1.00% (a) (b)...... 4.08% 02/25/49 1,422,839
705,089 Series 2019-INV2, Class A11, 1 Mo. LIBOR +
0.95% (a) (b)............................................. 4.03% 05/25/49 689,591
CIM Trust (Continued)
5,020,395 Series 2019-INV3, Class A11, 1 Mo. LIBOR +
1.00% (a) (b)............................................. 4.03% 08/25/49 4,714,628
COLT Mortgage Loan Trust
3,484,715 Series 2020-2R, Class A1 (b)................................. 1.33% 10/26/65 3,108,040
Credit Suisse Mortgage Trust
4,857,600 Series 2019-AFC1, Class A1, steps up to 3.57% on
08/26/23 (b) (d).......................................... 2.57% 07/25/49 4,486,729
5,336,454 Series 2020-NQM1, Class A1, steps up to 2.21% on
09/26/24 (b) (d).......................................... 1.21% 05/25/65 4,798,541
GCAT Trust
2,834,216 Series 2020-NQM1, Class A1, steps up to 3.25% on
02/26/24 (b) (d).......................................... 2.25% 01/25/60 2,686,597
JP Morgan Mortgage Trust
3,393,321 Series 2019-7, Class A11, 1 Mo. LIBOR + 0.90% (a) (b)........ 4.49% 02/25/50 3,246,319
207,233 Series 2019-8, Class A11, 1 Mo. LIBOR + 0.85% (a) (b)........ 3.93% 03/25/50 191,861
</TABLE>
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
JP Morgan Mortgage Trust (Continued)
$ 3,234,769 Series 2019-INV1, Class A11, 1 Mo. LIBOR +
0.95% (a) (b)............................................. 4.54% 10/25/49 $ 3,181,923
315,518 Series 2019-LTV2, Class A11, 1 Mo. LIBOR +
0.90% (a) (b)............................................. 4.49% 12/25/49 314,967
307,520 Series 2019-LTV3, Class A11, 1 Mo. LIBOR +
0.85% (a) (b)............................................. 3.93% 03/25/50 306,075
3,834,466 Series 2020-2, Class A11, 1 Mo. LIBOR + 0.80% (a) (b)........ 3.88% 07/25/50 3,523,105
577,107 Series 2020-LTV1, Class A11, 1 Mo. LIBOR +
1.00% (a) (b)............................................. 4.08% 06/25/50 570,455
OBX Trust
1,927,962 Series 2020-INV1, Class A11, 1 Mo. LIBOR +
0.90% (a) (b)............................................. 3.98% 12/25/49 1,782,184
Residential Mortgage Loan Trust
385,880 Series 2019-3, Class A2 (b).................................. 2.94% 09/25/59 374,133
Starwood Mortgage Residential Trust
1,148,865 Series 2020-1, Class A1 (b).................................. 2.28% 02/25/50 1,139,322
Verus Securitization Trust
1,404,998 Series 2019-4, Class A2, steps up to 3.85% on
10/26/23 (b) (d).......................................... 2.85% 11/25/59 1,340,380
896,644 Series 2019-INV2, Class A2, steps up to 3.95% on
08/25/23 (b) (d).......................................... 3.12% 07/25/59 877,119
973,258 Series 2020-4, Class A2, steps up to 2.91% on
07/26/24 (b) (d).......................................... 1.91% 05/25/65 915,714
----------------
45,894,751
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.6%
COMM Mortgage Trust
1,681,665 Series 2013-CR9, Class ASB................................... 3.83% 07/10/45 1,672,563
13,473,249 Series 2013-LC13, Class A5................................... 4.21% 08/10/46 13,278,054
FREMF Mortgage Trust
3,495,000 Series 2013-K29, Class C (b) (e)............................. 3.47% 05/25/46 3,444,017
GS Mortgage Securities Corp II
1,060,156 Series 2013-GC10, Class A5................................... 2.94% 02/10/46 1,056,433
JPMBB Commercial Mortgage Securities Trust
10,195,813 Series 2013-C14, Class A4.................................... 4.13% 08/15/46 10,064,813
KNDL Mortgage Trust
4,100,000 Series 2019-KNSQ, Class A, 1 Mo. LIBOR + 0.80% (a) (b)....... 4.21% 05/15/36 4,021,252
UBS-Barclays Commercial Mortgage Trust
1,555,824 Series 2013-C6, Class A3FL, 1 Mo. LIBOR + 0.79% (a) (b)...... 4.14% 04/10/46 1,553,586
Wells Fargo Commercial Mortgage Trust
7,228,660 Series 2013-LC12, Class A3FL, 1 Mo. LIBOR +
1.05% (a) (b)............................................. 4.46% 07/15/46 7,228,364
----------------
42,319,082
----------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................. 88,213,833
(Cost $91,892,286) ----------------
TOTAL INVESTMENTS -- 101.3%.................................................................. 6,970,718,011
(Cost $7,018,067,254) ----------------
NET OTHER ASSETS AND LIABILITIES -- (1.3)%................................................... (86,954,056)
----------------
NET ASSETS -- 100.0%......................................................................... $ 6,883,763,955
================
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
(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 (the "1933 Act"), and may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be liquid by First Trust Advisors L.P.,
the Fund's advisor. Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is
determined based on security specific factors and assumptions, which
require subjective judgment. At October 31, 2022, securities noted as such
amounted to $577,851,004 or 8.4% of net assets.
(c) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at October 31, 2022. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(d) Step-up security. A security where the coupon increases or steps up at a
predetermined date.
(e) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
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,
2022 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
10/31/2022 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Commercial Paper*.................................... $3,071,932,385 $ -- $3,071,932,385 $ --
Corporate Bonds and Notes*........................... 2,239,269,055 -- 2,239,269,055 --
Foreign Corporate Bonds and Notes*................... 541,249,252 -- 541,249,252 --
U.S. Government Bonds and Notes...................... 468,527,408 -- 468,527,408 --
Asset-Backed Securities.............................. 272,889,057 -- 272,889,057 --
U.S. Government Agency Mortgage-Backed Securities.... 191,645,776 -- 191,645,776 --
Certificates of Deposit*............................. 96,991,245 -- 96,991,245 --
Mortgage-Backed Securities........................... 88,213,833 -- 88,213,833 --
-------------- -------------- -------------- --------------
Total Investments.................................... $6,970,718,011 $ -- $6,970,718,011 $ --
============== ============== ============== ==============
</TABLE>
* See Portfolio of Investments for industry breakout.
Page 26 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $6,970,718,011
Cash...................................................................... 9,388,186
Interest receivable....................................................... 22,576,949
--------------
Total Assets........................................................... 7,002,683,146
--------------
LIABILITIES:
Payables:
Investment securities purchased ....................................... 54,047,232
Capital shares purchased............................................... 47,452,764
Distributions to shareholders.......................................... 15,994,712
Investment advisory fees............................................... 1,424,483
--------------
Total Liabilities................................................... 118,919,191
--------------
NET ASSETS................................................................ $6,883,763,955
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $6,942,537,537
Par value................................................................. 1,160,997
Accumulated distributable earnings (loss)................................. (59,934,579)
--------------
NET ASSETS................................................................ $6,883,763,955
==============
NET ASSET VALUE, per share................................................ $ 59.29
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)............................................. 116,099,724
==============
Investments, at cost...................................................... $7,018,067,254
==============
</TABLE>
See Notes to Financial Statements Page 27
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 73,382,207
Foreign withholding tax................................................... (13,227)
--------------
Total investment income................................................ 73,368,980
--------------
EXPENSES:
Investment advisory fees.................................................. 21,815,540
--------------
Total expenses......................................................... 21,815,540
Less fees waived by the investment advisor............................. (9,695,795)
--------------
Net expenses........................................................... 12,119,745
--------------
NET INVESTMENT INCOME (LOSS).............................................. 61,249,235
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments................................... (194,021)
Net change in unrealized appreciation (depreciation) on investments....... (47,431,584)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (47,625,605)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 13,623,630
==============
</TABLE>
Page 28 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2022 10/31/2021
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 61,249,235 $ 22,049,093
Net realized gain (loss).................................................. (194,021) 3,911,818
Net change in unrealized appreciation (depreciation)...................... (47,431,584) (15,146,530)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........... 13,623,630 10,814,381
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (61,314,422) (21,658,425)
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 3,362,454,346 242,910,481
Cost of shares redeemed................................................... (841,978,719) (989,870,234)
--------------- ---------------
Net increase (decrease) in net assets resulting from shareholder
transactions........................................................... 2,520,475,627 (746,959,753)
--------------- ---------------
Total increase (decrease) in net assets................................... 2,472,784,835 (757,803,797)
NET ASSETS:
Beginning of period....................................................... 4,410,979,120 5,168,782,917
--------------- ---------------
End of period............................................................. $ 6,883,763,955 $ 4,410,979,120
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 73,649,724 86,099,724
Shares sold............................................................... 56,550,000 4,050,000
Shares redeemed........................................................... (14,100,000) (16,500,000)
--------------- ---------------
Shares outstanding, end of period......................................... 116,099,724 73,649,724
=============== ===============
</TABLE>
See Notes to Financial Statements Page 29
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2022 2021 2020 2019 2018
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 59.89 $ 60.03 $ 60.09 $ 59.97 $ 60.02
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.64 0.28 0.85 1.48 1.15
Net realized and unrealized gain (loss)................. (0.60) (0.15) (0.05) 0.11 (0.01)
---------- ---------- ---------- ---------- ----------
Total from investment operations........................ 0.04 0.13 0.80 1.59 1.14
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................... (0.64) (0.27) (0.86) (1.47) (1.19)
Return of capital....................................... -- -- -- -- (0.00)(a)
---------- ---------- ---------- ---------- ----------
Total distributions..................................... (0.64) (0.27) (0.86) (1.47) (1.19)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......................... $ 59.29 $ 59.89 $ 60.03 $ 60.09 $ 59.97
========== ========== ========== ========== ==========
TOTAL RETURN (b)........................................ 0.08% 0.22% 1.34% 2.68% 1.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................... $6,883,764 $4,410,979 $5,168,783 $5,065,750 $3,070,454
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............. 0.25% 0.25% 0.38% 0.39% 0.33%
Ratio of net investment income (loss) to average
net assets........................................... 1.26% 0.47% 1.41% 2.47% 2.04%
Portfolio turnover rate (c)............................. 56% 82% 73% 73% 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. 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.
Page 30 See Notes to Financial Statements
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022
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 twelve 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"). The Fund represents a separate series of
shares of beneficial interest in the Trust. Unlike conventional mutual funds,
the Fund issues and redeems shares on a continuous basis, at net asset value
("NAV"), only in large blocks of shares known as "Creation Units."
The Fund is an actively managed exchange-traded fund ("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 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 readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Trust" or the "Advisor"), in accordance with valuation procedures approved by
the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act
and rules thereunder. Investments valued by the Advisor's Pricing Committee, if
any, are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
Corporate bonds, corporate notes, 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 Advisor's Pricing Committee,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
Page 31
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Pricing services generally value fixed-income securities assuming orderly
transactions of an institutional round lot size, but a Fund may hold or
transact in such securities in smaller, odd lot sizes. Odd lots may trade
at lower prices than institutional round lots.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade 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.
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.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Advisor's Pricing Committee at
fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended (the "1933 Act")) for
which a third-party pricing service is unable to provide a market price;
securities whose trading has been formally suspended; a security whose market or
fair value price is not available from a pre-established pricing source; a
security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the most recent price provided by a pricing service;
2) the fundamental business data relating to the borrower/issuer;
3) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
4) the type, size and cost of a security;
5) the financial statements of the borrower/issuer or the
financial condition of the country of issue;
6) the credit quality and cash flow of the borrower/issuer, or
country of issue, based on the Pricing Committee's,
sub-adviser's or portfolio manager's analysis, as applicable,
or external analysis;
7) the information as to any transactions in or offers for the
security;
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 32
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022
8) the price and extent of public trading in similar securities
of the borrower/issuer, or comparable companies;
9) the coupon payments;
10) the quality, value and salability of collateral, if any,
securing the security;
11) 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);
12) 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);
13) the borrower's/issuer's competitive position within the
industry;
14) the borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
15) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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 United Kingdom's Financial Conduct Authority (the "FCA"), which regulates
the London Interbank Offered Rates ("LIBOR") announced on March 5, 2021 that it
intended to phase-out all LIBOR reference rates, beginning December 31, 2021.
Since that announcement, the FCA has ceased publication of all non-USD LIBOR
reference rates and the 1-week and 2-month USD LIBOR reference rates as of
December 31, 2021. The remaining USD LIBOR settings will cease to be published
or no longer be representative immediately after June 30, 2023. The
International Swaps and Derivatives Association, Inc. ("ISDA") confirmed that
the FCA's March 5, 2021 announcement of its intention to cease providing LIBOR
reference rates, constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022
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. There is no assurance that
any alternative reference rate, including SOFR, will be similar to or produce
the same value or economic equivalence as LIBOR or that instruments using an
alternative rate will have the same volume or liquidity.
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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
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, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 46,350,806 $ 23,640,819
Capital gains................................... -- --
Return of capital............................... -- --
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 322,904
Accumulated capital and other gain (loss)....... (12,864,893)
Net unrealized appreciation (depreciation)...... (47,392,590)
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 2019,
2020, 2021, and 2022 remain open to federal and state audit. As of October 31,
2022, 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, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $12,864,893.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022
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, 2022, 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,
2022, there were no tax adjustments made to accumulated distributable earnings
(loss) accounts due to differences between book and tax treatments.
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C>
$7,018,110,601 $ 82,151 $ (47,474,741) $ (47,392,590)
</TABLE>
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 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 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 0.20% of average
daily net assets until March 1, 2023. At that point, the waiver agreement will
expire and will not be renewed. 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, 2023. 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, 2022, the Advisor waived fees of $9,695,795.
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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
a target outcome fund, or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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, 2022, were $198,532,808 and $1,099,547,043, 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, 2022 were $34,517,440 and $1,757,484,335, respectively.
For the fiscal year ended October 31, 2022, the Fund had no in-kind
transactions.
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund's service providers to
purchase and redeem Fund shares directly with the Fund in large blocks of shares
known as "Creation Units." Prior to the start of trading on every business day,
the Fund publishes through the National Securities Clearing Corporation ("NSCC")
the "basket" of securities, cash or other assets that it will accept in exchange
for a Creation Unit of the Fund's shares. An Authorized Participant that wishes
to effectuate a creation of the Fund's shares deposits with the Fund the
"basket" of securities, cash or other assets identified by the Fund that day,
and then receives the Creation Unit of the Fund's shares in return for those
assets. After purchasing a Creation Unit, the Authorized Participant may
continue to hold the Fund's shares or sell them in the secondary market. The
redemption process is the reverse of the purchase process: the Authorized
Participant redeems a Creation Unit of the Fund's shares for a basket of
securities, cash or other assets. The combination of the creation and redemption
process with secondary market trading in the Fund's shares and underlying
securities provides arbitrage opportunities that are designed to help keep the
market price of the Fund's shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022
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, 2024.
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. 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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
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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, 2022, 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, 2022, 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, 2022, 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, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (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, 2022 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, 2022, 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 significant
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
more broadly diversified.
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (UNAUDITED)
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (UNAUDITED)
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
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, 2023 at a meeting held on June 12-13, 2022. The Board
determined that the continuation of the Agreement is in the best interests of
the Fund in light of the nature, extent and quality of the services provided and
such other matters as the Board considered to be relevant in the exercise of its
business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, 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 indirect benefits to the Advisor and its affiliate, First Trust
Portfolios L.P. ("FTP"); and information on the Advisor's compliance program.
The Board reviewed initial materials with the Advisor at the meeting held on
April 18, 2022, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the
April 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 12-13, 2022 meeting, as well as at the June meeting. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor continues to be a reasonable business arrangement from
the Fund's perspective. The Board determined that, given the totality of the
information provided with respect to the Agreement, the Board had received
sufficient information to renew the Agreement. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor manages the Fund and knowing the Fund's unitary fee.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (UNAUDITED)
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 April 18, 2022 meeting, described to the Board
the scope of its ongoing investment in additional personnel and infrastructure
to maintain and improve the quality of services provided to the Fund and the
other funds in the First Trust Fund Complex. In light of the information
presented and the considerations made, the Board concluded that the nature,
extent and quality of the services provided to the Trust and the Fund by the
Advisor under the Agreement have been and are expected to remain satisfactory
and that the Advisor has managed the Fund consistent with its investment
objective, policies and restrictions.
The Board considered the unitary fee rate 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, 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 aggregate amount
equal to 0.20% of the Fund's average daily net assets until at least March 1,
2023 and also to 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 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 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 April 18, 2022 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 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, 2021
to the performance of the funds in the Performance Universe and to that of a
benchmark index. Based on the information provided, the Board noted that the
Fund outperformed the Performance Universe median and underperformed the
benchmark index for the one-year period ended December 31, 2021 and
underperformed the Performance Universe median and outperformed the benchmark
index for the three- and five-year periods ended December 31, 2021.
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 that its expenses
relating to providing advisory services to the Fund will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. 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
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (UNAUDITED)
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, 2021 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data, for the same period. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered indirect benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered that the Advisor had identified as an indirect benefit to the Advisor
and FTP their exposure to investors and brokers who, absent their exposure to
the Fund, may have had no dealings with the Advisor or FTP, and noted that the
Advisor does not utilize soft dollars in connection with the Fund. The Board
concluded that the character and amount of potential indirect benefits to the
Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENTS TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") 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 Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreement for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the continuation of the
Agreement was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
The Board noted that the Advisor had previously agreed to waive a portion of its
unitary fee for the Fund and that the modified unitary fee rate schedule for the
Fund under the Amendment would not be implemented until the expiration of the
Fund's contractual fee waiver. The Board considered that the effective unitary
fee rate paid by the Fund under the Agreement after taking into account the
contractual fee waiver is less than the effective unitary fee rate that the Fund
would pay pursuant to the modified unitary fee rate schedule under the
Amendment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
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.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (UNAUDITED)
During the year ended December 31, 2021, the amount of remuneration paid (or to
be paid) by First Trust in respect of the Fund is $6,575,011. This figure is
comprised of $500,890 paid (or to be paid) in fixed compensation and $6,074,121
paid (or to be paid) in variable compensation. There were a total of 28
beneficiaries of the remuneration described above. Those amounts include
$1,234,773 paid (or to be paid) to senior management of First Trust and
$5,340,238 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 ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2022 (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
professional 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 2022
Page 48
<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
320 South Canal Street
Chicago, IL 60606
<PAGE>
{BLANK BACK COVER}
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust High Income Strategic Focus ETF (HISF) (formerly First Trust
Strategic Income ETF (FDIV))
Annual Report
For the Year Ended
October 31, 2022
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 6
Portfolio of Investments..................................................... 7
Statement of Assets and Liabilities.......................................... 8
Statement of Operations...................................................... 9
Statements of Changes in Net Assets.......................................... 10
Financial Highlights......................................................... 11
Notes to Financial Statements................................................ 12
Report of Independent Registered Public Accounting Firm...................... 21
Additional Information....................................................... 22
Board of Trustees and Officers............................................... 29
Privacy Policy............................................................... 31
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 High Income Strategic Focus 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 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 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 HIGH INCOME STRATEGIC FOCUS ETF (HISF)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2022
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
High Income Strategic Focus ETF (the "Fund"), which contains detailed
information about the Fund for the twelve months ended October 31, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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 HIGH INCOME STRATEGIC FOCUS ETF (HISF)
The First Trust High Income Strategic Focus ETF's (the "Fund"), formerly First
Trust Strategic Income ETF, primary investment objective is to seek
risk-adjusted income. The Fund's secondary investment objective is capital
appreciation. Under normal market conditions, the Fund seeks to achieve its
investment objectives by investing in a portfolio of U.S.-listed exchange-traded
funds ("Underlying ETFs") that are designed to follow the High Income Model (the
"High Income Model") developed by the Fund's investment advisor, First Trust
Advisors L.P. ("First Trust" or the "Advisor"). The Fund, through its
investments in the Underlying ETFs comprising the High Income Model, seeks to
provide investors with a diversified income stream by holding a blend of fixed
income assets that are actively managed to seek levels of high income and total
return. The High Income Model is principally composed of ETFs for which First
Trust serves as investment advisor. Therefore, a significant portion of the ETFs
in which the Fund invests are advised by First Trust. However, the Fund may also
invest in ETFs other than First Trust ETFs. Shares of the Fund are listed on The
Nasdaq Stock Market LLC under the ticker symbol "HISF."
Prior to February 28, 2022, the Fund was a multi-manager, multi-strategy
actively managed exchange-traded fund. The following served as investment
sub-advisors to the Fund: First Trust Global Portfolios Limited ("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 determined the Fund's
strategic allocation among various general investment categories and allocated
the Fund's assets to portfolio management teams comprised of personnel of the
Advisor and/or a Sub-Advisor (each, a "Management Team"), which employed their
respective investment strategies. The Fund sought to achieve its objectives by
having each Management Team focus on those securities within its respective
investment category. The Fund added or removed investment categories or
Management Teams at the discretion of the Advisor.
The Fund's investment categories were: (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 utilized a related option overlay strategy and/or
derivative instruments in implementing their respective investment strategies
for the Fund. Additionally, the Management Teams sought exposure to these asset
classes directly or through investments in ETFs.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (8/13/14) Ended (8/13/14)
10/31/22 10/31/22 to 10/31/22 10/31/22 to 10/31/22
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV -10.38% 1.12% 2.34% 5.73% 20.96%
Market Price -10.49% 1.11% 2.34% 5.67% 20.97%
INDEX PERFORMANCE
Blended Index(2) -14.37% 0.25% 1.45% 1.27% 12.53%
Bloomberg U.S. Aggregate Bond Index -15.68% -0.54% 0.63% -2.68% 5.34%
Russell 3000(R) Index -16.52% 9.87% 10.33% 60.08% 124.20%
Prior Blended Benchmark(3) -5.81% 3.36% 3.29% 17.96% 30.44%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On February 28, 2022, the Fund changed its principal investment strategies.
Therefore, the Fund's performance and historical returns shown above are not
necessarily indicative of the performance that the Fund, under its current
strategy, would have generated.
-----------------------------
(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 comprised of the Bloomberg US Aggregate Bond Index
(the "Agg") (70%) and the ICE BofA U.S. High Yield Constrained Index
(30%).
(3) The Prior 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 EM USD Aggregate Index and Bloomberg 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 Prior
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 to
account for divergence from that 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 Prior Blended Index for
each period shown above.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
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.
-----------------------------------------------------------
% OF
FUND ALLOCATION NET ASSETS
-----------------------------------------------------------
Exchange-Traded Funds 99.9%
Net Other Assets and Liabilities 0.1
------
Total 100.0%
======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 13, 2014 - OCTOBER 31, 2022
First Trust High Income Blended Bloomberg U.S. Russell 3000(R) Prior Blended
Strategic Focus ETF Index Aggregate Bond Index Index Index
<S> <C> <C> <C> <C> <C>
8/13/14 $10,000 $10,000 $10,000 $10,000 $10,000
10/31/14 10,177 10,053 10,080 10,371 10,129
4/30/15 10,330 10,246 10,288 10,863 10,191
10/31/15 9,989 10,133 10,280 10,837 9,735
4/30/16 10,436 10,406 10,571 10,844 10,006
10/31/16 10,856 10,755 10,731 11,297 10,446
4/30/17 11,275 10,878 10,659 12,859 10,981
10/31/17 11,442 11,112 10,827 14,006 11,058
4/30/18 11,340 10,959 10,625 14,537 11,029
10/31/18 11,303 10,982 10,605 14,929 11,093
4/30/19 12,100 11,591 11,187 16,379 11,766
10/31/19 12,502 12,146 11,826 16,942 11,977
4/30/20 11,156 12,279 12,401 16,208 10,915
10/31/20 11,604 12,785 12,558 18,662 11,270
4/30/21 13,166 12,952 12,367 24,462 13,434
10/31/21 13,499 13,141 12,498 26,854 13,849
4/30/22 12,775 11,987 11,314 23,699 13,341
10/31/22 12,096 11,253 10,534 22,420 13,044
</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 HIGH INCOME STRATEGIC FOCUS ETF (HISF)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
INVESTMENT ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the First Trust High Income Strategic Focus ETF (the "Fund" or
"HISF"). Prior to February 28, 2022, the following served as investment
sub-advisors (each, a "Sub-Advisor") to the Fund: First Trust Global Portfolios
Limited ("FTGP"); Energy Income Partners, LLC ("EIP"); Stonebridge Advisors LLC
("Stonebridge"); and Richard Bernstein Advisors LLC ("RBA"). The Advisor's
Investment Committee determined the Fund's strategic allocation among various
general investment categories and allocated the Fund's assets to portfolio
management teams comprised of personnel of the Advisor and/or Sub-Advisor, which
employed their respective investment strategies. As of March 1, 2022, 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
DANIEL J. LINDQUIST, CHAIRMAN OF THE INVESTMENT COMMITTEE AND MANAGING DIRECTOR
OF FIRST TRUST;
DAVID G. MCGAREL, CHIEF INVESTMENT OFFICER, CHIEF OPERATING OFFICER AND MANAGING
DIRECTOR OF FIRST TRUST;
CHRIS A. PETERSON, CFA, SENIOR VICE PRESIDENT OF FIRST TRUST;
WILLIAM HOUSEY, CFA, MANAGING DIRECTOR OF FIXED INCOME OF FIRST TRUST; AND
STEVE COLLINS, CFA, SENIOR VICE PRESIDENT OF FIRST TRUST.
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Daniel J. Lindquist, David G. McGarel and William Housey
have served as part of the portfolio management team of the Fund since 2014.
Chris A. Peterson has served as part of the portfolio management team of the
Fund since 2016. Steve Collins has served as part of the portfolio management
team of the Fund since 2021.
COMMENTARY
MARKET RECAP
For the 12-month period ended October 31, 2022, persistently high inflation, the
Federal Reserve's (the "Fed") pivot from monetary accommodation and the Russian
invasion of Ukraine in February 2022 resulted in a shift in the markets' focus
from economic growth to concern that recession risk may be meaningfully pulled
forward. Interest rates were higher across the board and the U.S. Treasury yield
curve inverted between the 2-Year and 10-Year tenors during the period. On
October 29, 2021, the 2-Year U.S. Treasury yield was 0.49% and by October 31,
2022, it had increased to 4.48% while the 10-Year U.S. Treasury yield increased
from 1.55% to 4.05%. Over the period, the Fed increased the Federal Funds target
range from 0% - 0.25% to 2.75% - 3.25%. Higher rates were a headwind for broad
based fixed income assets as the Bloomberg US Aggregate Bond Index returned
-15.68% and high yield bonds, reflected in the ICE BofA US High Yield
Constrained Index, declined 11.45% as high yield spreads increased from 317
basis points ("bps") to 465 bps, during the period. In the period following the
change in the Fund's investment strategy, from February 28, 2022 through October
31, 2022, the 10-Year yield rose from 1.83% to 4.05% while high yield corporate
bond spreads increased from 378 bps to 465 bps. The Bloomberg US Aggregate Bond
Index and ICE BofA US High Yield Constrained Index declined 12.88% and 8.89%,
respectively, over this shorter period.
In the fourth quarter of 2021, the Fed moved on from its belief that inflation
would be transitory, conceding that while it initially may have been limited to
areas related to the reopening of the economy and supply chain, it had broadened
and accelerated. They announced an accelerated pace of asset purchase tapering
and a more hawkish path for increasing its policy rate at the December 2022
Federal Open Market Committee ("FOMC") meeting.
In February 2022, the Russian invasion of Ukraine sent a shockwave through
global risk markets, which included a spike in oil and commodity prices, further
exacerbating inflationary pressure. In response, the Fed increased the Federal
Funds target rate by a quarter percentage point at the March 2022 FOMC meeting
and indicated additional rate hikes would be forthcoming throughout the year.
Through the second quarter of 2022, the curve continued to flatten and
ultimately 2-Year and 10-Year Treasuries inverted.
By mid-summer 2022, inflation remained at the highest levels in decades inducing
the Fed to hike the Federal Funds target rate 75 bps at the June 2022 FOMC
meeting. Amidst a backdrop of slowing growth and very high inflation with a
significant Fed response, risk assets tumbled in the second quarter of 2022 as
high yield bond spreads widened 245 bps and the S&P 500(R) Index declined
16.10%.
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
Market sentiment rebounded sharply as the third quarter of 2022 began as
resilient corporate earnings and labor market optimism fueled a rally in risk
assets that proved to be short-lived. Fed Chairman Jerome Powell made the Fed's
position on inflation abundantly clear in August 2022 at the FOMC in Jackson
Hole, stating the "overarching focus" is to bring inflation back down to the
2.0% level which "will also bring some pain to households and businesses."
Equities resumed downward and high yield bond spreads weakened through September
2022. The Fed increased the Federal Funds target rate by 75 bps in July 2022 and
again in September 2002 at the respective FOMC meetings.
PERFORMANCE ANALYSIS
The Fund returned -10.38% based on net asset value ("NAV") and -10.49% based on
market price for the 12-month period ended October 31, 2022. As noted above, the
Fund converted to a fund-of-funds strategy that follows the First Trust High
Income Model on February 28, 2022. Prior to the transition, the benchmark was
equally weighted including 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 EM USD Aggregate Index and Bloomberg U.S.
MBS Index (the "Prior Benchmark"). After the transition, the new benchmark
consists of 70% of the Bloomberg US Aggregate Bond Index, which is a broad-based
benchmark that measures the investment grade, U.S. Dollar denominated,
fixed-rate taxable bond market, and 30% of the ICE BofA US High Yield
Constrained Index which tracks the performance of U.S. dollar denominated below
investment grade corporate debt publicly issued in the U.S. domestic market but
caps issuer exposure at 2% (the "New Benchmark"). Over the same 12-month period,
the Prior Benchmark returned -5.81% and the New Benchmark returned -14.37%.
Because of the change in investment strategy, the Fund's performance and
historical returns shown in this report are not necessarily indicative of the
performance that the Fund would have generated during the same 12-month period
based upon its current strategy.
The performance discussion below will focus on the Fund's performance 8-month
period since the transition, February 28, 2022 through October 31, 2022. During
that period, the Fund returned -9.27% based on a NAV basis and -9.14% based on
market price for the 8-month period from February 28, 2022 through October 31,
2022, while the New Benchmark returned -11.65%.
The negative total return for the Fund for the 8-month period reflected the
impact higher interest rates had on fixed income assets while the relative
outperformance was largely driven by the Fund's duration which was below the New
Benchmark's duration.
Exposure to higher quality, short duration corporate and mortgage-backed
securities contributed to outperformance as the First Trust Enhanced Short
Maturity ETF returned -0.57% from June 30, 2022 through October 31, 2022 when it
was added to the strategy. The First Trust Low Duration Opportunities ETF
returned -4.13% and the iShares 0-5 Year Investment Grade Corporate Bond ETF
returned -4.66%, all better than the benchmark returns from February 28, 2022.
The short duration positioning, and higher credit quality allowed these funds to
hold up better than the New Benchmark as interest rates rose and credit spreads
widened.
Exposure to emerging market debt was a drag on performance during the period as
U.S. dollar strength weighed on the sector. The U.S. Dollar Index rose from
96.71 on February 28, 2022 to 112.17 on September 30, 2022 when the Fund exited
the position in the emerging market debt fund, the First Trust Emerging Markets
Local Currency Bond ETF, which was down 17.00% over this period.
The Fund's position in the First Trust TCW Opportunistic Fixed Income ETF
("FIXD"), with a duration longer than the New Benchmark, was the largest
detractor from relative performance and was down 15.38% over the period. FIXD's
duration ranged between 6.3 and 6.7 years over the period.
MARKET AND FUND OUTLOOK
Due to persistently high inflation, the Fed has continued to reiterate its
commitment to lowering inflation to its 2% target. The Federal Funds target rate
was increased by 75 basis points in each of the last four FOMC meetings, moving
the upper bound to 4.00% as of November 2022. We expect the Fed to continue to
raise interest rates into next year, stabilizing the Federal Funds terminal rate
around 5.0% - 5.5% before pausing further interest rate increases and observing
the implications of such a dramatic move in interest rates over such a short
period of time. Importantly, given that the Fed's dual mandate centers on
inflation and employment, both of which are typically lagging indicators with
respect to overall economic activity, we believe the risk of a policy error by
the Fed that results in recession has increased dramatically in 2023.
Therefore, as the Fed continues to raise the Federal Funds target rate, we
continue to favor duration profiles short of the New Benchmark, however, due to
what we view as more balanced risks in the market and rising recession risk, we
believe duration extension is warranted. Furthermore, given the potential for a
shorter business cycle and increasing recession risk in 2023, we believe it is
prudent to increase credit quality.
Page 5
<PAGE>
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (UNAUDITED)
As a shareholder of First Trust High Income Strategic Focus 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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD (a) PERIOD (a) (b)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
Actual $1,000.00 $ 946.90 0.20% $0.98
Hypothetical (5% return before expenses) $1,000.00 $1,024.20 0.20% $1.02
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 6
<PAGE>
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
SHARES DESCRIPTION VALUE
------------ -------------------------------- --------------
EXCHANGE-TRADED FUNDS -- 99.9%
CAPITAL MARKETS -- 99.9%
66,364 First Trust Enhanced Short
Maturity ETF (a) $ 3,934,721
114,166 First Trust Institutional
Preferred Securities and
Income ETF (a) 1,975,072
207,229 First Trust Low Duration
Opportunities ETF (a) 9,708,679
205,074 First Trust Tactical High Yield
ETF (a) 8,077,865
246,715 First Trust TCW Opportunistic
Fixed Income ETF (a) 10,532,263
103,457 iShares 0-5 Year Investment
Grade Corporate Bond ETF 4,893,516
--------------
TOTAL INVESTMENTS -- 99.9% 39,122,116
(Cost $43,255,502)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 39,724
--------------
NET ASSETS -- 100.0% $ 39,161,840
==============
(a) Investment in an affiliated fund.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2022 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
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Exchange-Traded Funds*.......................... $ 39,122,116 $ 39,122,116 $ -- $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 7
<PAGE>
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value - Affiliated..................................... $ 34,228,600
Investments, at value - Unaffiliated................................... 4,893,516
----------------
Total investments, at value............................................ 39,122,116
Cash................................................................... 12,287
Receivables:
Dividends........................................................... 30,851
Reclaims............................................................ 3,705
----------------
Total Assets........................................................ 39,168,959
----------------
LIABILITIES:
Investment advisory fees payable....................................... 7,119
----------------
Total Liabilities................................................... 7,119
----------------
NET ASSETS............................................................. $ 39,161,840
================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 51,320,777
Par value.............................................................. 9,000
Accumulated distributable earnings (loss).............................. (12,167,937)
----------------
NET ASSETS............................................................. $ 39,161,840
================
NET ASSET VALUE, per share............................................. $ 43.51
================
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 900,002
================
Investments, at cost - Affiliated...................................... $ 38,090,579
================
Investments, at cost - Unaffiliated.................................... $ 5,164,923
================
Total investments, at cost............................................. $ 43,255,502
================
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends - Affiliated................................................. $ 1,406,804
Dividends - Unaffiliated............................................... 448,500
Interest............................................................... 1,445
Foreign withholding tax................................................ (6,053)
----------------
Total investment income............................................. 1,850,696
----------------
EXPENSES:
Investment advisory fees............................................... 271,585
----------------
Total expenses...................................................... 271,585
Less fees waived by the investment advisor.......................... (92,981)
----------------
Net expenses........................................................ 178,604
----------------
NET INVESTMENT INCOME (LOSS)........................................... 1,672,092
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Affiliated............................................ (3,401,013)
Investments - Unaffiliated.......................................... (1,296,214)
In-kind redemptions - Affiliated.................................... (235,480)
In-kind redemptions - Unaffiliated.................................. 2,384,346
Futures contracts................................................... (12,821)
Foreign currency transactions....................................... (526)
----------------
Net realized gain (loss)............................................... (2,561,708)
----------------
Net change in unrealized appreciation (depreciation) on:
Investments - Affiliated............................................ (3,159,502)
Investments - Unaffiliated.......................................... (2,647,356)
Futures contracts................................................... (741)
Foreign currency translation........................................ 737
----------------
Net change in unrealized appreciation (depreciation)................... (5,806,862)
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (8,368,570)
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (6,696,478)
================
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2022 10/31/2021
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 1,672,092 $ 2,011,416
Net realized gain (loss)............................................... (2,561,708) 6,369,796
Net increase from payment by the advisor............................... -- 1,758
Net change in unrealized appreciation (depreciation)................... (5,806,862) 2,091,269
---------------- ----------------
Net increase (decrease) in net assets resulting from operations........ (6,696,478) 10,474,239
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (2,147,053) (2,628,954)
---------------- ----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 63,936,474 72,475,535
Cost of shares redeemed................................................ (86,408,488) (70,562,092)
---------------- ----------------
Net increase (decrease) in net assets resulting
from shareholder transactions......................................... (22,472,014) 1,913,443
---------------- ----------------
Total increase (decrease) in net assets................................ (31,315,545) 9,758,728
NET ASSETS:
Beginning of period.................................................... 70,477,385 60,718,657
---------------- ----------------
End of period.......................................................... $ 39,161,840 $ 70,477,385
================ ================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 1,400,002 1,350,002
Shares sold............................................................ 1,300,000 1,500,000
Shares redeemed........................................................ (1,800,000) (1,450,000)
---------------- ----------------
Shares outstanding, end of period...................................... 900,002 1,400,002
================ ================
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------
2022 2021 2020 2019 2018
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 50.34 $ 44.98 $ 50.62 $ 47.72 $ 50.68
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.99 1.47 1.46 1.63 1.69
Net realized and unrealized gain (loss) (6.12) 5.80 (a) (5.07) 3.34 (2.26)
---------- ---------- ---------- ---------- ----------
Total from investment operations (5.13) 7.27 (3.61) 4.97 (0.57)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (1.70) (1.91) (1.97) (2.07) (2.10)
Return of capital -- -- (0.06) -- (0.29)
---------- ---------- ---------- ---------- ----------
Total distributions (1.70) (1.91) (2.03) (2.07) (2.39)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 43.51 $ 50.34 $ 44.98 $ 50.62 $ 47.72
========== ========== ========== ========== ==========
TOTAL RETURN (b) (10.38)% 16.33% (a) (7.19)% 10.60% (1.21)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 39,162 $ 70,477 $ 60,719 $ 91,120 $ 83,504
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average
net assets (c) 0.46% 0.85% 0.85% 0.85% 0.86% (d)
Ratio of net expenses to average
net assets (c) 0.30% 0.42% 0.46% 0.50% 0.50% (d)
Ratio of net investment income (loss) to
average net assets 2.83% 2.94% 3.08% 3.21% 3.40%
Portfolio turnover rate (e) 149% 101% 118% 91% 113%
</TABLE>
(a) The Fund received a reimbursement from the Advisor in the amount of $1,758
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 11
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
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 twelve funds that are offering shares. This
report covers the First Trust High Income Strategic Focus ETF (formerly known as
First Trust Strategic Income ETF) (the "Fund"), which trades under the ticker
"HISF" (formerly "FDIV") on The Nasdaq Stock Market LLC ("Nasdaq"). Effective
February 28, 2022, the Fund's name and ticker changed to its current name and
ticker. The Fund's CUSIP did not change. The Fund represents a separate series
of shares of beneficial interest in the Trust. Unlike conventional mutual funds,
the Fund issues and redeems shares on a continuous basis, at net asset value
("NAV"), only in large blocks of shares known as "Creation Units."
The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's primary
investment objective is to seek risk-adjusted income. The Fund's secondary
investment objective is capital appreciation. Under normal market conditions,
the Fund seeks to achieve its investment objectives by investing in a portfolio
of U.S.-listed exchange-traded funds ("Underlying ETFs") that is designed to
follow the High Income Model (the "High Income Model") developed by the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor").
The Fund, through its investments in the Underlying ETFs comprising the High
Income Model, seeks to provide investors with a diversified income stream by
holding a blend of fixed income assets that are actively managed to seek levels
of high income and total return. The High Income Model is principally composed
of ETFs for which First Trust serves as investment advisor. Therefore, a
significant portion of the ETFs in which the Fund invests are advised by First
Trust. However, the Fund may also invest in ETFs other than First Trust ETFs.
Prior to February 28, 2022, the Fund was a multi-manager, multi-strategy
actively managed exchange-traded fund. The following served as investment
sub-advisors to the Fund: First Trust Global Portfolios Limited ("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 determined the Fund's
strategic allocation among various general investment categories and allocated
the Fund's assets to portfolio management teams comprised of personnel of the
Advisor and/or a Sub-Advisor (each, a "Management Team"), which employed their
respective investment strategies. The Fund sought to achieve its objectives by
having each Management Team focus on those securities within its respective
investment category. The Fund added or removed investment categories or
Management Teams at the discretion of the Advisor.
The Fund's investment categories were: (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 utilized a related option overlay strategy and/or
derivative instruments in implementing their respective investment strategies
for the Fund. Additionally, the Management Teams sought exposure to these asset
classes directly or through investments in ETFs.
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
-----------------------------
(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 12
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Advisor's
Pricing Committee in accordance with valuation procedures approved by the
Trust's Board of Trustees, and in accordance with provisions of the 1940 Act and
rules thereunder. Investments valued by the Advisor's Pricing Committee, if any,
are footnoted as such in the footnotes to the Portfolio of Investments. 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 a
third-party pricing service approved by the Advisor's Pricing Committee,
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, 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 primary exchange for
such securities.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade 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 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 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
Page 13
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
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 most recent price provided by a pricing service;
2) the fundamental business data relating to the issuer;
3) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
4) the type, size and cost of a security;
5) the financial statements of the issuer/borrower, or the
condition of the country of issue;
6) the credit quality and cash flow of the issuer/borrower, or
country of issue, based on the Pricing Committee's,
sub-advisor's or portfolio manager's analysis, as applicable,
or external analysis;
7) the information as to any transactions in or offers for the
security;
8) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
9) the coupon payments;
10) the quality, value and salability of collateral, if any,
securing the security;
11) 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);
12) 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);
13) 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
14) 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 last sale price on the exchange on which they are
principally traded or, for Nasdaq and AIM securities, the
official closing price;
2) the type of security;
3) the size of the holding;
4) the initial cost of the security;
5) transactions in comparable securities;
6) price quotes from dealers and/or third-party pricing services;
7) relationships among various securities;
8) information obtained by contacting the issuer, analysts, or
the appropriate stock exchange;
9) an analysis of the issuer's financial statements;
10) the existence of merger proposals or tender offers that might
affect the value of the security; and
11) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
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).
Page 14
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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.
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
Prior to February 28, 2022, the Fund purchased or sold (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.
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
Page 15
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
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. AFFILIATED TRANSACTIONS
The Fund invests in securities of affiliated funds. Dividend income, 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, 2022 and for the fiscal year
then ended are as follows:
<TABLE>
<CAPTION>
CHANGE IN
SHARES VALUE UNREALIZED REALIZED VALUE
AT AT APPRECIATION GAIN AT DIVIDEND
SECURITY NAME 10/31/2022 10/31/2021 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2022 INCOME
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust
Emerging
Markets Local
Currency Bond
ETF -- $ 6,342,663 $ 3,719,524 $ (9,125,203) $ 794,885 $(1,731,869) $ -- $ 88,825
First Trust
Enhanced Short
Maturity ETF 66,364 -- 5,825,533 (1,884,030) (6,249) (533) 3,934,721 33,745
First Trust
Institutional
Preferred
Securities and
Income ETF 114,166 2,140,432 2,885,089 (2,598,430) (368,744) (83,275) 1,975,072 116,463
First Trust
Low Duration
Opportunities
ETF 207,229 4,096,540 14,161,875 (8,003,004) (511,490) (35,242) 9,708,679 89,841
First Trust
Preferred
Securities and
Income ETF -- 6,433,669 5,989,982 (11,952,349) (145,646) (325,656) -- 94,643
First Trust
Senior Loan
Fund -- 13,753,384 12,620,819 (25,745,134) 42,774 (671,843) -- 268,028
First Trust
Tactical High
Yield ETF 205,074 -- 19,380,127 (9,743,294) (1,152,999) (405,969) 8,077,865 504,163
First Trust
TCW
Opportunistic
Fixed Income
ETF 246,715 -- 33,982,220 (21,255,818) (1,812,033) (382,106) 10,532,263 211,096
------------------------------------------------------------------------------------------------
Total Investments
in Affiliates $ 32,766,688 $ 98,565,169 $ (90,307,262) $ (3,159,502) $(3,636,493) $ 34,228,600 $1,406,804
================================================================================================
</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 capital gains earned by the Fund, if any, are
distributed at least annually. The Fund may also designate a portion of the
amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on 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.
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
The tax character of distributions paid during the fiscal years ended October
31, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 2,147,053 $ 2,628,954
Capital gains................................... -- --
Return of capital............................... -- --
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ --
Accumulated capital and other gain (loss)....... (8,004,465)
Net unrealized appreciation (depreciation)...... (4,163,472)
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 2019,
2020, 2021, and 2022 remain open to federal and state audit. As of October 31,
2022, 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, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $8,004,465.
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, 2022, 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, 2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-In
Income (Loss) on Investments Capital
-------------- -------------- ---------------
$ 932,150 $ (1,228,523) $ 296,373
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 43,285,569 $ 3,607 $ (4,167,060) $ (4,163,453)
</TABLE>
Page 17
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
H. 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, 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. The Fund
has agreed to pay First Trust an annual unitary management fee equal to 0.20% 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.
Pursuant to contractual agreement, First Trust has agreed to waive fees and/or
reimburse Fund expenses to the extent that the operating expenses of the Fund
(excluding interest expense, brokerage commissions and other trading expenses,
taxes and extraordinary expenses but including acquired fund fees and expenses)
exceed 0.87% of its average daily net assets (the "Expense Cap") at least
through March 1, 2023. Expenses reimbursed and fees waived under such agreement
are not subject to recovery by the First Trust.
Prior to February 28, 2022, the Fund and First Trust 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
executed all transactions on behalf of the Fund, with the exception of the
securities that were selected by FTGP. EIP, an affiliate of First Trust,
provided recommendations regarding the selection of MLP securities for the
Fund's investment portfolio and provided ongoing monitoring of the MLP
securities, MLP affiliate and energy infrastructure securities in the Fund's
investment portfolio selected by EIP. EIP exercised discretion only with respect
to assets of the Fund allocated to EIP by the Advisor. FTGP, an affiliate of
First Trust, selected international sovereign debt securities for the Fund's
investment portfolio and provided ongoing monitoring of the international
sovereign debt securities in the Fund's investment portfolio selected by FTGP.
RBA provided recommendations regarding longer term investment strategies that
combine top-down, macroeconomic analysis and quantitatively-driven portfolio
construction. RBA exercised discretion only with respect to assets allocated to
RBA by the Advisor. Stonebridge, an affiliate of First Trust, provided
recommendations regarding the selection and ongoing monitoring of the preferred
and hybrid securities in the Fund's investment portfolio.
Pursuant to the former Investment Management Agreement between the Trust and
Advisor, First Trust supervised the Sub-Advisors and their management of the
investment of the Fund's assets and paid EIP, FTGP, RBA and Stonebridge for
their services as the Fund's sub-advisors. EIP and FTGP each received 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 were subtracted from the investment management fee in
a given month. RBA and Stonebridge each received 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 was also 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") 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 paid 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 were 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 were
advised by First Trust. During the fiscal year ended October 31, 2022, the
Advisor waived fees of $92,981.
Page 18
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
During the fiscal year ended October 31, 2021, the Fund received a reimbursement
from the Advisor of $1,758 in connection with a trade error.
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 target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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, 2022, were $0 and $92,930,049, 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, 2022, were $378,337 and $87,983,685,
respectively.
For the fiscal year ended October 31, 2022, the cost of in-kind purchases and
proceeds from in-kind sales were $56,488,927 and $82,757,797, respectively.
5. DERIVATIVE TRANSACTIONS
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, 2022, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
STATEMENTS OF OPERATIONS LOCATION INTEREST RATE RISK
--------------------------------------------------------------------------------
Net realized gain (loss) on futures contracts $ (12,821)
Net change in unrealized appreciation (depreciation)
on futures contracts (741)
During the fiscal year ended October 31, 2022, the notional value of futures
contracts opened and closed were $2,042,970 and $2,575,792, 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.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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, 2024.
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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
Page 20
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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 High Income Strategic Focus ETF (formerly 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, 2022, 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, 2022, 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, 2022, 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 21, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 21
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--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (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.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
At a special meeting of shareholders held on February 22, 2022, shareholders of
the Fund voted to approve certain changes to the Fund's principal investment
strategies. Those changes resulted in the conversion of the Fund from its
previous multi-manager, multi-strategy actively managed investment strategy, to
its current fund-of-funds actively managed investment strategy that follows
First Trust's First Trust High Income Model. The new investment strategy
resulted in a reduction of the Fund's management fee from 0.85% of average daily
net assets to 0.20% of average daily net assets; however, the Fund now incurs
acquired fund fees and expenses and its total fees and expenses are subject to a
cap of 0.87% of average daily net assets. Concurrently with the implementation
of those changes, the Fund's name changed from First Trust Strategic Income ETF
to First Trust High Income Strategic Focus ETF. The number of shares voted in
favor of the proposal was 370,690, the number voted against was 7,630, and the
number of abstentions was 94,434.
FEDERAL TAX INFORMATION
For the taxable year ended October 31, 2022, the following percentages of income
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
---------------------------- -------------------------
11.86% 12.55%
A portion of the Fund's 2022 ordinary dividends (including short-term capital
gains) paid to its shareholders during the fiscal year ended October 31, 2022,
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 significant
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
more broadly diversified.
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FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (UNAUDITED)
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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,
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FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (UNAUDITED)
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
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FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (UNAUDITED)
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
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 High Income Strategic Focus ETF
(the "Fund"). The Board approved the continuation of the Agreement for a
one-year period ending June 30, 2023 at a meeting held on June 12-13, 2022. The
Board determined that the continuation of the Agreement is in the best interests
of the Fund in light of the nature, extent and quality of the services provided
and such other matters as the Board considered to be relevant in the exercise of
its business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
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FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (UNAUDITED)
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, 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 indirect benefits to the Advisor and its affiliate, First Trust
Portfolios L.P. ("FTP"); and information on the Advisor's compliance program.
The Board reviewed initial materials with the Advisor at the meeting held on
April 18, 2022, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the
April 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 12-13, 2022 meeting, as well as at the June meeting. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor continues to be a reasonable business arrangement from
the Fund's perspective. The Board determined that, given the totality of the
information provided with respect to the Agreement, the Board had received
sufficient information to renew the Agreement. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor manages the Fund and knowing the Fund's unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality
of the services provided by the Advisor under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and the Fund and reviewed all of the services
provided by the Advisor to the Fund, as well as the background and experience of
the persons responsible for such services. The Board noted that the Fund is an
actively-managed ETF and noted that the Advisor's Investment Committee 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 Investment
Committee and noted the Board's prior meetings with members of the Investment
Committee. 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 April 18, 2022 meeting,
described to the Board the scope of its ongoing investment in additional
personnel and infrastructure to maintain and improve the quality of services
provided to the Fund and the other funds in the First Trust Fund Complex. In
light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of the services provided to the
Trust and the Fund by the Advisor under the Agreement have been and are expected
to remain satisfactory and that the Advisor has managed the Fund consistent with
the Fund's 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, 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 because the Fund
invests in underlying ETFs, including ETFs in the First Trust Fund Complex, the
Fund incurs acquired fund fees and expenses, which are not payable out of the
unitary fee, and that such acquired fund fees and expenses will change over time
as assets are reallocated among the underlying ETFs. The Board considered that
the Advisor agreed to cap the Fund's combined unitary fee and acquired fund fees
and expenses at 0.87% of its average daily net assets at least through March 1,
2023. The Board noted that expenses reimbursed and fees waived are subject to
recovery by the Advisor for up to three years from the date the fee was waived
or expense was incurred, but no reimbursement payment would be made by the Fund
if it results in the Fund exceeding (i) the applicable expense limitation in
place for the most recent fiscal year for which such expense limitation was in
place, (ii) the applicable expense limitation in place at the time the fees were
waived, or (iii) the current expense limitation. The Board received and reviewed
information showing the fee rates and expense ratios of the peer funds in the
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FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (UNAUDITED)
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 fee
waivers, was below the median total (net) expense ratio (excluding acquired fund
fees and expenses) of the peer funds in the Expense Group. The Board also noted
that the Fund's total (net) expense ratio (including acquired fund fees and
expenses) was below the median total (net) expense ratio (including acquired
fund fees and expenses) of the peer funds in the Expense Group. With respect to
the Expense Group, the Board, at the April 18, 2022 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
different business models may affect the pricing of services among ETF sponsors.
The Board also noted that the Expense Group contained both actively-managed ETFs
and open-end mutual funds. 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. The Board noted that, in
connection with a change in the Fund's investment strategy from a multi-manager,
multi-strategy investment strategy to a fund-of-funds investment strategy that
follows the Advisor's High Income model, which shareholders approved effective
February 28, 2022, the Fund's unitary fee rate was reduced from 0.85% to 0.20%
of the Fund's average daily net assets. 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, 2021
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 underperformed the
blended benchmark index for the one-, three- and five-year periods ended
December 31, 2021. The Board noted the change in the Fund's investment strategy
approved by shareholders effective February 28, 2022.
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 that its expenses
relating to providing advisory services to the Fund will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. 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, 2021 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data, for the same period. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered indirect benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered that the Advisor had identified as an indirect benefit to the Advisor
and FTP their exposure to investors and brokers who, absent their exposure to
the Fund, may have had no dealings with the Advisor or FTP, and noted that the
Advisor does not utilize soft-dollars in connection with the Fund. In addition,
the Board considered that the Advisor, as the investment advisor to certain of
the underlying ETFs in which the Fund invests, will recognize additional revenue
from such underlying ETFs if investment by the Fund causes the assets of the
underlying ETFs to grow. The Board concluded that the character and amount of
potential indirect benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 27
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (UNAUDITED)
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") of the Investment Management Agreement (the "Agreement") with First
Trust Advisors L.P. (the "Advisor") on behalf of the First Trust High Income
Strategic Focus ETF (the "Fund").
The Board approved the Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreement for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the continuation of the
Agreement was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
Page 28
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 29
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 30
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF)
OCTOBER 31, 2022 (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
professional 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 2022
Page 31
<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
320 South Canal Street
Chicago, IL 60606
<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, 2022
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 41
Statement of Operations...................................................... 42
Statements of Changes in Net Assets.......................................... 43
Financial Highlights......................................................... 44
Notes to Financial Statements................................................ 45
Report of Independent Registered Public Accounting Firm...................... 55
Additional Information....................................................... 56
Board of Trustees and Officers............................................... 63
Privacy Policy............................................................... 65
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 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 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, 2022
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, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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)
--------------------------------------------------------------------------------
The First Trust Low Duration Opportunities ETF's (the "Fund") primary investment
objective 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 (collectively, "Mortgage-Related Investments"). The Fund normally
expects to invest in Mortgage-Related Investments tied to residential and
commercial mortgages. Mortgage-Related Investments consist of: (1) residential
mortgage-backed securities (RMBS); (2) commercial mortgage-backed securities
(CMBS); (3) stripped mortgage-backed securities (SMBS), which are
mortgage-backed securities where mortgage payments are divided up between paying
the loan's principal and paying the loan's interest; and (4) collateralized
mortgage obligations (CMOs) and real estate mortgage investment conduits
(REMICs) where they are divided into multiple classes with each class being
entitled to a different share of the principal and/or interest payments received
from the pool of underlying assets. The Fund will limit its investment in
Mortgage-Related Investments that are neither issued nor guaranteed by the U.S.
government, or its agencies or instrumentalities to 20% of its net assets
(including investment borrowings). The Fund may invest up to 40% of its net
assets (including investment borrowings), in the aggregate, in (i) cash, cash
equivalents and short-term investments and (ii) non-mortgage direct obligations
of the U.S. government and other non-mortgage securities issued and/or
guaranteed by Government Entities. The Fund may also invest up to 5% of its net
assets (including investment borrowings) in asset-backed securities ("ABS")
(other than Mortgage-Related Investments) that are not issued and/or guaranteed
by Government Entities, or U.S. government-sponsored entities (collectively,
"Government Entities"). However, the Fund's investments in (a) Mortgage-Related
Investments that are not issued and/or guaranteed by Government Entities and (b)
ABS may not, in the aggregate, exceed 20% of the Fund's 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.
<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)
10/31/22 10/31/22 to 10/31/22 10/31/22 to 10/31/22
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV -4.96% 0.40% 1.76% 2.00% 14.99%
Market Price -5.23% 0.33% 1.73% 1.68% 14.73%
INDEX PERFORMANCE
ICE BofA 1-5 Year US Treasury &
Agency Index -6.52% 0.37% 0.61% 1.87% 4.99%
------------------------------------------------------------------------------------------------------------------------------------
</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 82.3%
Mortgage-Backed Securities 12.2
Asset-Backed Securities 4.8
U.S. Government Bonds and Notes 5.9
U.S. Treasury Bills 4.6
Exchange-Traded Funds 0.0*
Purchased Options 0.0*
U.S. Government Agency Mortgage-
Backed Securities Sold Short (11.6)
Written Options (0.1)
Net Other Assets and Liabilities(1) 1.9
-------
Total 100.0%
=======
-----------------------------------------------------------
% OF TOTAL LONG
FIXED-INCOME
INVESTMENTS, CASH
CREDIT QUALITY(3) & CASH EQUIVALENTS
-----------------------------------------------------------
Government and Agency 79.7%
AAA 3.4
AA+ 0.1
AA 0.3
AA- 0.2
A 0.2
A- 0.0*
BBB+ 0.3
BBB 0.2
BBB- 0.3
BB 0.0*
BB- 0.2
B- 0.0*
Not Rated 9.5
Cash and Cash Equivalents 5.6
-------
Total 100.0%
=======
* Amount is less than 0.1%.
-----------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS(2)
-----------------------------------------------------------
Federal National Mortgage Association,
Pool TBA, 3.00%, 12/01/48 3.9%
U.S. Treasury Note, 1.50%, 3/31/23 3.2
Federal National Mortgage Association,
Pool TBA, 3.50%, 12/15/52 3.1
Federal National Mortgage Association,
Pool FM3003, 4.00%, 5/01/49 1.8
Federal National Mortgage Association,
Pool FM2972, 4.00%, 12/01/44 1.6
Federal National Mortgage Association,
Pool TBA, 2.50%, 12/15/52 1.6
Federal National Mortgage Association,
Pool TBA, 4.00%, 11/15/52 1.1
Federal National Mortgage Association,
Pool CB4688, 5.00%, 9/01/52 1.0
Federal National Mortgage Association,
Pool FS2044, 4.50%, 7/01/44 0.9
Federal National Mortgage Association,
Pool FS0697, 2.50%, 2/01/42 0.9
-------
Total 19.1%
=======
-----------------------------------------------------------
WEIGHTED AVERAGE EFFECTIVE NET DURATION
-----------------------------------------------------------
October 31, 2022 2.3 Years
High - October 31, 2022 2.3 Years
Low - December 31, 2021 0.7 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 S&P Global Ratings. A credit rating is an assessment
provided by a nationally recognized statistical rating organization
(NRSRO), of the creditworthiness of an issuer with respect to debt
obligations. Ratings are measured 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, 2022
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
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
4/30/21 12,146 11,290
10/31/21 12,099 11,232
4/30/22 11,813 10,762
10/31/22 11,499 10,499
</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.
Performance in securitized product investment strategies can be impacted from
the benefits of purchasing odd lot positions. The impact of these investments
can be particularly meaningful when funds have limited assets under management
and may not be a sustainable source of performance as a fund grows in size.
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, 2022 (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
JAMES SNYDER - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
JEREMIAH CHARLES - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as part of the
portfolio management team of the Fund since 2014.
COMMENTARY
MARKET RECAP
The 12-month period ended October 31, 2022 began with markets coming under
pressure as measures of inflation began to accelerate upward, and market
participants questioning whether inflation was truly transitory, as so
proclaimed by the Federal Reserve (the "Fed"). In a continuation of the yield
curve repricing following the September 2021 Federal Open Market Committee
meeting, bond yields once again resumed their march higher as the calendar year
flipped into 2022, as fears of the COVID-19 variant, Omicron, were pushed aside,
broader economic data remained strong, and incoming inflation data was rapidly
deteriorating. Finally, the Fed relented and abandoned its transitory language,
began to pivot and signaled very hawkish monetary policy to come. This hawkish
pivot included guidance on not only an aggressive path of future interest rate
hikes, but also signaled the use of the balance sheet to finally conclude new
purchases of U.S. Treasuries and Agency mortgage-backed securities ("MBS") and
subsequently, to let the securities mature and roll off via Quantitative
Tightening. Unfortunately for the Fed and the broader U.S. economy, inflationary
readings continued to push higher and the Fed was forced, clearly too late in
its action, in our opinion, to act very aggressively. This started in June 2022
with the first 75 basis point ("bps") hike in nearly 30 years and was followed
by successive 75 bps hikes at the Fed's July and September 2022 meetings. This
abrupt monetary policy change kicked off rather sharp moves higher in interest
rates, volatility, and risk asset pricing, with each coming under duress
throughout the 2022 calendar year. Over the course of the 12-month period ended
October 31, 2022, 2-Year Treasury yields rose 399 bps, the 5-Year Treasury yield
rose 305 bps, and the 10-Year yield rose 243 bps. These dramatic interest rate
increases caused measures of volatility to spike, with the Merrill Lynch Option
Volatility Estimate Index increasing to levels not seen since the Great
Financial Crisis of 2008-09. With upward pressure in rates and sustained
interest rate volatility, overall risk asset pricing and market liquidity have
come under significant pressure. Over the period, securitized spreads widened
with the Agency mortgage basis closing at 175 bps on October 31, 2022, which is
111 bps wider, and the Government Option-Adjusted Spread on Agency MBS widening
45 bps to close the period at 49 bps, with a period high of 64 bps.
PERFORMANCE ANALYSIS
During the 12-month period ended October 31, 2022, the Fund returned -4.96% on a
net asset value ("NAV") basis.
During the same period, the ICE BofA 1-5 Year U.S. Treasury & Agency Index (the
"Index") returned -6.52%.
During the same period, the Fund outperformed the Index by 1.56% net of fees, on
a NAV basis. Given the 2020-2021 historic ascent of home price appreciation and
correspondingly, measures of inflation, the Fund elected to strategically reduce
its overall effective duration. We remained mindful of the perceived logical
response that the Fed would be forced into to counteract such purchasing power
destruction, and as such maintained this very defensive posture on interest
rates throughout the year. Remaining mindful of the team's expectations for the
Fed's expected response function, the Fund ran a defensive spread profile and
aggressively hedged its Agency MBS exposure. Additionally, we believed that
housing would cool on both a nominal as well as real basis, as interest rates
increased and put significant pressure on affordability of housing stock. As
such, the Fund continued to migrate higher in quality, and shorter in tenor as
it related to its Non-Agency allocation. Additionally, there were periods that
the Fund built and held more cash than normal, as we felt there would be better
entry points for select opportunities. We felt that this was a prudent
reallocation of risk as the Fund reduced exposure to assets that we believed
would feel more impact from a slowing housing market and assets we felt were
more exposed to any Fed taper or additional rate increases. We believe this
reallocation provided the Fund a significant pickup in spread, helped maintain a
very short duration and allowed the Fund to more easily achieve its primary
objective. Additionally, throughout the 12-month period ended October 31, 2022,
the Fund maintained a significantly lower, and more stable overall effective
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
duration. Combined, these strategies helped to drive the relative
outperformance, which saw the Fund outperform the Index by over 150 bps on a NAV
basis during the period. Additionally, the Fund's usage of futures positions to
help manage interest rate risk and to structurally position a lower overall
effective duration was beneficial to the Fund's performance as interest rates
rose.
The Fund's monthly distribution of $0.1050 declared on October 21, 2022 and paid
on November 1, 2022 represented an annualized distribution rate of 2.69% based
on the Fund's closing market price of $46.85 as of October 31, 2022. The Fund's
distribution rate is not constant and is subject to change over time based on
the performance of the Fund and general market conditions. For the 12-month
period ended October 31, 2022, 71.73% of the distributions were characterized as
ordinary income and 28.27% were characterized as capital gain. The final
determination of the source and tax status of all 2022 distributions will be
made after the end of 2022 and will be provided on Form 1099-DIV. Not to be
construed as tax advice. Please consult your tax advisor for further information
regarding tax matters.
MARKET OUTLOOK
As expected, on the back of a massive increase in M2 money supply, limited
housing inventory, coupled with historically low interest rates, ongoing supply
chain delays and labor market shortages, inflationary pressure built to levels
not seen in 40 years. We remain mindful of both how hard it can be to tame
inflation once set in, and the impacts this can have on term premium pricing
along the U.S. yield curve. And while we believe that it won't be a straight
line, we expect yields across the curve will continue to move higher, albeit at
a much slower pace than experienced earlier this year. We believe the Fed may be
forced to hike higher than the market expects, and as such believe that the
curve inversion will continue to persist, although we do not expect
significantly deeper inversion. Inflation remains high, however we believe the
aggressive interest rate hikes implemented over the last several months have
just begun to work their way through the broader economy, and already, it
appears the housing market is beginning to cool off as month over month home
price appreciation has turned negative. Currently, we do not believe the Fed
will be an outright seller of its MBS holdings for long as measures of
volatility and illiquidity remain this elevated. We do anticipate that
heightened levels of rate volatility will remain over the shorter term, however,
to expect measures of rate volatility and spread pricing to simply return to
post-GFC/pre-COVID-19 levels in the near term and perhaps even intermediate
term, would be unrealistic, in our view. Heavy-handed Fed intervention appears
to be over; for as long as inflation persists, the Fed appears committed to the
fight. Despite the moderately bearish tone on rates, spreads are quite wide, and
we believe opportunities abound, as we are now very positive on generic Agency
MBS spread valuations, along with AAA shorter duration securitized
opportunities.
We remain committed to finding value across the various sectors of the mortgage
and securitized market, but also along the term spectrum of the U.S. yield
curve. Given the massive increase in interest rates this year, we have begun to
increase the interest rate sensitivity in the Fund as duration risks appear to
be more balanced than earlier in the year, and should yields continue to climb,
we will likely continue to extend duration. We remain committed to actively
managing the convexity component in the portfolio; meaning we do not want to
extend in duration as rates rise, and conversely, we do not want to shorten or
lose duration into a rally. From an asset allocation perspective, we plan to
take advantage of very wide spreads in select securitized opportunities that the
managers find to be attractively priced in the short to intermediate part of the
curve, which we find to be particularly attractive in light of the current curve
inversion. In our view, this approach would provide higher current income, total
return, and spread protection for shareholders. We believe this strategy can be
very effective with proper security selection, particularly when combined with
appropriate yield curve management. We plan to continue to maintain a tradeable
portfolio as that is critical to being able to act should opportunities arise.
Page 6
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD (a) PERIOD (a) (b)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
Actual $1,000.00 $ 973.40 0.65% $3.23
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 82.3%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 25.0%
Federal Home Loan Mortgage Corporation
$ 1,014 Series 1993-1498, Class I, 1 Mo. LIBOR + 1.15% (a)........... 4.56% 04/15/23 $ 1,015
1,160 Series 1993-1552, Class I, 10 Yr. Constant Maturity Treasury
Rate - 0.65% (a).......................................... 2.94% 08/15/23 1,155
11,972 Series 1993-1579, Class PM................................... 6.70% 09/15/23 11,982
14,466 Series 1993-1630, Class PK................................... 6.00% 11/15/23 14,489
479 Series 1993-1643, Class PK................................... 6.50% 12/15/23 479
37,269 Series 1994-1710, Class G, 1 Mo. LIBOR + 1.50% (a)........... 4.91% 04/15/24 37,458
973 Series 1998-2089, Class PJ, IO............................... 7.00% 10/15/28 81
3,798 Series 1998-2102, Class Z.................................... 6.00% 12/15/28 3,848
9,594 Series 2002-2405, Class BF................................... 7.00% 03/25/24 9,590
150,747 Series 2002-2410, Class OG................................... 6.38% 02/15/32 156,058
84,858 Series 2002-2427, Class GE................................... 6.00% 03/15/32 87,131
126,989 Series 2002-2437, Class SA, IO,
1 Mo. LIBOR (x) -1 + 7.90% (b)............................ 4.49% 01/15/29 6,199
166,358 Series 2003-2557, Class HL................................... 5.30% 01/15/33 166,738
97,750 Series 2003-2564, Class AC................................... 5.50% 02/15/33 97,694
248,291 Series 2003-2574, Class PE................................... 5.50% 02/15/33 250,873
105,319 Series 2003-2577, Class LI, IO............................... 5.50% 02/15/33 13,870
875,000 Series 2003-2581, Class LL................................... 5.25% 03/15/33 882,650
12,827 Series 2003-2586, Class TG................................... 5.50% 03/15/23 12,796
26,717 Series 2003-2597, Class AE................................... 5.50% 04/15/33 26,747
1,113,000 Series 2003-2613, Class LL................................... 5.00% 05/15/33 1,100,581
262,389 Series 2003-2626, Class ZW................................... 5.00% 06/15/33 219,544
572,008 Series 2003-2626, Class ZX................................... 5.00% 06/15/33 505,808
391,948 Series 2004-2771, Class NL................................... 6.00% 03/15/34 398,790
291,976 Series 2004-2793, Class PE................................... 5.00% 05/15/34 290,282
771,184 Series 2004-2801, Class SE, IO,
1 Mo. LIBOR (x) -1 + 7.05% (b)............................ 3.64% 07/15/32 44,160
123,010 Series 2004-2835, Class QY, IO,
1 Mo. LIBOR (x) -1 + 7.90% (b)............................ 4.49% 12/15/32 9,652
96,213 Series 2004-2890, Class ZA................................... 5.00% 11/15/34 95,106
638,906 Series 2004-2891, Class ZA................................... 6.50% 11/15/34 699,795
359,096 Series 2004-2907, Class DZ................................... 4.00% 12/15/34 339,045
1,025,422 Series 2005-233, Class 12, IO, STRIPS........................ 5.00% 09/15/35 142,626
731,306 Series 2005-234, Class IO, IO, STRIPS........................ 4.50% 10/01/35 106,835
785,000 Series 2005-2973, Class GE................................... 5.50% 05/15/35 796,206
109,881 Series 2005-3031, Class BI, IO,
1 Mo. LIBOR (x) -1 + 6.69% (b)............................ 3.28% 08/15/35 8,976
2,183,510 Series 2005-3054, Class ZW................................... 6.00% 10/15/35 2,193,565
22,771 Series 2005-3074, Class ZH................................... 5.50% 11/15/35 23,208
227,179 Series 2006-238, Class 8, IO, STRIPS......................... 5.00% 04/15/36 38,093
199,278 Series 2006-243, Class 11, IO, STRIPS (c).................... 7.00% 08/15/36 33,099
69,972 Series 2006-3117, Class ZU................................... 6.00% 02/15/36 73,813
22,816 Series 2006-3150, Class DZ................................... 5.50% 05/15/36 22,954
977,643 Series 2006-3174, Class LF, 1 Mo. LIBOR + 0.35% (a).......... 3.76% 05/15/36 968,124
2,851,934 Series 2006-3196, Class ZK................................... 6.50% 04/15/32 3,051,572
760,509 Series 2007-3262, Class KS, IO,
1 Mo. LIBOR (x) -1 + 6.41% (b)............................ 3.00% 01/15/37 25,559
35,510 Series 2007-3274, Class B.................................... 6.00% 02/15/37 35,079
188,083 Series 2007-3322, Class NF, 1 Mo. LIBOR (x) 2,566.67 -
16,683.33%, 0.00% Floor (a)............................... 0.00% 05/15/37 167,308
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 33,948 Series 2007-3340, Class PF, 1 Mo. LIBOR + 0.30% (a).......... 3.71% 07/15/37 $ 33,218
40,472 Series 2007-3349, Class MY................................... 5.50% 07/15/37 40,873
69,577 Series 2007-3360, Class CB................................... 5.50% 08/15/37 69,053
1,014,990 Series 2007-3370, Class FM, 1 Mo. LIBOR + 0.62% (a).......... 4.03% 10/15/47 1,000,689
67,671 Series 2007-3380, Class FS, 1 Mo. LIBOR + 0.35% (a).......... 3.76% 11/15/36 64,742
156,506 Series 2008-3406, Class B.................................... 6.00% 01/15/38 154,410
97,926 Series 2008-3413, Class B.................................... 5.50% 04/15/37 95,924
231,369 Series 2008-3420, Class AZ................................... 5.50% 02/15/38 229,710
158,217 Series 2008-3448, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (b)............................ 2.64% 05/15/38 1,210
2,167,631 Series 2009-3522, Class SE, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.69% 04/15/39 113,124
27,279 Series 2009-3523, Class SD,
1 Mo. LIBOR (x) -2.75 + 19.66% (b)........................ 10.28% 06/15/36 24,839
1,267,050 Series 2009-3542, Class ZP................................... 5.00% 06/15/39 1,253,282
177,000 Series 2009-3550, Class LL................................... 4.50% 07/15/39 171,653
771,572 Series 2009-3563, Class ZP................................... 5.00% 08/15/39 766,500
1,374,371 Series 2009-3572, Class JS, IO,
1 Mo. LIBOR (x) -1 + 6.80% (b)............................ 3.39% 09/15/39 72,803
34,429 Series 2009-3585, Class QZ................................... 5.00% 08/15/39 29,473
114,042 Series 2009-3587, Class FX, 1 Mo. LIBOR + 0.00% (a).......... 3.41% 12/15/37 103,761
422,807 Series 2009-3593, Class F, 1 Mo. LIBOR + 0.50% (a)........... 3.06% 03/15/36 414,189
1,139,304 Series 2009-3605, Class NC................................... 5.50% 06/15/37 1,130,676
500,000 Series 2010-3622, Class PB................................... 5.00% 01/15/40 496,938
107,000 Series 2010-3645, Class WD................................... 4.50% 02/15/40 94,739
513,292 Series 2010-3667, Class PL................................... 5.00% 05/15/40 490,402
58,521 Series 2010-3699, Class FD, 1 Mo. LIBOR + 0.60% (a).......... 4.01% 07/15/40 58,243
435,915 Series 2010-3704, Class ED................................... 4.00% 12/15/36 429,827
400,000 Series 2010-3714, Class PB................................... 4.75% 08/15/40 396,100
323,180 Series 2010-3735, Class IK, IO............................... 3.50% 10/15/25 10,451
67,653 Series 2010-3735, Class JI, IO............................... 4.50% 10/15/30 6,874
198,787 Series 2010-3740, Class SC, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 10/15/40 18,431
153,134 Series 2010-3770, Class GZ................................... 4.50% 10/15/40 132,541
15,288 Series 2011-3795, Class ED................................... 3.00% 10/15/39 15,147
600,000 Series 2011-3796, Class PB................................... 5.00% 01/15/41 593,299
186,138 Series 2011-3819, Class ZQ................................... 6.00% 04/15/36 191,460
300,000 Series 2011-3820, Class NC................................... 4.50% 03/15/41 291,134
153,801 Series 2011-3828, Class SY,
1 Mo. LIBOR (x) -3 + 13.20% (b)........................... 2.96% 02/15/41 94,813
103,547 Series 2011-3842, Class BS,
1 Mo. LIBOR (x) -5 + 22.75% (b)........................... 7.11% 04/15/41 79,529
300,000 Series 2011-3844, Class PC................................... 5.00% 04/15/41 301,278
450,764 Series 2011-3852, Class SW, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 05/15/41 33,203
1,387,000 Series 2011-3895, Class PW................................... 4.50% 07/15/41 1,346,627
1,878,392 Series 2011-3925, Class ZD................................... 4.50% 09/15/41 1,767,812
8,841,520 Series 2011-3954, Class GS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 11/15/41 772,619
326,590 Series 2012-267, Class S5, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 08/15/42 21,893
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 6,913,601 Series 2012-276, Class S5, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 09/15/42 $ 555,311
391,354 Series 2012-3999, Class WA (c)............................... 5.55% 08/15/40 389,271
1,878,000 Series 2012-4000, Class PY................................... 4.50% 02/15/42 1,630,397
36,686 Series 2012-4012, Class GC................................... 3.50% 06/15/40 35,764
24,118 Series 2012-4015, Class KB................................... 1.75% 05/15/41 21,463
291,633 Series 2012-4021, Class IP, IO............................... 3.00% 03/15/27 12,481
1,150,850 Series 2012-4026, Class GZ................................... 4.50% 04/15/42 1,046,431
491,060 Series 2012-4030, Class IL, IO............................... 3.50% 04/15/27 22,755
761,203 Series 2012-4048, Class FJ, 1 Mo. LIBOR + 0.40% (a).......... 2.96% 07/15/37 742,520
953,293 Series 2012-4054, Class AI, IO............................... 3.00% 04/15/27 37,483
671,627 Series 2012-4090, Class YZ................................... 4.50% 08/15/42 568,523
25,342 Series 2012-4097, Class ES, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.69% 08/15/42 2,390
2,541,945 Series 2012-4097, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (b)............................ 2.64% 08/15/42 240,274
2,447,000 Series 2012-4098, Class PE................................... 4.00% 08/15/42 2,067,259
250,918 Series 2012-4103, Class HI, IO............................... 3.00% 09/15/27 12,283
30,445 Series 2012-4116, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.15% (b)............................ 2.74% 10/15/42 3,082
940,189 Series 2012-4121, Class HI, IO............................... 3.50% 10/15/27 47,841
1,211,014 Series 2012-4132, Class AI, IO............................... 4.00% 10/15/42 213,308
296,201 Series 2012-4136, Class TU, IO,
1 Mo. LIBOR (x) -22.50 + 139.50%, 4.50% Cap (b)........... 4.50% 08/15/42 49,590
320,688 Series 2012-4145, Class YI, IO............................... 3.00% 12/15/27 16,215
286,704 Series 2013-303, Class C2, IO, STRIPS........................ 3.50% 01/15/28 15,594
223,233 Series 2013-299, Class S1, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 01/15/43 22,161
5,431,067 Series 2013-303, Class C12, IO, STRIPS....................... 4.00% 12/15/32 577,465
12,208,169 Series 2013-303, Class C33, IO, STRIPS....................... 4.50% 01/15/43 2,313,564
3,128,754 Series 2013-304, Class C19, IO, STRIPS....................... 5.00% 06/15/42 736,407
210,264 Series 2013-304, Class C37, IO, STRIPS....................... 3.50% 12/15/27 9,192
905,578 Series 2013-304, Class C40, IO, STRIPS....................... 3.50% 09/15/26 36,227
898,355 Series 2013-4151, Class DI, IO............................... 3.50% 11/15/31 37,843
2,600,686 Series 2013-4154, Class IB, IO............................... 3.50% 01/15/28 136,645
7,703,966 Series 2013-4170, Class CO, PO............................... (d) 11/15/32 6,205,720
905,000 Series 2013-4176, Class HE................................... 4.00% 03/15/43 803,752
732,650 Series 2013-4177, Class GL................................... 3.00% 03/15/33 659,426
3,209,224 Series 2013-4193, Class AI, IO............................... 3.00% 04/15/28 180,832
826,035 Series 2013-4193, Class PB................................... 4.00% 04/15/43 724,779
13,897,219 Series 2013-4199, Class BZ................................... 3.50% 05/15/43 12,237,721
1,205,693 Series 2013-4203, Class US,
1 Mo. LIBOR (x) -1.50 + 6.00% (b)......................... 0.88% 05/15/33 776,360
500,000 Series 2013-4211, Class PB................................... 3.00% 05/15/43 414,091
13,970,779 Series 2013-4218, Class ZK................................... 2.50% 02/15/43 10,445,524
5,388,000 Series 2013-4224, Class ME................................... 4.00% 07/15/43 4,855,877
11,838 Series 2013-4226, Class NS,
1 Mo. LIBOR (x) -3 + 10.50% (b)........................... 1.12% 01/15/43 6,630
1,450,000 Series 2013-4247, Class AY................................... 4.50% 09/15/43 1,379,172
648,983 Series 2013-4261, Class GS,
1 Mo. LIBOR (x) -2.75 + 10.98% (b)........................ 1.61% 01/15/41 508,689
265,300 Series 2013-4265, Class IB, IO............................... 4.50% 12/15/24 7,234
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 15,605 Series 2014-4300, Class IM, IO (e)........................... 3.00% 03/15/37 $ 97
733,946 Series 2014-4314, Class CI, IO............................... 6.00% 03/15/44 161,902
2,551,126 Series 2014-4316, Class XZ................................... 4.50% 03/15/44 2,425,168
3,729,889 Series 2014-4347, Class YT................................... 3.50% 06/15/44 3,414,308
2,759,192 Series 2014-4387, Class IE, IO............................... 2.50% 11/15/28 120,166
632,795 Series 2015-4503, Class MI, IO............................... 5.00% 08/15/45 120,155
480,925 Series 2015-4512, Class W (c) (f)............................ 5.38% 05/15/38 474,645
79,932 Series 2015-4520, Class AI, IO............................... 3.50% 10/15/35 8,839
166,869 Series 2015-4522, Class JZ................................... 2.00% 01/15/45 163,261
279,433 Series 2016-4546, Class PZ................................... 4.00% 12/15/45 207,625
473,010 Series 2016-4546, Class ZT................................... 4.00% 01/15/46 350,465
6,139,680 Series 2016-4559, Class LI, IO............................... 2.50% 03/15/31 413,197
145,193 Series 2016-4568, Class MZ................................... 4.00% 04/15/46 102,988
11,016,518 Series 2016-4570, Class ST, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 04/15/46 1,028,156
4,114,518 Series 2016-4572, Class LI, IO............................... 4.00% 08/15/45 688,714
20,440,368 Series 2016-4585, Class DS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.59% 05/15/46 1,892,478
7,116,214 Series 2016-4587, Class ZH................................... 4.00% 03/15/44 6,414,186
1,264,686 Series 2016-4591, Class GI, IO............................... 4.00% 12/15/44 207,368
828,929 Series 2016-4596, Class FL, 1 Mo. LIBOR + 0.50% (a).......... 3.06% 11/15/41 830,402
771,702 Series 2016-4600, Class WT................................... 3.50% 07/15/36 681,263
136,619 Series 2016-4605, Class KS,
1 Mo. LIBOR (x) -1.57 + 4.71% (b)........................ 0.00% 08/15/43 79,101
216,566 Series 2016-4609, Class YI, IO............................... 4.00% 04/15/54 12,265
834,628 Series 2016-4615, Class GT,
1 Mo. LIBOR (x) -4 + 16.00%, 4.00% Cap (b)................ 2.35% 10/15/42 500,313
1,955,537 Series 2016-4641, Class DI, IO............................... 5.00% 05/15/41 264,242
1,173,000 Series 2017-4650, Class JH................................... 3.00% 01/15/47 819,076
11,289,000 Series 2017-4650, Class VC................................... 3.50% 07/15/37 10,849,379
10,302,433 Series 2017-4660, Class PO, PO............................... (d) 01/15/33 6,717,450
18,126,185 Series 2017-4680, Class GZ................................... 3.50% 03/15/47 15,485,838
600,000 Series 2017-4681, Class JY................................... 2.50% 05/15/47 473,407
2,908,874 Series 2018-4774, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.20% (b)............................ 2.79% 04/15/48 303,183
2,476,682 Series 2018-4790, Class IO, IO............................... 4.50% 05/15/48 454,464
4,584,784 Series 2018-4826, Class ME................................... 3.50% 09/15/48 4,178,895
2,755,607 Series 2018-4833, Class PY................................... 4.00% 10/15/48 2,567,134
3,263,617 Series 2019-4872, Class BZ................................... 4.00% 04/15/49 2,722,770
6,503,115 Series 2019-4910, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (b)............................ 2.64% 06/15/49 962,202
8,622,450 Series 2019-4938, Class BS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.41% 12/25/49 888,090
17,477,151 Series 2019-4941, Class YZ................................... 3.00% 12/25/49 15,490,999
9,423,639 Series 2019-4943, Class NS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.41% 01/25/50 1,628,092
2,515,155 Series 2020-4974, Class IA, IO............................... 3.50% 12/25/49 657,511
5,857,301 Series 2020-4988, Class IJ, IO............................... 4.50% 12/15/47 967,539
8,040,895 Series 2020-5013, Class HI, IO............................... 5.00% 03/25/40 1,318,321
5,659,379 Series 2020-5013, Class IQ, IO............................... 3.50% 09/25/50 957,855
15,525,042 Series 2020-5034, Class IO, IO (c)........................... 0.49% 10/15/45 586,882
17,456,280 Series 2020-5050, Class MI, IO............................... 3.50% 10/25/50 2,841,250
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 28,451,072 Series 2020-5051, Class CI, IO............................... 4.00% 12/25/35 $ 3,310,524
25,051,684 Series 2021-5086, Class MI, IO............................... 2.50% 03/25/51 3,538,004
8,815,818 Series 2021-5178, Class HL................................... 2.00% 01/25/52 5,642,846
17,810,336 Series 2022-5200, Class TZ................................... 2.50% 11/25/49 10,517,094
11,585,822 Series 2022-5208, Class HZ................................... 3.50% 03/25/52 9,361,486
13,597,436 Series 2022-5208, Class Z.................................... 3.00% 04/25/52 10,192,869
9,750,000 Series 2022-5210, Class LB................................... 3.00% 08/25/50 7,068,713
12,050,756 Series 2022-5220, Class KZ................................... 4.00% 02/25/51 10,313,652
33,673,000 Series 2022-5221, Class YC................................... 4.00% 05/25/52 29,916,534
4,956,814 Series 2022-5222, Class BZ................................... 3.50% 05/25/37 4,394,462
18,660,647 Series 2022-5223, Class GZ................................... 3.00% 08/25/51 12,116,141
10,568,297 Series 2022-5225, Class HZ................................... 4.00% 08/25/51 8,661,762
14,071,362 Series 2022-5225, Class NZ................................... 4.00% 05/25/52 11,567,518
8,200,268 Series 2022-5228, Class DZ................................... 4.50% 06/25/52 7,172,591
9,012,253 Series 2022-5232, Class GO, PO............................... (d) 08/25/51 5,003,432
8,493,324 Series 2022-5255, Class KZ................................... 4.00% 09/25/52 7,240,568
Federal National Mortgage Association
8 Series 1993-3, Class K....................................... 7.00% 02/25/23 8
665 Series 1993-39, Class Z...................................... 7.50% 04/25/23 665
49 Series 1993-46, Class FH, 7 Yr. Constant Maturity Treasury
Rate - 0.20% (a).......................................... 3.53% 04/25/23 48
19,913 Series 1993-169, Class L..................................... 6.50% 09/25/23 19,949
5,952 Series 1993-171, Class SB, 10 Yr. Constant Maturity Treasury
Rate (x) -2.17 + 21.99% (b)............................... 14.21% 09/25/23 5,971
1,618 Series 1993-214, Class 2, IO, STRIPS (e)..................... 7.50% 03/25/23 15
35,589 Series 1993-222, Class 2, IO, STRIPS (e)..................... 7.00% 06/25/23 556
3,689 Series 1993-230, Class FA, 1 Mo. LIBOR + 0.60% (a)........... 3.68% 12/25/23 3,689
28,901 Series 1994-61, Class FG, 1 Mo. LIBOR + 1.50% (a)............ 4.58% 04/25/24 29,015
19,274 Series 1996-51, Class AY, IO................................. 7.00% 12/18/26 1,479
16,798 Series 1998-37, Class VZ..................................... 6.00% 06/17/28 16,829
242,842 Series 2000-45, Class SD, IO,
1 Mo. LIBOR (x) -1 + 7.95% (b)............................ 4.51% 12/18/30 9,635
28,192 Series 2001-34, Class SR, IO,
1 Mo. LIBOR (x) -1 + 8.10% (b)............................ 4.66% 08/18/31 1,056
1,686 Series 2001-42, Class SB,
1 Mo. LIBOR (x) -16 + 128.00%, 8.50% Cap (b)............. 8.50% 09/25/31 1,658
75,037 Series 2001-46, Class F, 1 Mo. LIBOR + 0.40% (a)............. 3.84% 09/18/31 74,806
6,049 Series 2002-22, Class G...................................... 6.50% 04/25/32 6,280
56,782 Series 2002-30, Class Z...................................... 6.00% 05/25/32 58,268
73,664 Series 2002-80, Class CZ..................................... 4.50% 09/25/32 69,420
70,921 Series 2002-320, Class 2, IO, STRIPS......................... 7.00% 04/25/32 14,380
61,844 Series 2002-323, Class 6, IO, STRIPS......................... 6.00% 01/25/32 9,386
170,654 Series 2002-324, Class 2, IO, STRIPS......................... 6.50% 07/25/32 26,752
14,523 Series 2003-14, Class AT..................................... 4.00% 03/25/33 14,151
42,694 Series 2003-21, Class OA..................................... 4.00% 03/25/33 41,632
71,475 Series 2003-32, Class UI, IO................................. 6.00% 05/25/33 13,084
313,439 Series 2003-45, Class JB..................................... 5.50% 06/25/33 315,763
12,596 Series 2003-63, Class F1, 1 Mo. LIBOR + 0.30% (a)............ 3.89% 11/25/27 12,507
1,034,451 Series 2003-63, Class IP, IO................................. 6.00% 07/25/33 169,948
355,000 Series 2003-71, Class NH..................................... 4.29% 08/25/33 341,041
149,124 Series 2003-109, Class YB.................................... 6.00% 11/25/33 150,740
198,120 Series 2003-343, Class 2, IO, STRIPS......................... 4.50% 10/25/33 26,019
191,684 Series 2003-345, Class 14, IO, STRIPS........................ 6.00% 03/25/34 31,877
40,704 Series 2003-348, Class 17, IO, STRIPS........................ 7.50% 12/25/33 6,273
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 58,358 Series 2003-348, Class 18, IO, STRIPS (c).................... 7.50% 12/25/33 $ 9,790
175,463 Series 2004-10, Class ZB..................................... 6.00% 02/25/34 178,066
569,072 Series 2004-18, Class EZ..................................... 6.00% 04/25/34 585,634
218,838 Series 2004-25, Class LC..................................... 5.50% 04/25/34 221,161
238,698 Series 2004-25, Class UC..................................... 5.50% 04/25/34 240,682
44,157 Series 2004-28, Class ZH..................................... 5.50% 05/25/34 43,450
610,039 Series 2004-60, Class AC..................................... 5.50% 04/25/34 605,230
1,526,669 Series 2005-2, Class S, IO, 1 Mo. LIBOR (x) -1 + 6.60% (b)... 3.01% 02/25/35 97,116
277,635 Series 2005-2, Class TB, IO,
1 Mo. LIBOR (x) -1 + 5.90%, 0.40% Cap (b)................. 0.40% 07/25/33 2,372
60,112 Series 2005-29, Class ZT..................................... 5.00% 04/25/35 57,503
67,584 Series 2005-40, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.70% (b)............................ 3.11% 05/25/35 4,702
309,264 Series 2005-52, Class TZ..................................... 6.50% 06/25/35 338,830
1,116,906 Series 2005-57, Class KZ..................................... 6.00% 07/25/35 1,150,390
8,266 Series 2005-67, Class SC,
1 Mo. LIBOR (x) -2.15 + 14.41% (b)........................ 6.70% 08/25/35 7,684
36,793 Series 2005-79, Class NS, IO,
1 Mo. LIBOR (x) -1 + 6.09% (b)............................ 2.50% 09/25/35 2,167
3,712,312 Series 2005-86, Class WZ..................................... 5.50% 10/25/35 3,727,749
12,589 Series 2005-87, Class SC,
1 Mo. LIBOR (x) -1.67 + 13.83% (b)........................ 7.86% 10/25/35 12,746
58,089 Series 2005-95, Class WZ..................................... 6.00% 11/25/35 62,546
19,225 Series 2005-102, Class DS,
1 Mo. LIBOR (x) -2.75 + 19.80% (b)........................ 9.94% 11/25/35 16,587
486,375 Series 2005-104, Class UE.................................... 5.50% 12/25/35 491,116
100,083 Series 2005-359, Class 6, IO, STRIPS......................... 5.00% 11/25/35 15,774
305,562 Series 2005-359, Class 12, IO, STRIPS........................ 5.50% 10/25/35 60,754
87,059 Series 2005-362, Class 13, IO, STRIPS........................ 6.00% 08/25/35 16,334
42,401 Series 2006-5, Class 2A2 (a)................................. 2.56% 02/25/35 42,436
19,143,731 Series 2006-5, Class N2, IO (f).............................. 0.00% 02/25/35 11,965
44,959 Series 2006-15, Class IS, IO,
1 Mo. LIBOR (x) -1 + 6.58% (b)............................ 2.99% 03/25/36 4,054
793,500 Series 2006-20, Class PI, IO,
1 Mo. LIBOR (x) -1 + 6.68% (b)............................ 3.09% 11/25/30 18,354
26,846 Series 2006-31, Class PZ..................................... 6.00% 05/25/36 28,593
38,069 Series 2006-42, Class CF, 1 Mo. LIBOR + 0.45% (a)............ 4.04% 06/25/36 37,542
1,174,470 Series 2006-42, Class EI, IO,
1 Mo. LIBOR (x) -1 + 6.55% (b)............................ 2.96% 06/25/36 110,906
313,763 Series 2006-59, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.57% (b)............................ 2.98% 07/25/36 28,677
420,449 Series 2006-80, Class PH..................................... 6.00% 08/25/36 433,478
43,512 Series 2006-85, Class MZ..................................... 6.50% 09/25/36 44,930
1,475,940 Series 2006-110, Class PI, IO................................ 5.50% 11/25/36 319,693
1,729,835 Series 2006-116, Class ES, IO,
1 Mo. LIBOR (x) -1 + 6.65% (b)............................ 3.06% 12/25/36 139,119
174,639 Series 2006-117, Class GF, 1 Mo. LIBOR + 0.35% (a)........... 3.94% 12/25/36 171,115
1,564,516 Series 2006-118, Class A1, 1 Mo. LIBOR + 0.06% (a)........... 3.14% 12/25/36 1,555,429
313,274 Series 2007-7, Class KA...................................... 5.75% 08/25/36 318,323
20,417 Series 2007-25, Class FB, 1 Mo. LIBOR + 0.33% (a)............ 3.92% 04/25/37 19,978
538,990 Series 2007-28, Class ZA..................................... 6.00% 04/25/37 538,736
865,350 Series 2007-57, Class ZG..................................... 4.75% 06/25/37 833,081
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 562,631 Series 2007-60, Class ZS..................................... 4.75% 07/25/37 $ 545,019
505,051 Series 2007-68, Class AE..................................... 6.50% 07/25/37 523,540
294,012 Series 2007-116, Class PB.................................... 5.50% 08/25/35 296,353
76,530 Series 2007-117, Class MD.................................... 5.50% 07/25/37 73,956
2,823,740 Series 2007-W10, Class 3A (f)................................ 2.52% 06/25/47 2,807,611
122,635 Series 2008-3, Class FZ, 1 Mo. LIBOR + 0.55% (a)............. 4.14% 02/25/38 112,019
20,875 Series 2008-8, Class ZA...................................... 5.00% 02/25/38 20,188
8,268 Series 2008-17, Class IP, IO................................. 6.50% 02/25/38 683
627,629 Series 2008-389, Class 4, IO, STRIPS......................... 6.00% 03/25/38 113,061
1,611 Series 2009-10, Class AB..................................... 5.00% 03/25/24 1,603
614,595 Series 2009-11, Class PI, IO................................. 5.50% 03/25/36 107,427
464 Series 2009-14, Class BS, IO,
1 Mo. LIBOR (x) -1 + 6.25% (b) (e)........................ 2.66% 03/25/24 2
1,399,269 Series 2009-37, Class NZ..................................... 5.71% 02/25/37 1,426,482
4,400,000 Series 2009-50, Class GX..................................... 5.00% 07/25/39 4,393,999
2,725,818 Series 2009-85, Class J...................................... 4.50% 10/25/39 2,661,049
187,767 Series 2009-91, Class HL..................................... 5.00% 11/25/39 186,094
97,000 Series 2009-92, Class DB..................................... 5.00% 11/25/39 97,058
825,400 Series 2009-103, Class PZ.................................... 6.00% 12/25/39 879,049
180,426 Series 2009-106, Class SN, IO,
1 Mo. LIBOR (x) -1 + 6.25% (b)............................ 2.66% 01/25/40 11,646
278,402 Series 2009-109, Class PZ.................................... 4.50% 01/25/40 256,142
52,315 Series 2009-115, Class HZ.................................... 5.00% 01/25/40 52,242
893,018 Series 2009-397, Class 2, IO, STRIPS......................... 5.00% 09/25/39 164,074
87,957 Series 2009-398, Class C13, IO, STRIPS....................... 4.00% 06/25/24 1,724
1,225,997 Series 2010-2, Class LC...................................... 5.00% 02/25/40 1,210,359
200,349 Series 2010-3, Class DZ...................................... 4.50% 02/25/40 182,588
136,386 Series 2010-21, Class KO, PO................................. (d) 03/25/40 113,028
500,000 Series 2010-35, Class EP..................................... 5.50% 04/25/40 503,640
300,143 Series 2010-38, Class KC..................................... 4.50% 04/25/40 288,710
305,602 Series 2010-45, Class WB..................................... 5.00% 05/25/40 292,425
364,500 Series 2010-68, Class BI, IO................................. 5.50% 07/25/50 78,685
33,364 Series 2010-75, Class MT (f)................................. 1.49% 12/25/39 31,090
54,370 Series 2010-110, Class KI, IO................................ 5.50% 10/25/25 615
81,984 Series 2010-115, Class PO, PO................................ (d) 04/25/40 68,611
228,841 Series 2010-129, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.41% 11/25/40 5,739
2,821,000 Series 2010-142, Class DL.................................... 4.00% 12/25/40 2,626,161
158,220 Series 2011-9, Class AZ...................................... 5.00% 05/25/40 151,059
1,507,000 Series 2011-10, Class AY..................................... 6.00% 02/25/41 1,597,957
104,405 Series 2011-30, Class LS, IO (c)............................. 0.00% 04/25/41 4,613
133,680 Series 2011-30, Class ZB..................................... 5.00% 04/25/41 131,399
320,222 Series 2011-52, Class GB..................................... 5.00% 06/25/41 318,754
1,066,632 Series 2011-73, Class PI, IO................................. 4.50% 05/25/41 61,326
200,017 Series 2011-74, Class TQ, IO,
1 Mo. LIBOR (x) -6.43 + 55.93%, 4.50% Cap (b)............. 4.50% 12/25/33 24,601
1,180,693 Series 2011-87, Class YI, IO................................. 5.00% 09/25/41 218,477
1,747,848 Series 2011-101, Class EI, IO................................ 3.50% 10/25/26 56,939
750,000 Series 2011-105, Class MB.................................... 4.00% 10/25/41 656,806
1,796,322 Series 2011-111, Class PZ.................................... 4.50% 11/25/41 1,728,797
4,320,958 Series 2011-123, Class JS, IO,
1 Mo. LIBOR (x) -1 + 6.65% (b)............................ 3.06% 03/25/41 200,502
1,199,816 Series 2012-28, Class PT..................................... 4.00% 03/25/42 1,115,007
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 776,952 Series 2012-39, Class PB..................................... 4.25% 04/25/42 $ 739,449
351,327 Series 2012-52, Class BZ..................................... 4.00% 05/25/42 295,070
521,967 Series 2012-65, Class IO, IO................................. 5.50% 07/25/40 91,057
118,836 Series 2012-66, Class DI, IO................................. 3.50% 06/25/27 5,829
2,733,469 Series 2012-101, Class AI, IO................................ 3.00% 06/25/27 87,691
2,815,297 Series 2012-103, Class HI, IO................................ 3.00% 09/25/27 120,424
223,191 Series 2012-111, Class B..................................... 7.00% 10/25/42 232,363
142,253 Series 2012-118, Class IB, IO................................ 3.50% 11/25/42 22,755
7,382,899 Series 2012-122, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.51% 11/25/42 636,097
435,138 Series 2012-133, Class KO, PO................................ (d) 12/25/42 193,138
503,891 Series 2012-138, Class MA.................................... 1.00% 12/25/42 408,609
1,132,167 Series 2012-146, Class QA.................................... 1.00% 01/25/43 942,150
283,005 Series 2012-409, Class 49, IO, STRIPS (c).................... 3.50% 11/25/41 44,061
314,798 Series 2012-409, Class 53, IO, STRIPS (c).................... 3.50% 04/25/42 48,646
690,000 Series 2013-10, Class HQ..................................... 2.50% 02/25/43 464,982
350,656 Series 2013-13, Class IK, IO................................. 2.50% 03/25/28 16,471
50,765 Series 2013-23, Class ZB..................................... 3.00% 03/25/43 34,255
750,000 Series 2013-41, Class DB..................................... 3.00% 05/25/43 581,676
1,126,379 Series 2013-43, Class IX, IO................................. 4.00% 05/25/43 232,960
360,784 Series 2013-51, Class PI, IO................................. 3.00% 11/25/32 34,507
352,951 Series 2013-52, Class MD..................................... 1.25% 06/25/43 286,033
5,704,548 Series 2013-54, Class LI, IO................................. 7.00% 11/25/34 998,471
553,297 Series 2013-55, Class AI, IO................................. 3.00% 06/25/33 58,733
3,370,698 Series 2013-67, Class IL, IO................................. 6.50% 07/25/43 631,508
132,266 Series 2013-70, Class JZ..................................... 3.00% 07/25/43 112,069
93,118 Series 2013-75, Class FC, 1 Mo. LIBOR + 0.25% (a)............ 3.84% 07/25/42 92,496
11,733,477 Series 2013-75, Class ZG..................................... 3.25% 07/25/43 9,114,120
379,979 Series 2013-105, Class BN.................................... 4.00% 05/25/43 331,322
186,717 Series 2013-105, Class KO, PO................................ (d) 10/25/43 162,162
195,852 Series 2013-106, Class KN.................................... 3.00% 10/25/43 148,660
1,003,000 Series 2013-130, Class QY.................................... 4.50% 06/25/41 959,280
1,707,525 Series 2013-417, Class C21, IO, STRIPS....................... 4.00% 12/25/42 262,258
3,922,070 Series 2013-418, Class C1, IO, STRIPS........................ 3.50% 08/25/43 568,682
56,715 Series 2014-29, Class GI, IO................................. 3.00% 05/25/29 2,891
1,979,759 Series 2014-44, Class NI, IO................................. 4.50% 08/25/29 64,621
53,604 Series 2014-46, Class KA (c)................................. 40.88% 08/25/44 136,392
94,583 Series 2014-68, Class GI, IO................................. 4.50% 10/25/43 9,425
602,009 Series 2014-82, Class GZ..................................... 4.00% 12/25/44 478,207
569,961 Series 2014-84, Class LI, IO................................. 3.50% 12/25/26 19,283
875,000 Series 2015-16, Class MY..................................... 3.50% 04/25/45 725,042
14,276 Series 2015-38, Class GI, IO................................. 3.00% 09/25/43 106
9,633,511 Series 2015-40, Class AI, IO................................. 6.00% 05/25/37 1,870,389
359,811 Series 2015-76, Class BI, IO................................. 4.00% 10/25/39 18,911
45,181 Series 2015-93, Class KI, IO................................. 3.00% 09/25/44 2,677
420,059 Series 2015-97, Class AI, IO................................. 4.00% 09/25/41 3,406
4,847,776 Series 2016-2, Class EZ...................................... 2.50% 02/25/46 4,151,723
8,774,460 Series 2016-37, Class PY..................................... 3.00% 06/25/46 6,794,740
17,314,322 Series 2016-40, Class MS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.41% 07/25/46 1,960,572
11,510,000 Series 2016-50, Class GY..................................... 3.00% 08/25/46 8,705,548
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 7,283,862 Series 2016-62, Class SB, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.51% 09/25/46 $ 435,090
855,541 Series 2016-71, Class NI, IO................................. 3.50% 04/25/46 103,445
2,969,694 Series 2016-73, Class PI, IO................................. 3.00% 08/25/46 538,945
376,135 Series 2016-74, Class HI, IO................................. 3.50% 10/25/46 62,964
305,601 Series 2016-84, Class DF, 1 Mo. LIBOR + 0.42% (a)............ 2.98% 11/25/46 298,540
780,797 Series 2016-87, Class AF, 1 Mo. LIBOR + 0.40% (a)............ 2.96% 11/25/46 760,961
8,054,497 Series 2017-18, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.05% (b)............................ 2.46% 03/25/47 936,425
597,364 Series 2017-46, Class BY..................................... 3.00% 06/25/47 433,396
12,262,412 Series 2017-50, Class BZ..................................... 3.00% 07/25/47 9,844,136
5,699,338 Series 2017-65, Class SA, IO,
1 Mo. LIBOR (x) -1 + 5.90%, 5.00% Cap (b)................. 2.31% 09/25/47 479,853
4,061,016 Series 2017-84, Class ZK..................................... 3.50% 10/25/57 3,301,708
3,332,892 Series 2017-87, Class GI, IO................................. 4.00% 06/25/44 527,915
2,164,091 Series 2017-87, Class ZA..................................... 4.00% 11/25/57 1,690,455
2,598,139 Series 2018-17, Class Z...................................... 3.50% 03/25/48 2,004,222
5,009,170 Series 2018-86, Class DL..................................... 3.50% 12/25/48 4,626,681
2,829,581 Series 2018-92, Class DB..................................... 3.50% 01/25/49 2,607,942
6,162,556 Series 2018-94, Class AZ..................................... 4.00% 01/25/49 5,657,595
7,904,381 Series 2019-8, Class DY...................................... 3.50% 03/25/49 7,286,750
8,299,284 Series 2019-17, Class GZ..................................... 4.00% 11/25/56 6,984,574
10,358,097 Series 2019-26, Class GA..................................... 3.50% 06/25/49 9,626,480
4,326,011 Series 2019-27, Class HA..................................... 3.00% 06/25/49 3,912,483
7,017,538 Series 2019-29, Class HT..................................... 3.00% 06/25/49 6,208,075
6,104,031 Series 2019-34, Class JA..................................... 3.00% 07/25/49 5,393,343
14,383,872 Series 2019-34, Class LA..................................... 3.00% 07/25/49 12,827,281
3,949,552 Series 2019-37, Class A...................................... 3.00% 07/25/49 3,492,056
13,518,749 Series 2019-41, Class SN, IO,
1 Mo. LIBOR (x) -1 + 6.05% (b)............................ 2.46% 08/25/49 1,213,924
10,052,612 Series 2019-57, Class JA..................................... 2.50% 10/25/49 8,721,801
4,151,929 Series 2019-59, Class PT..................................... 2.50% 10/25/49 3,599,342
10,260,913 Series 2019-66, Class C...................................... 3.00% 11/25/49 9,201,588
38,131,658 Series 2019-68, Class KP..................................... 2.50% 11/25/49 31,631,808
22,953,767 Series 2019-70, Class WA, PO................................. (d) 11/25/42 18,669,008
32,511,453 Series 2020-5, Class BZ...................................... 3.00% 02/25/50 27,515,285
13,733,132 Series 2020-9, Class SJ, IO, 1 Mo. LIBOR (x) -1 + 6.00% (b).. 2.41% 02/25/50 1,768,127
11,969,763 Series 2020-20, Class KI, IO................................. 4.00% 03/25/50 3,974,999
31,150,681 Series 2020-34, Class AI, IO................................. 3.50% 06/25/35 2,856,879
11,970,235 Series 2020-37, Class QI, IO................................. 4.50% 06/25/50 2,419,845
4,623,415 Series 2020-66, Class IC, IO................................. 6.00% 10/25/47 1,080,580
41,409,465 Series 2020-74, Class IQ, IO................................. 6.00% 10/25/50 8,567,072
31,845,417 Series 2020-77, Class DI, IO................................. 4.00% 11/25/35 3,617,321
14,571,838 Series 2020-93, Class NI, IO................................. 3.00% 01/25/51 1,520,528
15,025,825 Series 2021-1, Class IB, IO.................................. 3.50% 02/25/61 3,154,179
44,785,859 Series 2021-66, Class CI, IO................................. 4.00% 10/25/36 5,827,084
10,176,318 Series 2022-15, Class ZH..................................... 3.00% 04/25/52 6,529,331
8,292,747 Series 2022-18, Class Z...................................... 3.50% 04/25/52 6,172,806
16,696,224 Series 2022-23, Class EZ..................................... 3.00% 03/25/52 10,294,919
26,444,277 Series 2022-29, Class JZ..................................... 1.50% 06/25/42 17,487,246
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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 Grantor Trust
$ 1,946,040 Series 2005-T1, Class A1, 1 Mo. LIBOR + 0.40% (a)............ 3.99% 05/25/35 $ 1,884,651
Government National Mortgage Association
19,418 Series 2001-60, Class PZ..................................... 6.00% 12/20/31 19,374
196,626 Series 2002-72, Class ZB..................................... 6.00% 10/20/32 196,180
159,048 Series 2003-4, Class MZ...................................... 5.50% 01/20/33 158,950
281,018 Series 2003-18, Class PG..................................... 5.50% 03/20/33 280,256
1,530,238 Series 2003-35, Class TZ..................................... 5.75% 04/16/33 1,526,918
129,411 Series 2003-62, Class MZ..................................... 5.50% 07/20/33 131,307
173,616 Series 2003-84, Class Z...................................... 5.50% 10/20/33 174,563
97,821 Series 2004-37, Class B...................................... 6.00% 04/17/34 100,097
549,994 Series 2004-49, Class MZ..................................... 6.00% 06/20/34 561,984
39,101 Series 2004-68, Class ZC..................................... 6.00% 08/20/34 39,974
46,781 Series 2004-71, Class ST,
1 Mo. LIBOR (x) -6.25 + 44.50%, 7.00% Cap (b)............. 7.00% 09/20/34 47,129
84,893 Series 2004-83, Class AK, 1 Mo. LIBOR (x) -3 + 16.49% (b).... 6.26% 10/16/34 71,720
335,416 Series 2004-88, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.69% 10/16/34 12,496
35,113 Series 2004-92, Class AK, 1 Mo. LIBOR (x) -3 + 16.50% (b).... 6.26% 11/16/34 29,909
1,293,995 Series 2004-92, Class BZ..................................... 5.50% 11/16/34 1,298,099
243,468 Series 2004-105, Class JZ.................................... 5.00% 12/20/34 238,116
213,627 Series 2004-105, Class KA.................................... 5.00% 12/16/34 209,836
242,457 Series 2005-3, Class JZ...................................... 5.00% 01/16/35 225,377
242,457 Series 2005-3, Class KZ...................................... 5.00% 01/16/35 232,666
16,785 Series 2005-7, Class AJ, 1 Mo. LIBOR (x) -4 + 22.00% (b)..... 8.35% 02/16/35 14,634
121,791 Series 2005-7, Class MA,
1 Mo. LIBOR (x) -2.81 + 18.95% (b)....................... 9.37% 12/17/34 115,143
124,567 Series 2005-33, Class AY..................................... 5.50% 04/16/35 125,950
110,251 Series 2005-41, Class PA..................................... 4.00% 05/20/35 107,281
252,473 Series 2005-44, Class IO, IO................................. 5.50% 07/20/35 24,521
2,196,182 Series 2005-78, Class ZA..................................... 5.00% 10/16/35 2,187,877
190,732 Series 2005-93, Class PO, PO................................. (d) 06/20/35 166,590
378,422 Series 2006-17, Class TW..................................... 6.00% 04/20/36 388,797
500,000 Series 2006-38, Class OH..................................... 6.50% 08/20/36 511,299
194,711 Series 2006-61, Class ZA..................................... 5.00% 11/20/36 193,006
460,618 Series 2007-16, Class OZ..................................... 6.00% 04/20/37 473,056
122,683 Series 2007-27, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.20% (b)............................ 2.71% 05/20/37 4,458
98,757 Series 2007-41, Class OL, PO................................. (d) 07/20/37 85,716
175,842 Series 2007-42, Class SB, IO,
1 Mo. LIBOR (x) -1 + 6.75% (b)............................ 3.26% 07/20/37 11,469
529,886 Series 2007-71, Class ZD..................................... 6.00% 11/20/37 536,456
151,979 Series 2007-81, Class FZ, 1 Mo. LIBOR + 0.35% (a)............ 3.84% 12/20/37 151,276
79,008 Series 2008-33, Class XS, IO,
1 Mo. LIBOR (x) -1 + 7.70% (b)............................ 4.29% 04/16/38 5,330
483,070 Series 2008-47, Class ML..................................... 5.25% 06/16/38 481,834
143,490 Series 2008-54, Class PE..................................... 5.00% 06/20/38 142,643
387,089 Series 2008-71, Class JI, IO................................. 6.00% 04/20/38 31,915
4,562 Series 2009-10, Class PA..................................... 4.50% 12/20/38 4,549
105,112 Series 2009-14, Class KI, IO................................. 6.50% 03/20/39 16,514
34,490 Series 2009-14, Class KS, IO,
1 Mo. LIBOR (x) -1 + 6.30% (b)............................ 2.81% 03/20/39 1,117
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 81,042 Series 2009-25, Class SE, IO,
1 Mo. LIBOR (x) -1 + 7.60% (b)............................ 4.11% 09/20/38 $ 4,452
2,780,948 Series 2009-29, Class PC..................................... 7.00% 05/20/39 2,929,137
417,969 Series 2009-32, Class SZ..................................... 5.50% 05/16/39 422,824
269,490 Series 2009-42, Class BI, IO................................. 6.00% 06/20/39 33,073
3,732,457 Series 2009-57, Class VB..................................... 5.00% 06/16/39 3,709,559
283,372 Series 2009-61, Class PZ..................................... 7.50% 08/20/39 314,168
8,720,687 Series 2009-61, Class WQ, IO,
1 Mo. LIBOR (x) -1 + 6.25% (b)............................ 2.84% 11/16/35 630,970
1,031,203 Series 2009-69, Class ZB..................................... 6.00% 08/20/39 1,018,673
670,560 Series 2009-72, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.25% (b)............................ 2.84% 08/16/39 39,301
455,000 Series 2009-75, Class JN..................................... 5.50% 09/16/39 459,475
627,362 Series 2009-78, Class KZ..................................... 5.50% 09/16/39 644,466
100,577 Series 2009-79, Class OK, PO................................. (d) 11/16/37 82,847
147,614 Series 2009-81, Class TZ..................................... 5.50% 09/20/39 149,726
594,620 Series 2009-87, Class EI, IO................................. 5.50% 08/20/39 59,915
69,000 Series 2009-94, Class AL..................................... 5.00% 10/20/39 68,556
298,636 Series 2009-106, Class DZ.................................... 5.50% 11/20/39 304,510
3,753,191 Series 2009-106, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.61% 04/20/36 171,897
50,788 Series 2009-106, Class WZ.................................... 5.50% 11/16/39 51,667
732,000 Series 2009-126, Class LB.................................... 5.00% 12/20/39 726,443
23,066 Series 2010-4, Class WA...................................... 3.00% 01/16/40 21,979
958,028 Series 2010-14, Class BV, IO,
1 Mo. LIBOR (x) -1 + 6.25% (b)............................ 2.84% 02/16/40 34,769
68,367 Series 2010-42, Class CO, PO................................. (d) 06/16/39 66,727
1,456,261 Series 2010-46, Class FC, 1 Mo. LIBOR + 0.80% (a)............ 4.29% 03/20/35 1,462,178
939,324 Series 2010-59, Class ZD..................................... 6.50% 05/20/40 1,029,166
1,137,280 Series 2010-85, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.60% (b)............................ 3.11% 07/20/37 37,622
89,000 Series 2010-116, Class BM.................................... 4.50% 09/16/40 86,110
1,406,100 Series 2010-116, Class JB.................................... 5.00% 06/16/40 1,362,173
586,366 Series 2010-157, Class OP, PO................................ (d) 12/20/40 479,566
50,345 Series 2010-166, Class DI, IO................................ 4.50% 02/20/39 882
156,364 Series 2011-4, Class PZ...................................... 5.00% 01/20/41 156,972
771,202 Series 2011-35, Class BP..................................... 4.50% 03/16/41 750,835
200,657 Series 2011-48, Class LI, IO................................. 5.50% 01/16/41 26,209
5,766,065 Series 2011-61, Class WS, IO,
1 Mo. LIBOR (x) -1 + 6.47% (b)............................ 2.98% 02/20/38 257,352
43,056 Series 2011-63, Class BI, IO................................. 6.00% 02/20/38 3,230
579,613 Series 2011-71, Class ZC..................................... 5.50% 07/16/34 583,859
1,422,342 Series 2011-81, Class IC, IO,
1 Mo. LIBOR (x) -1 + 6.72%, 0.62% Cap (b)................. 0.62% 07/20/35 19,531
281,461 Series 2011-112, Class IP, IO (e)............................ 0.50% 08/16/26 4
239,265 Series 2011-129, Class CL.................................... 5.00% 03/20/41 238,465
3,619 Series 2011-136, Class GB.................................... 2.50% 05/20/40 3,577
223,278 Series 2011-146, Class EI, IO................................ 5.00% 11/16/41 38,386
36,809 Series 2011-151, Class TB, IO,
1 Mo. LIBOR (x) -70 + 465.50%, 3.50% Cap (b).............. 3.50% 04/20/41 3,024
127,737 Series 2012-10, Class LI, IO (e)............................. 3.50% 07/20/40 692
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 1,987,723 Series 2012-18, Class IA, IO,
1 Mo. LIBOR (x) -1 + 6.68%, 0.58% Cap (b)................. 0.58% 07/20/39 $ 17,227
1,005,417 Series 2012-48, Class MI, IO................................. 5.00% 04/16/42 180,770
7,520,747 Series 2012-84, Class QS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.69% 07/16/42 366,806
6,711,842 Series 2012-84, Class SJ,
1 Mo. LIBOR (x) -0.57 + 2.51% (b)......................... 0.56% 07/16/42 3,719,699
251,623 Series 2012-108, Class KB.................................... 2.75% 09/16/42 194,010
3,496,648 Series 2012-143, Class TI, IO................................ 3.00% 12/16/27 161,782
1,686,579 Series 2012-149, Class PC (c)................................ 6.33% 12/20/42 1,747,807
13,221,793 Series 2013-4, Class IC, IO.................................. 4.00% 09/20/42 2,303,283
76,128 Series 2013-5, Class IA, IO.................................. 3.50% 10/16/42 10,136
532,987 Series 2013-10, Class DI, IO................................. 3.50% 09/20/42 45,633
2,223,000 Series 2013-20, Class QM..................................... 2.63% 02/16/43 1,793,845
1,460,576 Series 2013-22, Class IO, IO................................. 3.00% 02/20/43 171,511
3,431,730 Series 2013-23, Class IP, IO................................. 3.50% 08/20/42 469,498
1,530,967 Series 2013-53, Class OI, IO................................. 3.50% 04/20/43 162,421
1,569,404 Series 2013-69, Class AI, IO................................. 3.50% 05/20/43 256,091
176,877 Series 2013-69, Class PI, IO................................. 5.00% 05/20/43 19,181
953,680 Series 2013-70, Class PM..................................... 2.50% 05/20/43 743,241
2,084,445 Series 2013-91, Class PB..................................... 3.50% 09/20/42 2,045,323
795,712 Series 2013-130, Class WS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.61% 09/20/43 86,614
2,863,173 Series 2013-170, Class IG, IO................................ 5.50% 11/16/43 238,330
688,000 Series 2013-183, Class PB.................................... 4.50% 12/20/43 663,438
2,019,672 Series 2014-6, Class IJ, IO.................................. 4.50% 06/16/43 133,309
11,871,346 Series 2014-30, Class EA (c)................................. 1.77% 02/16/44 10,274,570
5,494,452 Series 2014-43, Class Z...................................... 4.00% 03/20/44 5,212,002
2,154,891 Series 2014-44, Class IC, IO................................. 3.00% 04/20/28 109,944
5,662,920 Series 2014-44, Class ID, IO (c) (f)......................... 0.33% 03/16/44 54,801
20,357 Series 2014-91, Class JI, IO................................. 4.50% 01/20/40 1,276
592,083 Series 2014-94, Class Z...................................... 4.50% 01/20/44 581,769
2,645,876 Series 2014-99, Class HI, IO................................. 4.50% 06/20/44 425,642
2,318,093 Series 2014-115, Class QI, IO................................ 3.00% 03/20/29 64,168
2,750,854 Series 2014-116, Class SB, IO,
1 Mo. LIBOR (x) -1 + 5.60% (b)............................ 2.11% 08/20/44 240,656
1,395,107 Series 2014-118, Class TV, IO,
1 Mo. LIBOR (x) -1 + 6.25% (b)............................ 2.76% 05/20/44 108,505
7,385,955 Series 2015-3, Class ZD...................................... 4.00% 01/20/45 6,729,326
9,144,935 Series 2015-40, Class IO, IO................................. 4.00% 03/20/45 1,559,632
4,920,764 Series 2015-66, Class LI, IO................................. 5.00% 05/16/45 497,861
32,425 Series 2015-95, Class IK, IO (c)............................. 1.62% 05/16/37 663
10,661,502 Series 2015-99, Class EI, IO................................. 5.50% 07/16/45 1,839,239
4,541,076 Series 2015-124, Class DI, IO................................ 3.50% 01/20/38 151,402
265,728 Series 2015-137, Class WA (c) (f)............................ 5.55% 01/20/38 272,043
358,458 Series 2015-138, Class MI, IO................................ 4.50% 08/20/44 42,624
78,564 Series 2015-151, Class KW (c)................................ 5.19% 04/20/34 77,599
3,765,723 Series 2015-162, Class ZG.................................... 4.00% 11/20/45 3,421,509
3,831,029 Series 2015-168, Class GI, IO................................ 5.50% 02/16/33 244,651
195,376 Series 2016-16, Class KZ..................................... 3.00% 02/16/46 148,733
6,862,799 Series 2016-37, Class AF, 1 Mo. LIBOR + 0.47% (a)............ 2.50% 11/20/43 6,662,176
125,034 Series 2016-55, Class PB (c)................................. 5.48% 03/20/31 125,064
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 897,436 Series 2016-69, Class WI, IO................................. 4.50% 05/20/46 $ 230,956
2,717,603 Series 2016-75, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.00% (b)............................ 2.51% 05/20/40 166,771
467,966 Series 2016-78, Class UI, IO................................. 4.00% 06/20/46 53,691
2,485,365 Series 2016-89, Class HI, IO................................. 3.50% 07/20/46 430,998
298,553 Series 2016-99, Class JA (c)................................. 5.53% 11/20/45 303,135
1,030,860 Series 2016-109, Class ZM.................................... 3.50% 08/20/36 877,473
6,415,809 Series 2016-111, Class PI, IO................................ 3.50% 06/20/45 625,129
674,031 Series 2016-118, Class GI, IO................................ 4.50% 02/16/40 97,717
7,520,772 Series 2016-120, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.61% 09/20/46 779,742
464,000 Series 2016-141, Class PC.................................... 5.00% 10/20/46 456,782
329,160 Series 2016-145, Class LZ.................................... 3.00% 10/20/46 230,965
504,029 Series 2016-154, Class WF, 1 Mo. LIBOR + 0.40% (a)........... 2.57% 11/20/45 488,320
7,461,641 Series 2016-156, Class ZM.................................... 3.50% 11/20/46 6,737,343
303,000 Series 2016-160, Class LE.................................... 2.50% 11/20/46 206,653
198,123 Series 2016-167, Class KI, IO................................ 6.00% 12/16/46 28,820
2,142,504 Series 2017-12, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.10% (b)............................ 2.61% 01/20/47 221,902
960,165 Series 2017-17, Class KZ..................................... 4.50% 02/20/47 879,354
3,998,163 Series 2017-32, Class DI, IO................................. 5.50% 05/20/35 740,354
2,372,463 Series 2017-32, Class IB, IO................................. 5.00% 02/16/47 232,272
6,136,810 Series 2017-33, Class PZ..................................... 3.00% 02/20/47 5,105,148
4,397,681 Series 2017-56, Class BI, IO................................. 6.00% 04/16/47 719,371
7,740,575 Series 2017-57, Class IO, IO................................. 5.00% 04/20/47 1,538,863
2,883,291 Series 2017-113, Class IE, IO................................ 5.50% 07/20/47 428,855
8,550,060 Series 2017-117, Class ZN.................................... 3.00% 08/20/47 6,512,030
12,553,390 Series 2017-122, Class CZ.................................... 3.00% 08/20/47 9,658,609
3,734,389 Series 2017-123, Class IO, IO................................ 5.00% 08/16/47 889,154
4,860,296 Series 2017-130, Class LS, IO,
1 Mo. LIBOR (x) -1 + 6.20% (b)............................ 2.79% 08/16/47 326,708
4,638,289 Series 2017-133, Class JI, IO................................ 7.00% 06/20/41 646,720
11,716,077 Series 2017-134, Class AZ.................................... 3.00% 09/20/47 9,181,893
4,613,081 Series 2017-177, Class DI, IO................................ 4.50% 11/16/47 877,570
13,476,869 Series 2017-179, Class IN, IO................................ 5.00% 07/20/44 3,351,169
3,478,370 Series 2017-186, Class TI, IO,
1 Mo. LIBOR (x) -1 + 6.50%, 0.50% Cap (b)................. 0.50% 05/20/40 45,266
915,131 Series 2018-44, Class Z...................................... 2.50% 09/20/47 651,916
5,154,260 Series 2018-79, Class IO, IO................................. 5.00% 06/20/48 721,386
13,288,150 Series 2018-97, Class DZ..................................... 3.50% 07/20/48 12,083,877
6,048,164 Series 2018-131, Class IA, IO................................ 5.00% 04/20/44 680,934
10,000,000 Series 2018-134, Class KB.................................... 3.50% 10/20/48 9,107,395
7,759,006 Series 2018-155, Class KD.................................... 4.00% 11/20/48 7,385,054
5,698,789 Series 2018-160, Class GY.................................... 4.50% 11/20/48 5,408,449
5,413,112 Series 2018-78I, Class EZ.................................... 3.00% 04/20/48 4,796,178
3,167,536 Series 2019-6, Class EI, IO.................................. 5.00% 09/20/39 445,164
7,723,305 Series 2019-15, Class MZ..................................... 4.50% 02/20/49 7,384,826
12,488,006 Series 2019-18, Class TP..................................... 3.50% 02/20/49 11,620,789
1,058,809 Series 2019-27, Class DI, IO................................. 5.50% 01/20/40 174,756
3,530,251 Series 2019-35, Class BZ..................................... 3.50% 03/20/49 2,682,082
5,566,697 Series 2019-45, Class ZB..................................... 3.50% 04/20/49 4,343,110
35,300,559 Series 2019-128, Class EF, 1 Mo. LIBOR + 0.57% (a)........... 4.00% 10/20/49 32,237,176
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 18,134,658 Series 2020-31, Class IO, IO................................. 6.50% 03/20/50 $ 2,313,906
13,007,862 Series 2020-62, Class IA, IO................................. 5.50% 05/20/50 2,601,255
3,000,000 Series 2020-62, Class IC, IO................................. 2.50% 01/20/50 683,087
14,014,801 Series 2020-62, Class WI, IO................................. 2.50% 08/20/49 3,092,426
7,097,422 Series 2020-84, Class IM, IO................................. 2.50% 05/20/50 1,670,818
19,759,118 Series 2020-84, Class IO, IO................................. 2.50% 04/20/50 4,831,500
24,495,962 Series 2020-129, Class IO, IO................................ 2.50% 09/20/50 2,998,453
18,753,704 Series 2021-8, Class DI, IO.................................. 3.50% 01/20/51 2,113,467
48,445,136 Series 2021-27, Class IO, IO................................. 2.50% 02/20/51 6,394,869
37,119,523 Series 2021-27, Class PI, IO................................. 2.00% 02/20/51 3,668,994
7,117,038 Series 2021-46, Class IL, IO................................. 3.00% 03/20/51 916,060
11,942,419 Series 2021-46, Class LI, IO................................. 3.00% 03/20/51 1,720,257
24,604,806 Series 2021-91, Class IB, IO................................. 3.00% 05/20/51 3,199,862
96,486,982 Series 2021-97, Class NI, IO................................. 2.50% 08/20/49 9,380,899
30,060,182 Series 2021-159, Class QE.................................... 2.00% 09/20/51 24,737,651
36,619,667 Series 2021-188, Class PA.................................... 2.00% 10/20/51 30,235,863
5,620,787 Series 2022-60, Class CZ..................................... 3.00% 03/20/52 3,501,766
32,360,403 Series 2022-63, Class AZ..................................... 3.00% 08/20/51 25,089,033
16,593,373 Series 2022-63, Class BZ..................................... 3.50% 11/20/46 13,572,428
19,405,913 Series 2022-63, Class HZ..................................... 2.50% 11/20/51 13,533,847
11,092,149 Series 2022-63, Class MZ..................................... 3.00% 05/20/51 8,449,676
7,105,514 Series 2022-68, Class DZ..................................... 3.50% 04/20/52 5,265,981
12,384,534 Series 2022-68, Class MZ..................................... 3.50% 04/20/52 9,467,087
12,784,462 Series 2022-68, Class Z...................................... 3.50% 04/20/52 10,075,295
17,188,925 Series 2022-68, Class ZC..................................... 3.50% 04/20/52 12,878,610
12,991,946 Series 2022-69, Class QL..................................... 3.00% 04/20/52 10,777,568
10,917,513 Series 2022-78, Class AM..................................... 3.50% 04/20/52 8,501,822
14,027,030 Series 2022-90, Class KZ..................................... 3.00% 04/20/51 10,186,187
8,693,137 Series 2022-90, Class ZG..................................... 1.50% 02/20/52 4,472,097
22,341,349 Series 2022-124, Class EY.................................... 4.00% 07/20/52 19,342,919
Seasoned Credit Risk Transfer Trust
15,000,000 Series 2022-1, Class MBU..................................... 3.25% 11/25/61 11,191,528
Seasoned Loans Structured Transaction Trust
3,905,081 Series 2019-3, Class A1C..................................... 2.75% 11/25/29 3,556,062
10,000,000 Series 2022-1, Class A2...................................... 3.50% 05/25/32 8,706,750
Vendee Mortgage Trust
1,604,205 Series 2003-2, Class Z....................................... 5.00% 05/15/33 1,589,281
5,661,078 Series 2010-1, Class DZ...................................... 4.25% 04/15/40 5,327,615
9,293,092 Series 2011-1, Class DZ...................................... 3.75% 09/15/46 8,403,622
18,579,186 Series 2011-2, Class DZ...................................... 3.75% 10/15/41 17,013,068
----------------
1,215,419,254
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 18.1%
Federal Home Loan Mortgage Corporation Multiclass Certificates
50,000,000 Series 2020-RR06, Class BX, IO (c)........................... 1.84% 05/27/33 6,051,822
37,600,000 Series 2020-RR09, Class AX, IO (c)........................... 2.63% 11/27/28 4,598,480
47,500,000 Series 2020-RR09, Class BX, IO (c)........................... 2.20% 02/27/29 5,158,500
96,907,000 Series 2020-RR10, Class X, IO (c)............................ 2.01% 12/27/27 7,422,272
112,919,000 Series 2020-RR11, Class AX, IO (c)........................... 2.84% 01/27/29 14,460,543
44,200,500 Series 2020-RR11, Class BX, IO (c)........................... 2.44% 12/27/28 4,108,931
38,909,006 Series 2021-P009, Class X, IO (f)............................ 1.45% 01/25/31 2,400,211
4,237,458 Series 2021-P011, Class X1, IO (f)........................... 1.80% 09/25/45 529,436
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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 Multiclass Certificates
(Continued)
$ 112,345,000 Series 2021-RR15, Class X, IO (f)............................ 1.56% 10/27/34 $ 13,106,449
100,924,000 Series 2021-RR18, Class X, IO (f) (g) (h).................... 1.90% 10/27/28 8,750,111
55,000,000 Series 2021-RR20, Class X, IO (f)............................ 1.85% 04/25/33 7,776,565
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates
5,545,944 Series 2013-K027, Class A2................................... 2.64% 01/25/23 5,528,685
13,079,058 Series 2013-K030, Class A2................................... 3.25% 04/25/23 12,997,380
103,907,773 Series 2013-K030, Class X1, IO (f)........................... 0.14% 04/25/23 33,957
20,358,685 Series 2013-K031, Class A2................................... 3.30% 04/25/23 20,186,087
23,900,000 Series 2013-K032, Class A2................................... 3.31% 05/25/23 23,649,550
24,990,241 Series 2013-K034, Class A2................................... 3.53% 07/25/23 24,705,058
11,046,323 Series 2013-K035, Class A2................................... 3.46% 08/25/23 10,911,570
25,000,000 Series 2014-K036, Class A2................................... 3.53% 10/25/23 24,634,225
74,208,513 Series 2014-K036, Class X1, IO (f)........................... 0.69% 10/25/23 366,085
34,959,674 Series 2015-K045, Class A2................................... 3.02% 01/25/25 33,552,607
2,249,095 Series 2016-K054, Class A1................................... 2.30% 01/25/25 2,180,012
12,264,000 Series 2016-K152, Class A2................................... 3.08% 01/25/31 10,857,254
286,775,031 Series 2016-KIR1, Class X, IO (f)............................ 1.04% 03/25/26 8,367,981
26,585,018 Series 2017-K724, Class A2................................... 3.06% 11/25/23 26,060,692
12,085,553 Series 2017-K728, Class A2................................... 3.06% 08/25/24 11,695,227
45,155,000 Series 2018-K156, Class A3................................... 3.70% 06/25/33 40,761,838
30,175,200 Series 2018-K157, Class A2................................... 3.99% 05/25/33 28,491,985
1,650,000 Series 2018-K157, Class A3................................... 3.99% 08/25/33 1,517,874
7,101,000 Series 2018-K159, Class A3................................... 3.95% 11/25/33 6,475,715
1,090,000 Series 2019-1512, Class A2................................... 2.99% 05/25/31 948,665
3,000,000 Series 2019-1513, Class A2................................... 2.73% 12/25/31 2,587,546
74,073,786 Series 2019-K097, Class X1, IO (f)........................... 1.09% 07/25/29 4,284,072
57,666,529 Series 2019-K099, Class X1, IO (f)........................... 0.88% 09/25/29 2,737,586
57,790,000 Series 2019-K099, Class XAM, IO (f).......................... 1.14% 09/25/29 3,763,553
125,653,675 Series 2019-K100, Class X1, IO (f)........................... 0.65% 09/25/29 4,505,400
69,537,861 Series 2019-K101, Class X1, IO (c)........................... 0.84% 10/25/29 3,171,246
64,993,000 Series 2019-K102, Class XAM, IO (c).......................... 1.09% 10/25/29 4,062,078
59,029,000 Series 2019-K103, Class XAM, IO (f).......................... 0.90% 11/25/29 3,140,279
28,596,283 Series 2019-K1510, Class X1, IO (f).......................... 0.48% 01/25/34 1,069,312
158,169,249 Series 2019-K1512, Class X1, IO (f).......................... 0.91% 04/25/34 10,545,887
56,938,480 Series 2019-K1513, Class X1, IO (f).......................... 0.86% 08/25/34 3,624,299
102,858,332 Series 2019-K734, Class X1, IO (f)........................... 0.65% 02/25/26 1,718,053
68,018,000 Series 2019-K734, Class XAM, IO (f).......................... 0.42% 02/25/26 926,282
42,136,931 Series 2019-K735, Class X1, IO (f)........................... 0.96% 05/25/26 1,142,488
54,447,193 Series 2019-K736, Class X1, IO (f)........................... 1.29% 07/25/26 2,043,376
7,100,000 Series 2020-K108, Class A2................................... 1.52% 03/25/30 5,642,178
8,471,000 Series 2020-K109, Class A2................................... 1.56% 04/25/30 6,722,232
35,424,000 Series 2020-K109, Class XAM, IO (f).......................... 1.80% 04/25/30 3,776,832
108,586,842 Series 2020-K110, Class X1, IO (f)........................... 1.70% 04/25/30 10,117,112
29,090,000 Series 2020-K112, Class XAM, IO (f).......................... 1.66% 05/25/30 2,901,666
82,019,000 Series 2020-K113, Class XAM, IO (f).......................... 1.58% 06/25/30 7,908,223
53,100,000 Series 2020-K114, Class XAM, IO (f).......................... 1.34% 06/25/30 4,352,501
120,835,893 Series 2020-K115, Class X1, IO (f)........................... 1.33% 06/25/30 9,280,994
55,537,412 Series 2020-K115, Class XAM, IO (f).......................... 1.55% 07/25/30 5,228,298
13,000,000 Series 2020-K116, Class A2................................... 1.38% 07/25/30 10,074,333
16,436,722 Series 2020-K116, Class X1, IO (f)........................... 1.43% 07/25/30 1,328,618
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 55,500,000 Series 2020-K116, Class XAM, IO (f).......................... 1.60% 08/25/30 $ 5,440,288
8,000,000 Series 2020-K117, Class A2................................... 1.41% 08/25/30 6,198,256
63,500,000 Series 2020-K117, Class XAM, IO (f).......................... 1.43% 09/25/30 5,695,531
10,000,000 Series 2020-K118, Class A2................................... 1.49% 09/25/30 7,787,386
77,477,334 Series 2020-K118, Class X1, IO (f)........................... 0.96% 09/25/30 4,396,784
37,051,661 Series 2020-K118, Class XAM, IO (f).......................... 1.17% 09/25/30 2,702,278
14,000,000 Series 2020-K119, Class A2................................... 1.57% 09/25/30 10,958,664
51,000,000 Series 2020-K119, Class XAM, IO (f).......................... 1.13% 10/25/30 3,619,720
7,000,000 Series 2020-K120, Class A2................................... 1.50% 10/25/30 5,434,857
75,535,017 Series 2020-K120, Class XAM, IO (f).......................... 1.21% 10/25/30 5,763,065
28,247,742 Series 2020-K121, Class X1, IO (f)........................... 1.02% 10/25/30 1,679,809
21,236,000 Series 2020-K121, Class XAM, IO (f).......................... 1.19% 11/25/30 1,591,725
78,295,761 Series 2020-K122, Class X1, IO (f)........................... 0.88% 11/25/30 4,131,503
35,210,000 Series 2020-K122, Class XAM, IO (f).......................... 1.08% 11/25/30 2,426,437
89,950,700 Series 2020-K1515, Class X1, IO (f).......................... 1.51% 02/25/35 10,681,628
86,843,891 Series 2020-K1516, Class X1, IO (f).......................... 1.51% 05/25/35 10,737,683
109,722,927 Series 2020-K1517, Class X1, IO (f).......................... 1.33% 07/25/35 11,531,474
52,918,755 Series 2020-KG04, Class X1, IO (f)........................... 0.85% 11/25/30 2,692,136
75,273,331 Series 2020-K737, Class X1, IO (c)........................... 0.64% 10/25/26 1,455,696
38,559,000 Series 2020-K738, Class XAM, IO (c).......................... 1.37% 03/25/27 1,952,404
131,364,641 Series 2020-K739, Class X1, IO (f)........................... 1.22% 09/25/27 5,822,646
46,072,531 Series 2020-K739, Class XAM, IO (f).......................... 1.57% 09/25/27 2,903,717
70,811,000 Series 2020-K740, Class XAM (f).............................. 1.11% 10/25/27 3,253,900
33,900,000 Series 2021-K128, Class XAM, IO (f).......................... 0.73% 03/25/31 1,654,083
27,836,000 Series 2021-K129, Class XAM, IO (f).......................... 1.22% 05/25/31 2,257,739
41,565,013 Series 2021-K130, Class XAM, IO (f).......................... 1.21% 07/25/31 3,425,863
78,491,000 Series 2021-K132, Class XAM, IO (f).......................... 0.86% 09/25/31 4,645,513
149,719,311 Series 2021-K1520, Class X1, IO (f).......................... 0.47% 02/25/36 6,095,208
143,990,000 Series 2021-KG05, Class X1, IO (f)........................... 0.31% 01/25/31 2,961,039
64,467,885 Series 2021-KG06, Class X1, IO (f)........................... 0.53% 10/25/31 2,324,802
107,703,000 Series 2021-K741, Class XAM, IO (f).......................... 0.95% 12/25/27 4,508,230
107,087,198 Series 2021-K744, Class X1, IO (f)........................... 0.86% 07/25/28 4,225,050
200,000,000 Series 2022-K148, Class XAM, IO (f).......................... 0.25% 08/25/32 4,595,736
FREMF Mortgage Trust
14,800,000 Series 2013-K26, Class B (f) (i)............................. 3.55% 12/25/45 14,745,940
6,203,000 Series 2013-K28, Class B (f) (i)............................. 3.46% 06/25/46 6,115,739
8,700,000 Series 2013-K29, Class B (f) (i)............................. 3.47% 05/25/46 8,585,557
11,943,000 Series 2013-K32, Class B (f) (i)............................. 3.53% 10/25/46 11,770,686
29,145,000 Series 2013-K35, Class B (f) (i)............................. 3.93% 12/25/46 28,611,751
4,505,000 Series 2015-K44, Class B (f) (i)............................. 3.72% 01/25/48 4,280,003
8,205,000 Series 2015-K45, Class B (f) (i)............................. 3.61% 04/25/48 7,820,789
2,300,000 Series 2016-K55, Class B (f) (i)............................. 4.17% 04/25/49 2,170,274
1,676,768 Series 2020-KI05, Class B, 1 Mo. LIBOR + 2.30% (a) (i)....... 5.44% 07/25/24 1,652,917
Government National Mortgage Association
2,982,278 Series 2011-31, Class Z (c).................................. 3.53% 09/16/52 2,683,998
18,886,971 Series 2012-120, Class Z (c)................................. 2.46% 01/16/55 12,883,547
97,261 Series 2013-74, Class AG (f)................................. 2.58% 12/16/53 79,158
5,853 Series 2013-194, Class AE (c)................................ 2.75% 11/16/44 5,498
16,294,676 Series 2015-30, Class DZ..................................... 2.95% 05/16/55 14,039,265
6,835,513 Series 2015-70, Class IO, IO (c)............................. 0.57% 12/16/49 134,576
4,355,736 Series 2015-125, Class VA (c)................................ 2.70% 05/16/35 3,984,683
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 16,036,840 Series 2016-11, Class IO, IO (c)............................. 0.78% 01/16/56 $ 570,586
7,768,802 Series 2016-26, Class IO, IO (c)............................. 0.68% 02/16/58 200,454
10,807,085 Series 2016-52, Class IO, IO (c)............................. 0.75% 03/16/58 368,983
3,886,372 Series 2016-110, Class VA.................................... 2.10% 01/16/38 3,309,868
9,895,309 Series 2016-127, Class IO, IO (c)............................ 0.86% 05/16/58 412,988
3,185,509 Series 2017-23, Class Z...................................... 2.50% 05/16/59 2,043,365
4,144,810 Series 2017-35, Class Z (c).................................. 2.50% 05/16/59 2,746,618
6,651,151 Series 2017-76, Class B...................................... 2.60% 12/16/56 5,227,073
2,329,078 Series 2017-106, Class AE.................................... 2.60% 12/16/56 1,968,163
2,633,979 Series 2017-146, Class Z..................................... 2.60% 09/16/57 1,755,569
4,333,951 Series 2018-4, Class Z....................................... 2.50% 10/16/59 2,634,938
13,696,340 Series 2018-98, Class C (c).................................. 3.00% 08/16/60 10,490,102
17,332,506 Series 2018-123, Class Z..................................... 2.50% 06/16/60 13,034,429
24,789,476 Series 2018-170, Class Z..................................... 2.50% 11/16/60 18,999,562
18,314,819 Series 2019-7, Class Z....................................... 2.50% 01/16/61 12,648,740
1,882,833 Series 2019-104, Class Z..................................... 2.80% 05/16/61 1,136,565
6,700,000 Series 2020-161, Class B..................................... 2.00% 08/16/62 4,197,715
8,800,865 Series 2020-169, Class Z..................................... 1.83% 06/16/62 4,340,528
22,598,137 Series 2022-43, Class Z...................................... 2.00% 09/16/61 13,254,915
19,269,127 Series 2022-106, Class Z..................................... 2.00% 05/16/63 13,032,391
5,388,191 Series 2022-109, Class Z (c)................................. 2.25% 08/16/64 2,516,116
4,789,673 Series 2022-166, Class Z (f)................................. 2.50% 04/16/65 2,344,099
----------------
877,289,209
----------------
PASS-THROUGH SECURITIES -- 39.2%
Federal Home Loan Mortgage Corporation
1,006,282 Pool 760043, 5 Yr. Constant Maturity Treasury Rate +
1.39% (a)................................................. 2.94% 12/01/48 994,868
4,130,105 Pool 840359, 12 Mo. LIBOR + 1.64% (a)........................ 3.14% 06/01/46 4,120,925
88,261 Pool A19763.................................................. 5.00% 04/01/34 86,479
347,141 Pool A47828.................................................. 3.50% 08/01/35 310,297
156,403 Pool A47937.................................................. 5.50% 08/01/35 160,004
61,200 Pool A48972.................................................. 5.50% 05/01/36 62,594
66,315 Pool A54675.................................................. 5.50% 01/01/36 68,081
141,977 Pool A65324.................................................. 5.50% 09/01/37 141,713
80,791 Pool A97294.................................................. 4.00% 02/01/41 76,080
697,372 Pool B70791.................................................. 4.00% 06/01/39 680,328
2,963 Pool C01310.................................................. 6.50% 03/01/32 3,070
10,064 Pool C03458.................................................. 5.00% 02/01/40 10,087
89,052 Pool C04269.................................................. 3.00% 10/01/42 78,260
15,846 Pool C91482.................................................. 3.50% 07/01/32 14,997
10,784 Pool E02883.................................................. 4.00% 04/01/26 10,591
13,786 Pool G01443.................................................. 6.50% 08/01/32 14,247
224,779 Pool G02017.................................................. 5.00% 12/01/35 225,287
102,888 Pool G04814.................................................. 5.50% 10/01/38 105,613
19,439 Pool G05173.................................................. 4.50% 11/01/31 18,577
217,714 Pool G05275.................................................. 5.50% 02/01/39 223,184
57,018 Pool G05449.................................................. 4.50% 05/01/39 55,284
176,028 Pool G06583.................................................. 5.00% 06/01/41 176,426
426,349 Pool G07100.................................................. 5.50% 07/01/40 437,687
41,407 Pool G07266.................................................. 4.00% 12/01/42 38,819
323,967 Pool G07329.................................................. 4.00% 01/01/43 305,266
</TABLE>
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 315,439 Pool G07683.................................................. 4.00% 03/01/44 $ 296,445
1,627 Pool G08113.................................................. 6.50% 02/01/36 1,690
4 Pool G12978.................................................. 5.50% 12/01/22 4
3,233 Pool G13625.................................................. 5.50% 01/01/24 3,224
25,285 Pool G13733.................................................. 5.00% 11/01/24 25,247
23,377 Pool G14088.................................................. 4.00% 02/01/26 23,013
12,753 Pool G14106.................................................. 6.00% 10/01/24 12,735
3,474 Pool G14167.................................................. 5.50% 07/01/23 3,467
163 Pool G14233.................................................. 6.00% 01/01/24 163
249,710 Pool G14348.................................................. 4.00% 10/01/26 245,844
7,047 Pool G14376.................................................. 4.00% 09/01/25 6,940
7,348 Pool G14995.................................................. 5.50% 12/01/24 7,333
621 Pool G15821.................................................. 5.00% 07/01/25 620
55,102 Pool G15949.................................................. 4.00% 01/01/29 54,252
3,580 Pool G15957.................................................. 5.50% 12/01/24 3,574
24,455 Pool G18264.................................................. 5.00% 07/01/23 24,418
43,658 Pool G18287.................................................. 5.50% 12/01/23 43,483
8,923 Pool G60020.................................................. 4.50% 12/01/43 8,542
368,659 Pool G60114.................................................. 5.50% 06/01/41 378,405
544,596 Pool G60168.................................................. 4.50% 07/01/45 528,805
197,565 Pool G60194.................................................. 3.50% 08/01/45 178,556
195,692 Pool G60808.................................................. 3.00% 10/01/46 170,521
2,740 Pool H09034.................................................. 5.50% 05/01/37 2,734
40,242 Pool J09465.................................................. 4.00% 04/01/24 39,636
22,879 Pool J09504.................................................. 4.00% 04/01/24 22,430
6,031 Pool J09798.................................................. 4.00% 05/01/24 5,926
10,484 Pool J10623.................................................. 4.00% 09/01/24 10,204
130,066 Pool N70075.................................................. 5.00% 01/01/35 127,637
257,513 Pool N70081.................................................. 5.50% 07/01/38 252,420
51,907 Pool Q07189.................................................. 4.00% 04/01/42 48,912
18,099 Pool Q07479.................................................. 3.50% 04/01/42 16,476
75,902 Pool Q11791.................................................. 3.50% 10/01/42 69,069
51,466 Pool Q11836.................................................. 3.50% 10/01/42 46,827
370,484 Pool Q14034.................................................. 3.50% 12/01/42 337,267
385,897 Pool Q54651.................................................. 4.50% 03/01/48 370,732
705,051 Pool Q55037.................................................. 4.50% 04/01/48 677,893
1,984,972 Pool Q61217.................................................. 4.00% 01/01/49 1,841,025
6,389,000 Pool QF0184.................................................. 5.50% 09/01/52 6,441,859
8,065,885 Pool QK1195.................................................. 2.50% 11/01/41 6,791,215
13,274,699 Pool QK1203.................................................. 2.50% 11/01/41 11,185,357
2,724,198 Pool QO0748.................................................. 4.50% 08/01/37 2,662,458
3,047,037 Pool QO0750.................................................. 4.50% 08/01/37 2,980,523
1,072,548 Pool QO0773.................................................. 4.50% 08/01/37 1,048,578
5,402,139 Pool QO0807.................................................. 4.50% 09/01/37 5,281,374
8,490,133 Pool SC0190.................................................. 2.50% 09/01/41 7,227,098
11,041,119 Pool SC0252.................................................. 3.00% 01/01/42 9,650,214
9,249,698 Pool SC0270.................................................. 2.50% 04/01/42 7,828,213
7,279,032 Pool SC0277.................................................. 3.00% 05/01/42 6,416,130
12,825,796 Pool SC0298.................................................. 6.00% 01/01/30 12,925,187
10,943,345 Pool SD0887.................................................. 3.50% 09/01/49 9,894,364
16,970,412 Pool SD0948.................................................. 3.00% 05/01/47 14,791,209
24,412,412 Pool SD0949.................................................. 3.00% 09/01/48 21,409,706
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 18,546,726 Pool SD0954.................................................. 3.00% 02/01/47 $ 16,279,537
11,768,391 Pool SD0961.................................................. 3.50% 11/01/48 10,608,390
20,831,120 Pool SD1170.................................................. 3.50% 09/01/49 18,786,760
5,553,840 Pool SD1289.................................................. 3.00% 10/01/50 4,818,691
7,942,986 Pool SD1361.................................................. 3.50% 02/01/50 7,191,499
21,040,404 Pool SD1469.................................................. 5.50% 08/01/52 21,214,478
20,473,164 Pool SD1627.................................................. 5.00% 09/01/52 20,261,211
319,570 Pool U50165.................................................. 4.00% 05/01/32 295,486
2,170,048 Pool U59020.................................................. 4.00% 06/01/35 2,006,091
964,369 Pool U64762.................................................. 4.50% 10/01/45 923,076
89,293 Pool U80068.................................................. 3.50% 10/01/32 81,377
55,325 Pool U80212.................................................. 3.50% 02/01/33 50,411
74,824 Pool U90245.................................................. 3.50% 10/01/42 67,582
748,516 Pool U90690.................................................. 3.50% 06/01/42 674,204
10,960 Pool U90932.................................................. 3.00% 02/01/43 9,523
26,777 Pool U92272.................................................. 4.50% 12/01/43 25,659
86,796 Pool U99045.................................................. 3.50% 03/01/43 78,560
94,497 Pool U99084.................................................. 4.50% 02/01/44 91,592
43,992 Pool U99091.................................................. 4.50% 03/01/44 42,279
126,313 Pool U99096.................................................. 4.50% 05/01/44 121,443
11,581,404 Pool ZA4196.................................................. 3.00% 04/01/43 10,157,215
1,387,559 Pool ZS2492.................................................. 6.50% 04/01/35 1,446,462
Federal National Mortgage Association
37,455 Pool 190371.................................................. 6.50% 07/01/36 38,983
22,545 Pool 255190.................................................. 5.50% 05/01/34 23,054
9,814 Pool 255984.................................................. 4.50% 11/01/25 9,448
75,552 Pool 256181.................................................. 5.50% 03/01/36 75,840
287,113 Pool 256576.................................................. 5.50% 01/01/37 288,233
6,605 Pool 256808.................................................. 5.50% 07/01/37 6,475
41,895 Pool 256936.................................................. 6.00% 10/01/37 42,453
46,969 Pool 545759.................................................. 6.50% 07/01/32 49,036
10,490 Pool 555851.................................................. 6.50% 01/01/33 10,828
150,445 Pool 683246.................................................. 5.50% 02/01/33 150,377
146,134 Pool 725014.................................................. 5.50% 12/01/33 149,342
305,592 Pool 735415.................................................. 6.50% 12/01/32 315,843
2,867 Pool 745875.................................................. 6.50% 09/01/36 2,983
38,554 Pool 747097.................................................. 6.00% 10/01/29 38,656
264,715 Pool 788149.................................................. 5.50% 05/01/33 264,401
127,802 Pool 812741.................................................. 5.50% 02/01/35 126,243
167,386 Pool 827948.................................................. 5.50% 05/01/35 165,400
234,359 Pool 850000.................................................. 5.50% 01/01/36 240,301
34,340 Pool 871039.................................................. 5.50% 02/01/37 34,188
870,283 Pool 879015.................................................. 4.00% 10/01/35 817,450
101,659 Pool 888001.................................................. 5.50% 10/01/36 104,240
85,628 Pool 888163.................................................. 7.00% 12/01/33 90,475
281,459 Pool 889610.................................................. 5.50% 06/01/38 288,609
9,554 Pool 890149.................................................. 6.50% 10/01/38 10,022
13,692 Pool 890231.................................................. 5.00% 07/01/25 13,655
70 Pool 890314.................................................. 5.50% 12/01/22 70
1,479 Pool 890378.................................................. 6.00% 05/01/24 1,474
705,109 Pool 890556.................................................. 4.50% 10/01/43 674,848
133,992 Pool 905917.................................................. 5.50% 01/01/37 137,390
</TABLE>
Page 26 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 64,419 Pool 922386.................................................. 5.50% 01/01/37 $ 63,148
9,532 Pool 930562.................................................. 5.00% 02/01/39 9,542
75,990 Pool 931808.................................................. 5.50% 08/01/39 77,918
127,088 Pool 953115.................................................. 5.50% 11/01/38 125,516
4,658 Pool 962556.................................................. 5.00% 04/01/23 4,645
1,825 Pool 973561.................................................. 5.00% 03/01/23 1,820
37,348 Pool 976871.................................................. 6.50% 08/01/36 38,559
13,303 Pool 995097.................................................. 6.50% 10/01/37 14,017
68,343 Pool 995149.................................................. 6.50% 10/01/38 71,376
32,305 Pool 995228.................................................. 6.50% 11/01/38 34,219
10,999 Pool 995252.................................................. 5.00% 12/01/23 10,970
5,322 Pool 995259.................................................. 6.50% 11/01/23 5,307
94,735 Pool AA3303.................................................. 5.50% 06/01/38 92,751
408,312 Pool AB0460.................................................. 5.50% 02/01/37 409,295
130,020 Pool AB0731.................................................. 4.00% 06/01/39 122,307
34,422 Pool AB2092.................................................. 4.00% 01/01/41 32,376
11,739 Pool AB2133.................................................. 4.00% 01/01/26 11,515
856,082 Pool AB2506.................................................. 5.00% 03/01/41 855,631
974,043 Pool AB2959.................................................. 4.50% 07/01/40 932,341
431,102 Pool AB8676.................................................. 3.50% 05/01/42 389,160
10,573 Pool AC1232.................................................. 5.00% 07/01/24 10,545
163,416 Pool AC3267.................................................. 5.50% 09/01/39 167,570
21,808 Pool AD0889.................................................. 6.00% 09/01/24 21,715
210,032 Pool AD4317.................................................. 4.00% 04/01/40 197,549
7,838 Pool AD5222.................................................. 4.50% 05/01/30 7,748
52,259 Pool AD7137.................................................. 5.50% 07/01/40 53,263
172,300 Pool AE0137.................................................. 4.50% 03/01/36 166,077
58,074 Pool AE4476.................................................. 4.00% 03/01/41 54,621
76,448 Pool AE7005.................................................. 4.00% 10/01/40 71,904
2,722,514 Pool AE7733.................................................. 5.00% 11/01/40 2,715,526
20,327 Pool AE9284.................................................. 4.00% 11/01/40 19,118
483,982 Pool AE9959.................................................. 5.00% 03/01/41 476,324
207,562 Pool AH0979.................................................. 3.50% 01/01/41 182,971
144,180 Pool AH1089.................................................. 4.00% 11/01/40 135,403
87,372 Pool AH1141.................................................. 4.50% 12/01/40 84,655
56,336 Pool AH4404.................................................. 4.00% 01/01/41 52,984
53,238 Pool AH7204.................................................. 4.00% 03/01/41 50,070
131,123 Pool AI6093.................................................. 4.50% 06/01/31 128,977
21,615 Pool AI6581.................................................. 4.50% 07/01/41 20,942
91,259 Pool AI8779.................................................. 4.00% 11/01/41 85,833
324,186 Pool AI9114.................................................. 4.00% 06/01/42 304,424
1,401,617 Pool AI9124.................................................. 4.00% 08/01/42 1,316,757
924,439 Pool AI9158.................................................. 6.50% 01/01/41 976,654
100,536 Pool AK5555.................................................. 4.00% 04/01/42 94,557
66,001 Pool AL0212.................................................. 5.50% 02/01/38 67,540
172,536 Pool AL0241.................................................. 4.00% 04/01/41 162,270
1,676 Pool AL0399.................................................. 6.00% 08/01/24 1,671
563 Pool AL0446.................................................. 6.00% 05/01/24 561
2,519 Pool AL1195.................................................. 6.00% 09/01/23 2,512
64,518 Pool AL2142.................................................. 6.50% 09/01/38 66,751
2,075 Pool AL2589.................................................. 5.50% 05/01/25 2,069
65,774 Pool AL2892.................................................. 3.50% 12/01/42 59,772
</TABLE>
See Notes to Financial Statements Page 27
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 404,832 Pool AL3093.................................................. 3.50% 02/01/43 $ 367,812
918,582 Pool AL4703.................................................. 3.50% 12/01/28 871,927
2,395 Pool AL4962.................................................. 6.00% 05/01/24 2,388
485,606 Pool AL5890.................................................. 4.50% 03/01/43 470,497
543 Pool AL6057.................................................. 6.00% 08/01/24 542
33,419 Pool AL6948.................................................. 5.00% 09/01/25 33,331
482,175 Pool AL7637.................................................. 5.00% 01/01/42 473,835
1,537,201 Pool AL7905.................................................. 4.50% 03/01/34 1,477,655
102,234 Pool AL9226.................................................. 5.50% 12/01/41 105,773
14,628,949 Pool AL9401.................................................. 4.00% 02/01/46 13,721,916
7,303,097 Pool AL9566.................................................. 3.50% 06/01/46 6,585,122
784,123 Pool AL9777.................................................. 4.50% 01/01/47 753,363
185,571 Pool AP1197.................................................. 3.50% 09/01/42 168,711
112,313 Pool AP7963.................................................. 4.00% 09/01/42 106,110
1,542,576 Pool AQ0411.................................................. 3.50% 10/01/42 1,402,491
41,194 Pool AQ9715.................................................. 3.00% 01/01/43 35,722
250,097 Pool AQ9999.................................................. 3.00% 02/01/43 216,874
2,273,426 Pool AS1719.................................................. 5.00% 02/01/44 2,257,004
319,040 Pool AS5236.................................................. 4.00% 05/01/45 300,842
169,862 Pool AS7211.................................................. 3.00% 04/01/46 147,611
192,938 Pool AS9990.................................................. 4.50% 07/01/47 183,052
67,194 Pool AT0332.................................................. 3.00% 04/01/43 56,785
62,945 Pool AY0013.................................................. 4.50% 01/01/45 59,530
250,389 Pool BE3631.................................................. 4.50% 05/01/47 239,153
10,234 Pool BH9428.................................................. 4.50% 09/01/47 9,732
45,687 Pool BJ6232.................................................. 5.00% 04/01/48 44,105
700,398 Pool BJ9100.................................................. 4.50% 02/01/48 678,256
451,227 Pool BJ9111.................................................. 4.50% 03/01/48 435,459
1,013,258 Pool BJ9124.................................................. 4.50% 04/01/48 982,046
229,859 Pool BK4769.................................................. 5.00% 08/01/48 225,665
79,009 Pool BK4851.................................................. 5.00% 05/01/48 76,256
12,772,357 Pool BM3867.................................................. 4.00% 02/01/46 11,986,105
10,781,725 Pool BM4122.................................................. 7.47% 01/01/40 11,416,976
4,798,151 Pool BM4785.................................................. 4.50% 10/01/38 4,694,980
5,749,292 Pool BM5671.................................................. 4.50% 01/01/49 5,522,598
418,205 Pool BN1027.................................................. 5.50% 03/01/49 418,427
914,693 Pool BN4059.................................................. 4.00% 12/01/48 833,933
10,540,963 Pool BR1090.................................................. 2.50% 06/01/41 8,966,342
5,483,456 Pool BT7849.................................................. 5.00% 07/01/52 5,426,688
5,167,971 Pool BT7872.................................................. 5.50% 09/01/52 5,210,730
4,704,024 Pool BT7879.................................................. 4.50% 09/01/37 4,603,213
4,997,194 Pool BT7897.................................................. 5.00% 10/01/52 4,924,772
10,220,563 Pool BT9396.................................................. 2.50% 11/01/41 8,611,864
6,483,388 Pool BT9397.................................................. 2.50% 11/01/41 5,458,742
7,451,047 Pool BV7699.................................................. 2.50% 04/01/42 6,305,991
3,336,883 Pool BV7979.................................................. 4.50% 08/01/37 3,264,046
4,825,153 Pool BV7981.................................................. 4.50% 08/01/37 4,711,784
2,878,729 Pool BV7982.................................................. 4.50% 08/01/37 2,813,492
4,561,457 Pool BV8046.................................................. 4.50% 09/01/52 4,348,948
5,221,183 Pool BW1146.................................................. 5.50% 09/01/52 5,264,378
1,929,343 Pool CA2520.................................................. 4.00% 10/01/33 1,869,667
3,782,482 Pool CA2947.................................................. 4.00% 12/01/48 3,508,032
</TABLE>
Page 28 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 7,705,992 Pool CB2113.................................................. 2.50% 11/01/41 $ 6,521,460
14,202,877 Pool CB3540.................................................. 3.00% 05/01/42 12,307,345
39,669,361 Pool CB3851.................................................. 4.00% 06/01/52 36,472,214
4,888,314 Pool CB4196.................................................. 4.50% 07/01/37 4,793,353
16,441,888 Pool CB4266.................................................. 4.50% 07/01/37 16,089,765
52,454,817 Pool CB4688.................................................. 5.00% 09/01/52 51,489,636
24,961,252 Pool CB4947.................................................. 5.00% 10/01/52 24,599,512
1,812,838 Pool FM1284.................................................. 3.50% 02/01/46 1,646,988
1,687,121 Pool FM1285.................................................. 4.00% 10/01/43 1,586,800
5,271,134 Pool FM2450.................................................. 3.50% 12/01/39 4,818,327
29,940,356 Pool FM2863.................................................. 3.50% 09/01/48 26,996,464
86,287,862 Pool FM2972.................................................. 4.00% 12/01/44 80,940,014
100,471,494 Pool FM3003.................................................. 4.00% 05/01/49 94,245,115
7,004,012 Pool FM8218.................................................. 4.00% 04/01/48 6,567,329
11,665,508 Pool FM8953.................................................. 5.00% 11/01/43 11,677,373
5,023,663 Pool FM9408.................................................. 4.50% 06/01/46 4,816,052
8,611,051 Pool FM9585.................................................. 2.50% 11/01/41 7,287,329
14,258,464 Pool FS0045.................................................. 3.00% 09/01/47 12,414,930
15,600,005 Pool FS0074.................................................. 3.00% 01/01/47 13,690,224
52,067,603 Pool FS0697.................................................. 2.50% 02/01/42 44,069,381
40,182,989 Pool FS0742.................................................. 3.50% 05/01/44 36,493,848
16,015,888 Pool FS1540.................................................. 3.00% 04/01/42 13,958,337
29,305,941 Pool FS1541.................................................. 3.00% 04/01/42 25,467,084
26,116,409 Pool FS1573.................................................. 2.50% 11/01/41 22,103,447
40,598,686 Pool FS1797.................................................. 3.50% 07/01/46 36,909,644
9,935,380 Pool FS1884.................................................. 4.00% 05/01/42 9,220,998
50,132,144 Pool FS2044.................................................. 4.50% 07/01/44 48,571,129
40,119,694 Pool FS2045.................................................. 4.50% 12/01/43 38,870,466
29,179,170 Pool FS2127.................................................. 3.50% 06/01/48 26,310,257
9,852,701 Pool FS2310.................................................. 5.00% 09/01/48 9,673,924
25,275,368 Pool FS2590.................................................. 5.00% 08/01/52 24,768,870
9,354,613 Pool FS2787.................................................. 4.00% 10/01/48 8,776,938
18,050,732 Pool FS2796.................................................. 3.50% 08/01/47 16,313,693
14,353,892 Pool FS2871.................................................. 3.50% 07/01/42 12,978,334
14,299,545 Pool FS2872.................................................. 3.50% 08/01/42 12,889,564
15,987,035 Pool FS2905.................................................. 5.00% 09/01/52 15,715,753
19,001,280 Pool FS2925.................................................. 3.00% 08/01/48 16,667,345
36,066,708 Pool FS2961.................................................. 5.50% 10/01/52 36,518,574
75,429 Pool MA0096.................................................. 4.50% 06/01/29 74,559
1,838 Pool MA0293.................................................. 4.50% 01/01/30 1,817
29,352 Pool MA0295.................................................. 5.00% 01/01/30 29,184
25,633 Pool MA0353.................................................. 4.50% 03/01/30 25,337
3,090 Pool MA0777.................................................. 5.00% 06/01/31 3,072
28,445 Pool MA1222.................................................. 4.00% 10/01/32 27,215
47,489 Pool MA1228.................................................. 3.00% 09/01/42 41,652
144,344 Pool MA2024.................................................. 4.00% 07/01/29 139,881
1,945 Pool MA2509.................................................. 3.00% 01/01/46 1,643
166,924 Pool MA3101.................................................. 4.50% 08/01/47 159,712
96,392 Pool MA3123.................................................. 5.00% 08/01/47 94,353
233,500,000 Pool TBA..................................................... 3.00% 12/01/48 198,411,152
22,000,000 Pool TBA..................................................... 2.50% 11/15/52 18,029,688
60,000,000 Pool TBA..................................................... 4.00% 11/15/52 54,618,750
</TABLE>
See Notes to Financial Statements Page 29
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 5,000,000 Pool TBA..................................................... 5.50% 11/15/52 $ 4,928,125
98,000,000 Pool TBA (j)................................................. 2.50% 12/15/52 80,317,890
181,500,000 Pool TBA..................................................... 3.50% 12/15/52 159,677,460
24,200,000 Pool TBA (j)................................................. 5.00% 12/15/52 23,295,336
15,000,000 Pool TBA..................................................... 5.50% 12/15/52 14,756,250
10,000,000 Pool TBA..................................................... 6.00% 12/15/52 10,014,063
5,000,000 Pool TBA..................................................... 2.00% 01/15/53 3,949,414
10,000,000 Pool TBA (j)................................................. 5.50% 01/15/53 9,822,656
Government National Mortgage Association
53,506 Pool 3149.................................................... 6.00% 10/20/31 55,488
34,570 Pool 3172.................................................... 6.00% 12/20/31 36,417
36,683 Pool 3227.................................................... 6.00% 04/20/32 37,987
7,438 Pool 3474.................................................... 6.00% 11/20/33 7,787
49,540 Pool 4251.................................................... 5.50% 10/20/23 49,339
38,335 Pool 455986.................................................. 5.25% 07/15/25 36,102
73,013 Pool 487108.................................................. 6.00% 04/15/29 75,055
30,605 Pool 553144.................................................. 5.50% 04/15/33 31,782
97,774 Pool 604338.................................................. 5.00% 05/15/33 98,126
69,989 Pool 604897.................................................. 5.00% 12/15/33 69,757
92,318 Pool 605389.................................................. 5.00% 04/15/34 92,647
226,638 Pool 615403.................................................. 4.50% 08/15/33 220,477
8,025 Pool 627123.................................................. 5.50% 03/15/34 8,331
69,381 Pool 638704.................................................. 5.50% 11/15/36 70,852
148,565 Pool 653143.................................................. 4.90% 04/15/36 147,459
239,019 Pool 658324.................................................. 5.50% 03/15/37 241,194
113,738 Pool 677190.................................................. 5.00% 06/15/38 114,148
15,480 Pool 687833.................................................. 6.00% 08/15/38 16,280
41,138 Pool 706840.................................................. 4.50% 05/15/40 40,080
187,378 Pool 706855.................................................. 4.50% 09/15/40 182,560
232,219 Pool 711483.................................................. 4.00% 01/15/40 220,710
108,485 Pool 711543.................................................. 4.00% 11/15/40 103,061
729,418 Pool 711563.................................................. 4.50% 03/15/41 710,661
4,321,532 Pool 720225.................................................. 4.50% 07/15/39 4,179,126
232,481 Pool 723216.................................................. 4.50% 08/15/40 226,291
60,940 Pool 723248.................................................. 5.00% 10/15/39 61,160
230,233 Pool 724230.................................................. 5.00% 08/15/39 230,525
60,585 Pool 724267.................................................. 5.00% 09/15/39 60,663
140,063 Pool 724340.................................................. 4.50% 09/15/39 135,589
79,952 Pool 725272.................................................. 4.50% 11/15/39 76,897
39,190 Pool 726394.................................................. 4.50% 10/15/39 38,205
12,938 Pool 728921.................................................. 4.50% 12/15/24 12,709
189,767 Pool 733595.................................................. 4.50% 04/15/40 184,990
67,777 Pool 733733.................................................. 5.00% 06/15/40 67,863
485,720 Pool 736317.................................................. 4.25% 06/20/36 461,086
99,980 Pool 736617.................................................. 4.00% 12/15/35 94,871
736,836 Pool 737673.................................................. 4.50% 11/15/40 717,253
164,527 Pool 737996.................................................. 4.00% 02/15/41 155,491
239,343 Pool 739341.................................................. 3.50% 10/15/41 220,044
138,832 Pool 743673.................................................. 4.50% 07/15/40 136,412
244,580 Pool 745478.................................................. 5.00% 08/20/40 243,637
525,856 Pool 748939.................................................. 4.00% 09/20/40 491,658
73,159 Pool 754384.................................................. 4.50% 03/20/42 72,608
</TABLE>
Page 30 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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)
$ 280,352 Pool 762905.................................................. 4.50% 04/15/41 $ 272,366
999,469 Pool 769102.................................................. 4.50% 07/20/41 981,519
279,458 Pool 781623.................................................. 5.00% 06/15/33 276,216
44,813 Pool 781697.................................................. 6.00% 11/15/33 47,291
227,342 Pool 781824.................................................. 5.50% 11/15/34 238,632
9,177 Pool 781862.................................................. 5.50% 01/15/35 9,401
25,791 Pool 782070.................................................. 7.00% 06/15/32 26,475
46,698 Pool 782810.................................................. 4.50% 11/15/39 45,884
69,777 Pool 783091.................................................. 5.50% 06/15/40 73,536
11,227 Pool 783220.................................................. 5.50% 09/15/24 11,205
123,169 Pool 783375.................................................. 5.00% 08/15/41 123,107
7,375,323 Pool 783590.................................................. 4.50% 06/20/41 7,224,798
188,175 Pool 783760.................................................. 5.00% 02/15/42 189,517
2,843,101 Pool 784063.................................................. 5.00% 09/20/45 2,826,204
400,731 Pool 784343.................................................. 5.00% 02/15/41 403,542
3,689,978 Pool 784752.................................................. 4.00% 03/15/45 3,505,469
1,754,290 Pool 785020.................................................. 3.00% 05/20/50 1,495,038
1,929,606 Pool AC0197.................................................. 4.00% 12/20/42 1,825,392
388,907 Pool AD0026.................................................. 3.50% 06/20/33 361,352
76,978 Pool AD0856.................................................. 3.75% 08/20/33 73,023
35,727 Pool AG8899.................................................. 4.00% 12/20/43 33,612
546,691 Pool AI6317.................................................. 4.50% 06/20/44 524,444
403,509 Pool AK2389.................................................. 4.50% 11/20/44 385,285
108,274 Pool AN4469.................................................. 5.00% 12/15/40 106,509
202,979 Pool AR8421.................................................. 5.00% 10/20/41 198,734
868,259 Pool BB1216.................................................. 4.50% 06/20/47 849,645
425,270 Pool BB4731.................................................. 4.00% 07/20/47 397,801
295,534 Pool BB4757.................................................. 4.00% 08/20/47 279,707
164,876 Pool BB4769.................................................. 4.00% 08/20/47 154,222
289,326 Pool BD0483.................................................. 4.50% 11/20/47 276,563
401,536 Pool BF0415.................................................. 5.00% 06/20/35 393,273
272,762 Pool BL6909.................................................. 5.00% 03/20/49 265,837
1,139,570 Pool CB3161.................................................. 5.50% 03/20/50 1,167,227
125,152 Pool MA1017.................................................. 6.00% 05/20/43 131,489
88,799 Pool MA1162.................................................. 6.00% 07/20/43 93,297
11,250 Pool MA2215.................................................. 3.50% 09/20/44 10,015
80,390 Pool MA2683.................................................. 6.00% 03/20/45 84,443
84,825 Pool MA2759.................................................. 6.00% 01/20/45 89,142
37,888 Pool MA2897.................................................. 6.00% 03/20/45 39,810
164,454 Pool MA2966.................................................. 6.00% 09/20/39 172,824
170,258 Pool MA3249.................................................. 6.00% 04/20/40 178,264
364,774 Pool MA3459.................................................. 6.00% 08/20/39 383,217
287,181 Pool MA4076.................................................. 7.00% 01/20/39 299,191
2,517,568 Pool MA5714.................................................. 6.00% 01/20/49 2,634,941
----------------
1,907,303,442
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................................... 4,000,011,905
(Cost $4,373,967,405) ----------------
</TABLE>
See Notes to Financial Statements Page 31
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 12.2%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 7.8%
Arroyo Mortgage Trust
$ 9,000,000 Series 2019-2, Class M1 (i).................................. 4.76% 04/25/49 $ 7,312,584
2,740,896 Series 2019-3, Class A3 (i).................................. 3.42% 10/25/48 2,525,959
2,825,121 Series 2021-1R, Class A2 (i)................................. 1.48% 10/25/48 2,423,568
3,900,362 Series 2021-1R, Class A3 (i)................................. 1.64% 10/25/48 3,357,384
BRAVO Residential Funding Trust
1,915,132 Series 2021-NQM1, Class A2 (i)............................... 1.26% 02/25/49 1,761,344
4,787,830 Series 2021-NQM1, Class A3 (i)............................... 1.33% 02/25/49 4,401,975
3,363,224 Series 2021-NQM2, Class A1 (i)............................... 0.97% 03/25/60 3,170,564
Chase Home Lending Mortgage Trust
1,394,350 Series 2019-ATR2, Class A11, 1 Mo. LIBOR +
0.90% (a) (i)............................................. 4.49% 07/25/49 1,341,659
CHL Mortgage Pass-Through Trust
29,772 Series 2004-8, Class 2A1..................................... 4.50% 06/25/19 29,887
CIM Trust
175,839 Series 2017-7, Class A (i)................................... 3.00% 04/25/57 175,342
2,118,503 Series 2018-J1, Class A22 (i)................................ 3.50% 03/25/48 1,867,247
1,747,254 Series 2019-INV1, Class A11 (i).............................. 4.00% 02/25/49 1,679,826
Citigroup Global Markets Mortgage Securities VII, Inc.
237 Series 2003-UP2, Class PO1, PO............................... (d) 12/25/18 203
Citigroup Mortgage Loan Trust
5,787,374 Series 2018-RP2, Class A1 (i)................................ 3.18% 02/25/58 5,537,134
COLT Mortgage Loan Trust
11,694,510 Series 2022-5, Class A1 (i).................................. 4.55% 04/25/67 10,693,734
Connecticut Avenue Securities Trust
2,048,514 Series 2019-R01, Class 2M2, 1 Mo. LIBOR + 2.45% (a) (i)...... 6.04% 07/25/31 2,041,365
725,767 Series 2019-R02, Class 1M2, 1 Mo. LIBOR + 2.30% (a) (i)...... 5.89% 08/25/31 724,940
421,905 Series 2019-R03, Class 1M2, 1 Mo. LIBOR + 2.15% (a) (i)...... 5.74% 09/25/31 420,888
656,885 Series 2019-R06, Class 2M2, 1 Mo. LIBOR + 2.10% (a) (i)...... 5.69% 09/25/39 655,131
2,950,000 Series 2022-R02, Class 2M2, 30 Day Average SOFR +
3.00% (a) (i)............................................. 6.00% 01/25/42 2,643,677
6,000,000 Series 2022-R03, Class 1M2, 30 Day Average SOFR +
3.50% (a) (i)............................................. 6.50% 03/25/42 5,724,674
4,251,000 Series 2022-R04, Class 1M2, 30 Day Average SOFR +
3.10% (a) (i)............................................. 6.10% 03/25/42 3,992,860
8,251,823 Series 2022-R07, Class 1M1, 30 Day Average SOFR +
2.95% (a) (i)............................................. 5.97% 06/25/42 8,292,841
CSMC Trust
2,465,354 Series 2018-RPL9, Class A1 (a) (i)........................... 3.85% 09/25/57 2,364,221
Ellington Financial Mortgage Trust
5,990,567 Series 2022-2, Class A1 (i).................................. 4.30% 04/25/67 5,454,446
Federal Home Loan Mortgage Corporation STACR Debt Notes
12,058,947 Series 2020-HQA5, Class M2, 30 Day Average SOFR +
2.60% (a) (i)............................................. 5.60% 11/25/50 12,066,390
5,500,000 Series 2022-DNA2, Class M1B, 30 Day Average SOFR +
2.40% (a) (i)............................................. 5.40% 02/25/42 5,074,493
Federal Home Loan Mortgage Corporation STACR REMIC Trust
1,209,968 Series 2020-DNA1, Class M2, 1 Mo. LIBOR +
1.70% (a) (i)............................................. 5.29% 01/25/50 1,188,876
5,895,370 Series 2020-HQA2, Class M2, 1 Mo. LIBOR +
3.10% (a) (i)............................................. 6.69% 03/25/50 5,901,905
5,293,560 Series 2021-DNA5, Class M2, 30 Day Average SOFR +
1.65% (a) (i)............................................. 4.65% 01/25/34 5,153,565
</TABLE>
Page 32 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation STACR REMIC Trust
(Continued)
$ 4,000,000 Series 2022-DNA3, Class M1B, 30 Day Average SOFR +
2.90% (a) (i)............................................. 5.90% 04/25/42 $ 3,721,578
Federal National Mortgage Association Connecticut
Avenue Securities
9,034,174 Series 2018-C06, Class 1M2, 1 Mo. LIBOR + 2.00% (a).......... 5.59% 03/25/31 9,004,777
Flagstar Mortgage Trust
437,065 Series 2018-2, Class A4 (i).................................. 3.50% 04/25/48 428,309
2,450,344 Series 2018-4, Class B1 (f) (i).............................. 4.21% 07/25/48 2,051,377
1,620,991 Series 2019-2, Class A11 (i)................................. 3.50% 12/25/49 1,424,685
17,081,778 Series 2021-9INV, Class A1 (i)............................... 2.50% 09/25/41 14,576,819
GCAT Trust
6,999,297 Series 2021-NQM7, Class A1 (i)............................... 1.92% 08/25/66 5,794,672
4,930,666 Series 2022-NQM4, Class A1, steps up to 6.27% on
08/01/26 (i) (k).......................................... 5.27% 08/25/67 4,671,702
GMACM Mortgage Loan Trust
723 Series 2003-J10, Class A1.................................... 4.75% 01/25/19 712
GS Mortgage-Backed Securities Trust
743,467 Series 2019-PJ3, Class A1 (i)................................ 3.50% 03/25/50 685,851
3,417,255 Series 2021-PJ6, Class A8 (i)................................ 2.50% 11/25/51 2,916,132
Homeward Opportunities Fund Trust
3,366,469 Series 2022-1, Class A1, steps up to 6.08% on
06/01/26 (i) (k).......................................... 5.08% 07/25/67 3,188,760
JP Morgan Mortgage Trust
5,408 Series 2004-S2, Class 5A1.................................... 5.50% 12/25/19 4,782
1,140 Series 2014-IVR3, Class 2A1 (f) (i).......................... 2.62% 09/25/44 1,128
3,442,083 Series 2015-IVR2, Class A5 (f) (i)........................... 4.01% 01/25/45 3,343,078
1,337,604 Series 2018-5, Class A1 (i).................................. 3.50% 10/25/48 1,169,147
1,214,348 Series 2018-5, Class A13 (i)................................. 3.50% 10/25/48 1,027,652
1,436,215 Series 2018-8, Class A7 (i).................................. 4.00% 01/25/49 1,313,995
1,878,227 Series 2019-1, Class A5 (i).................................. 4.00% 05/25/49 1,748,716
551,796 Series 2019-5, Class A15 (i)................................. 4.00% 11/25/49 525,792
701,535 Series 2019-8, Class A15 (i)................................. 3.50% 03/25/50 612,527
1,250,614 Series 2019-INV2, Class A15 (i).............................. 3.50% 02/25/50 1,133,061
5,490 Series 2019-LTV2, Class A11, 1 Mo. LIBOR + 0.90% (a) (i)..... 4.49% 12/25/49 5,481
170,845 Series 2019-LTV3, Class A15 (i).............................. 3.50% 03/25/50 166,014
4,497,295 Series 2020-INV1, Class A15 (i).............................. 3.50% 08/25/50 3,939,386
4,373,400 Series 2021-6, Class A4 (i).................................. 2.50% 10/25/51 3,732,062
JP Morgan Wealth Management
10,000,000 Series 2020-ATR1, Class A5 (i)............................... 3.00% 02/25/50 8,043,761
MASTR Seasoned Securitization Trust
1,003 Series 2005-2, Class 3A1..................................... 6.00% 11/25/17 957
Mello Mortgage Capital Acceptance
4,568,352 Series 2018-MTG2, Class A9 (i)............................... 4.32% 10/25/48 4,282,432
MetLife Securitization Trust
3,894,052 Series 2018-1A, Class A (i).................................. 3.75% 03/25/57 3,651,018
MFA Trust
9,382,735 Series 2022-INV1, Class A1, steps up to 4.91% on
03/25/26 (i) (k).......................................... 3.91% 04/25/66 8,757,687
Mill City Mortgage Loan Trust
1,689,340 Series 2018-1, Class A1 (i).................................. 3.25% 05/25/62 1,626,874
1,381,010 Series 2018-2, Class A1 (f) (i).............................. 3.50% 05/25/58 1,353,499
4,662,543 Series 2018-4, Class A1B (i)................................. 3.48% 04/25/66 4,414,131
</TABLE>
See Notes to Financial Statements Page 33
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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
$ 5,488,692 Series 2015-2A, Class B1 (i)................................. 4.50% 08/25/55 $ 5,173,762
4,000,484 Series 2016-1A, Class A1 (i)................................. 3.75% 03/25/56 3,674,689
9,942,826 Series 2018-3A, Class A1 (i)................................. 4.50% 05/25/58 9,349,195
2,523,748 Series 2018-4A, Class A1M, 1 Mo. LIBOR + 0.90% (a) (i)....... 4.49% 01/25/48 2,440,189
18,412,115 Series 2018-4A, Class A1S, 1 Mo. LIBOR + 0.75% (a) (i)....... 4.34% 01/25/48 17,797,399
4,864,623 Series 2019-NQM5, Class A1 (i)............................... 2.71% 11/25/59 4,295,143
OBX Trust
1,360,713 Series 2018-EXP1, Class 1A3 (i).............................. 4.00% 04/25/48 1,236,443
1,171,414 Series 2018-EXP1, Class 2A1, 1 Mo. LIBOR +
0.85% (a) (i)............................................. 4.44% 04/25/48 1,157,532
PRKCM Trust
8,306,466 Series 2021-AFC1, Class A1 (i)............................... 1.51% 08/25/56 6,453,177
Provident Funding Mortgage Trust
1,327,909 Series 2019-1, Class A5 (i).................................. 3.00% 12/25/49 1,084,866
2,053,179 Series 2020-1, Class A5 (i).................................. 3.00% 02/25/50 1,665,941
PSMC Trust
3,204,550 Series 2020-3, Class A1 (i).................................. 3.00% 11/25/50 2,726,442
RUN Trust
9,522,993 Series 2022-NQM1, Class A1 (i)............................... 4.00% 03/25/67 8,558,299
Seasoned Credit Risk Transfer Trust
6,913,915 Series 2017-2, Class M1 (i).................................. 4.00% 08/25/56 6,689,819
Sequoia Mortgage Trust
1,822,447 Series 2017-2, Class A19 (i)................................. 3.50% 02/25/47 1,584,354
590,614 Series 2017-CH1, Class A13 (i)............................... 4.00% 08/25/47 555,250
5,323,456 Series 2018-CH1, Class B1B (i)............................... 4.45% 03/25/48 4,653,282
3,364,299 Series 2020-1, Class A19 (i)................................. 3.50% 02/25/50 2,864,654
10,449,117 Series 2020-1, Class A7 (i).................................. 3.50% 02/25/50 9,064,242
Starwood Mortgage Residential Trust 2022-3
8,528,430 Series 2022-3, Class A1 (i).................................. 4.16% 03/25/67 8,005,185
TIAA Bank Mortgage Loan Trust
314,038 Series 2018-3, Class A1 (i).................................. 4.00% 11/25/48 289,500
Towd Point Mortgage Trust
29,169 Series 2015-3, Class A4B (i)................................. 3.50% 03/25/54 29,016
3,464,771 Series 2018-2, Class A1 (i).................................. 3.25% 03/25/58 3,309,975
11,459,462 Series 2018-3, Class A1 (i).................................. 3.75% 05/25/58 10,738,281
2,495,879 Series 2018-5, Class A1A (i)................................. 3.25% 07/25/58 2,386,285
12,947,047 Series 2019-1, Class A1 (i).................................. 3.70% 03/25/58 11,949,938
2,025,344 Series 2019-4, Class A1 (i).................................. 2.90% 10/25/59 1,855,362
Verus Securitization Trust
2,751,186 Series 2019-INV3, Class A2 (i)............................... 2.95% 11/25/59 2,633,433
6,255,000 Series 2020-INV1, Class A3, steps up to 4.89% on
05/26/24 (i) (k).......................................... 3.89% 03/25/60 5,982,451
6,869,870 Series 2021-3, Class A1 (i).................................. 1.05% 06/25/66 5,379,692
5,823,391 Series 2022-4, Class A1, steps up to 5.47% on
04/25/26 (i) (k).......................................... 4.47% 04/25/67 5,473,585
11,682,551 Series 2022-5, Class A1, steps up to 4.80% on
06/25/26 (i) (k).......................................... 3.80% 04/25/67 10,421,067
Vista Point Securitization Trust
5,743,000 Series 2020-1, Class M1 (i).................................. 4.15% 03/25/65 5,298,105
Wells Fargo Mortgage Backed Securities Trust
390,296 Series 2019-1, Class A1 (i).................................. 3.94% 11/25/48 369,819
210,067 Series 2019-3, Class A1 (i).................................. 3.50% 07/25/49 191,316
</TABLE>
Page 34 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<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
$ 1,223,261 Series 2016-1, Class 1A18 (i)................................ 3.50% 01/20/46 $ 1,081,361
526,160 Series 2016-1, Class 2A3 (i)................................. 3.00% 12/20/30 480,114
3,807,646 Series 2016-1, Class B1 (f) (i).............................. 3.78% 01/20/46 3,378,147
----------------
377,574,546
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 4.4%
Austin Fairmont Hotel Trust
5,000,000 Series 2019-FAIR, Class A, 1 Mo. LIBOR + 1.05% (a) (i)....... 4.46% 09/15/32 4,877,485
BAMLL Commercial Mortgage Securities Trust
7,000,000 Series 2013-WBRK, Class A (f) (i)............................ 3.53% 03/10/37 6,368,568
BBCMS Mortgage Trust
12,000,000 Series 2017-DELC, Class A, 1 Mo. LIBOR + 0.98% (a) (i)....... 4.39% 08/15/36 11,711,634
8,394,000 Series 2018-TALL, Class A, 1 Mo. LIBOR + 0.72% (a) (i)....... 4.13% 03/15/37 7,905,133
BPR Trust
4,800,514 Series 2021-WILL, Class A, 1 Mo. LIBOR + 1.75% (a) (i)....... 5.16% 06/15/38 4,647,628
10,000,000 Series 2022-OANA, Class A, 1 Mo. CME Term SOFR +
1.90% (a) (i)............................................. 5.27% 04/15/37 9,713,631
BX Commercial Mortgage Trust
10,000,000 Series 2019-IMC, Class A, 1 Mo. LIBOR + 1.00% (a) (i)........ 4.41% 04/15/34 9,747,318
Citigroup Commercial Mortgage Trust
2,915,000 Series 2014-GC23, Class B.................................... 4.18% 07/10/47 2,766,436
89,101,277 Series 2016-P4, Class XA, IO (f)............................. 1.89% 07/10/49 4,525,294
COMM Mortgage Trust
7,450,000 Series 2012-CR3, Class AM (i)................................ 3.42% 10/15/45 6,744,502
10,000,000 Series 2013-CR13, Class AM................................... 4.45% 11/10/46 9,764,155
11,300,000 Series 2014-CR15, Class AM................................... 4.43% 02/10/47 10,962,610
6,850,000 Series 2014-CR21, Class AM................................... 3.99% 12/10/47 6,501,219
DBWF Mortgage Trust
10,844,968 Series 2018-GLKS, Class A, 1 Mo. LIBOR + 1.03% (a) (i)....... 4.51% 12/19/30 10,432,178
Fontainebleau Miami Beach Trust
5,000,000 Series 2019-FBLU, Class C (i)................................ 3.75% 12/10/36 4,625,330
GS Mortgage Securities Trust
3,826,645 Series 2014-GC18, Class A3................................... 3.80% 01/10/47 3,753,025
Hawaii Hotel Trust
9,290,000 Series 2019-MAUI, Class A, 1 Mo. LIBOR + 1.15% (a) (i)....... 4.56% 05/15/38 8,958,302
J.P. Morgan Chase Commercial Mortgage Securities Trust
9,690,857 Series 2018-PHH, Class A, 1 Mo. LIBOR + 1.21%, 2.71% Flo
or (a) (i)................................................ 4.62% 06/15/35 9,395,808
MHC Commercial Mortgage Trust
6,335,000 Series 2021-MHC, Class A, 1 Mo. LIBOR + 0.80% (a) (i)........ 4.21% 04/15/38 6,080,286
Morgan Stanley Bank of America Merrill Lynch Trust
8,015,000 Series 2014-C15, Class AS.................................... 4.26% 04/15/47 7,766,425
RBS Commercial Funding, Inc. Trust
7,045,000 Series 2013-GSP, Class A (f) (i)............................. 3.83% 01/15/32 6,753,899
Ready Capital Mortgage Financing LLC
9,048,933 Series 2021-FL6, Class A, 1 Mo. LIBOR + 0.95% (a) (i)........ 4.54% 07/25/36 8,792,282
RIAL 2022-FL8 Issuer Ltd
4,428,000 Series 2022-FL8, Class A, 1 Mo. CME Term SOFR +
2.25% (a) (i)............................................. 5.67% 01/19/37 4,295,160
UBS-Barclays Commercial Mortgage Trust
5,062,043 Series 2013-C5, Class A4..................................... 3.18% 03/10/46 5,036,992
</TABLE>
See Notes to Financial Statements Page 35
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
VMC Finance LLC
$ 2,983,500 Series 2021-HT1, Class A, 1 Mo. LIBOR + 1.65% (a) (i)........ 5.09% 01/18/37 $ 2,966,738
Wells Fargo Commercial Mortgage Trust
20,708,882 Series 2013-LC12, Class A3FL, 1 Mo. LIBOR +
1.05% (a) (i)............................................. 4.46% 07/15/46 20,708,033
3,774,182 Series 2015-LC22, Class ASB.................................. 3.57% 09/15/58 3,663,031
7,500,000 Series 2015-NXS2, Class B (f)................................ 4.28% 07/15/58 6,928,561
66,663,882 Series 2016-C37, Class XA, IO (f)............................ 0.81% 12/15/49 1,566,368
5,450,000 Series 2020-SDAL, Class C, 1 Mo. LIBOR + 1.74% (a) (i)....... 5.15% 02/15/37 5,166,614
WFRBS Commercial Mortgage Trust
3,495,311 Series 2013-C18, Class A4.................................... 3.90% 12/15/46 3,405,237
----------------
216,529,882
----------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................ 594,104,428
(Cost $639,571,718) ----------------
ASSET-BACKED SECURITIES -- 4.8%
American Credit Acceptance Receivables Trust
5,935,290 Series 2022-1, Class A (i)................................... 0.99% 12/15/25 5,849,229
9,000,000 Series 2022-1, Class B (i)................................... 1.68% 09/14/26 8,619,245
3,904,061 Series 2022-2, Class A (i)................................... 2.66% 02/13/26 3,859,155
CFMT LLC
4,052,000 Series 2021-EBO1, Class M1 (i)............................... 1.65% 11/25/50 3,668,318
Chase Auto Owner Trust
8,800,000 Series 2022-AA, Class A2 (i)................................. 3.86% 10/27/25 8,700,123
CIG Auto Receivables Trust
3,835,949 Series 2021-1A, Class A (i).................................. 0.69% 04/14/25 3,754,079
Corevest American Finance Trust
6,426,877 Series 2020-1, Class A1 (i).................................. 1.83% 03/15/50 5,969,159
11,291,593 Series 2020-3, Class A (i)................................... 1.36% 08/15/53 9,833,545
6,129,343 Series 2020-4, Class A (i)................................... 1.17% 12/15/52 5,359,332
CWABS, Inc. Asset-Backed Certificates Trust
2,258,237 Series 2004-5, Class M1, 1 Mo. LIBOR + 0.86% (a)............. 4.44% 08/25/34 2,211,550
Diamond Resorts Owner Trust
5,465,305 Series 2021-1A, Class A (i).................................. 1.51% 11/21/33 5,022,513
DT Auto Owner Trust
3,432,772 Series 2021-4A, Class A (i).................................. 0.56% 09/15/25 3,363,567
FCI Funding LLC
1,713,071 Series 2019-1A, Class A (i).................................. 3.63% 02/18/31 1,711,507
Flagship Credit Auto Trust
15,216,159 Series 2021-4, Class A (i)................................... 0.81% 07/17/26 14,712,688
10,162,157 Series 2022-1, Class A (i)................................... 1.79% 10/15/26 9,766,741
10,000,000 Series 2022-3, Class A2 (i).................................. 4.06% 10/15/25 9,897,490
FNA VI LLC
7,674,061 Series 2021-1A, Class A (i).................................. 1.35% 01/10/32 6,985,136
Foursight Capital Automobile Receivables Trust
10,351,002 Series 2022-1, Class A2 (i).................................. 1.15% 09/15/25 10,121,257
GLS Auto Receivables Issuer Trust
12,635,081 Series 2021-4A, Class A (i).................................. 0.84% 07/15/25 12,424,300
GM Financial Automobile Leasing Trust
7,000,000 Series 2022-3, Class A2A..................................... 4.01% 10/21/24 6,934,203
GSAMP Trust
5,111,058 Series 2006-SEA1, Class M2, 1 Mo. LIBOR + 1.65% (a) (i)...... 5.24% 05/25/36 5,035,821
</TABLE>
Page 36 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Honda Auto Receivables Owner Trust
$ 8,300,000 Series 2022-2, Class A2...................................... 3.81% 03/18/25 $ 8,210,400
M360 Ltd.
5,000,000 Series 2021-CRE3, Class A, 1 Mo. LIBOR + 1.50% (a) (i)....... 5.07% 11/22/38 4,862,500
MF1 Ltd.
4,000,000 Series 2021-FL7, Class A, 1 Mo. LIBOR + 1.08% (a) (i)........ 4.52% 10/16/36 3,856,608
OSCAR US Funding XIV LLC
8,794,360 Series 2022-1A, Class A2 (i)................................. 1.60% 03/10/25 8,657,850
Santander Drive Auto Receivables Trust
7,466,002 Series 2021-4, Class A3...................................... 0.51% 08/15/25 7,417,857
16,250,000 Series 2022-1, Class A3...................................... 1.94% 11/17/25 15,893,150
10,000,000 Series 2022-5, Class A2...................................... 3.98% 01/15/25 9,932,588
4,000,000 Series 2022-5, Class A3...................................... 4.11% 08/17/26 3,910,301
Sierra Timeshare Receivables Funding LLC
1,978,009 Series 2019-1A, Class A (i).................................. 3.20% 01/20/36 1,893,996
4,368,903 Series 2020-2A, Class A (i).................................. 1.33% 07/20/37 4,056,729
United Auto Credit Securitization Trust
3,033,800 Series 2022-1, Class A (i)................................... 1.11% 07/10/24 3,010,994
Westlake Automobile Receivables Trust
10,750,000 Series 2021-3A, Class A3 (i)................................. 0.95% 06/16/25 10,414,035
10,000,000 Series 2022-1A, Class A3 (i)................................. 2.42% 07/15/25 9,704,190
----------------
TOTAL ASSET-BACKED SECURITIES............................................................... 235,620,156
(Cost $243,662,607) ----------------
U.S. GOVERNMENT BONDS AND NOTES -- 5.9%
45,000,000 U.S. Treasury Bond.............................................. 1.13% 08/15/40 26,530,664
163,933,500 U.S. Treasury Note.............................................. 1.50% 03/31/23 162,054,111
30,000,000 U.S. Treasury Note.............................................. 0.25% 04/15/23 29,452,217
10,000,000 U.S. Treasury Note.............................................. 0.13% 04/30/23 9,789,301
40,000,000 U.S. Treasury Note.............................................. 2.75% 04/30/23 39,683,778
20,000,000 U.S. Treasury Note.............................................. 2.75% 05/31/23 19,800,560
----------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES....................................................... 287,310,631
(Cost $289,494,972) ----------------
U.S. TREASURY BILLS -- 4.6%
50,000,000 U.S. Treasury Bill.............................................. (d) 12/15/22 49,786,875
21,000,000 U.S. Treasury Bill.............................................. (d) 12/22/22 20,892,454
100,000,000 U.S. Treasury Bill.............................................. (d) 03/02/23 98,620,768
51,000,000 U.S. Treasury Bill.............................................. (d) 12/08/22 50,820,276
----------------
TOTAL U.S. TREASURY BILLS................................................................... 220,120,373
(Cost $220,456,187) ----------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
EXCHANGE-TRADED FUNDS -- 0.0%
CAPITAL MARKETS -- 0.0%
24,359 First Trust Long Duration Opportunities ETF (l)............................................. 523,731
(Cost $662,348) ----------------
TOTAL INVESTMENTS -- 109.8%................................................................. 5,337,691,224
(Cost $5,767,815,237) ----------------
</TABLE>
See Notes to Financial Statements Page 37
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- ---------------------------------------------- ---------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
PURCHASED OPTIONS -- 0.0%
CALL OPTIONS PURCHASED -- 0.0%
100 U.S. Treasury Long Bond Futures Call.......... $ 12,050,000 $130.00 11/25/22 $ 12,500
25 U.S. Treasury Long Bond Futures Call.......... 3,012,500 133.00 11/25/22 1,563
----------------
TOTAL CALL OPTIONS PURCHASED................................................................ 14,063
(Cost $87,824) ----------------
PUT OPTIONS PURCHASED -- 0.0%
250 U.S. Treasury Long Bond Futures Put........... 30,125,000 120.00 11/25/22 457,031
(Cost $345,179) ----------------
TOTAL PURCHASED OPTIONS..................................................................... 471,094
(Cost $433,003) ----------------
</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 -- (11.6)%
Federal National Mortgage Association
$ (25,000,000) Pool TBA (j)................................................. 2.50% 11/15/37 (22,533,150)
(10,000,000) Pool TBA (j)................................................. 1.50% 12/15/37 (8,520,956)
(85,000,000) Pool TBA (j)................................................. 2.00% 12/15/37 (74,546,483)
(60,000,000) Pool TBA (j)................................................. 2.50% 12/15/37 (54,084,247)
(5,000,000) Pool TBA..................................................... 2.00% 01/15/38 (4,387,236)
(15,000,000) Pool TBA (j)................................................. 2.50% 01/15/38 (13,518,718)
(15,000,000) Pool TBA..................................................... 3.00% 11/15/52 (12,747,070)
(5,000,000) Pool TBA (j)................................................. 2.00% 12/15/52 (3,947,070)
(111,800,000) Pool TBA..................................................... 4.00% 12/15/52 (101,724,898)
(70,000,000) Pool TBA..................................................... 4.50% 12/15/52 (65,644,140)
(45,000,000) Pool TBA (j)................................................. 3.00% 01/15/53 (38,241,211)
(94,000,000) Pool TBA (j)................................................. 3.50% 01/15/53 (82,683,281)
(90,000,000) Pool TBA (j)................................................. 4.00% 01/15/53 (81,875,390)
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT.......................... (564,453,850)
(Proceeds $568,271,906) ----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- ---------------------------------------------- ---------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
WRITTEN OPTIONS -- (0.1)%
CALL OPTIONS WRITTEN -- (0.0)%
(150) U.S. 5-Year Treasury Futures Call............. $ (15,989,063) $107.50 11/25/22 (55,078)
(75) U.S. 5-Year Treasury Futures Call............. (7,994,531) 112.00 11/25/22 (1,172)
(500) U.S. 5-Year Treasury Futures Call............. (53,410,150) 106.50 12/23/22 (613,281)
(100) U.S. 10-Year Treasury Futures Call............ (11,059,375) 115.00 11/25/22 (7,812)
(300) U.S. Treasury Long Bond Futures Call.......... (36,150,000) 125.00 11/25/22 (168,750)
(500) U.S. Treasury Long Bond Futures Call.......... (60,250,000) 135.00 11/25/22 (23,438)
(50) U.S. Treasury Long Bond Futures Call.......... (6,009,375) 132.00 12/23/22 (14,063)
----------------
TOTAL CALL OPTIONS WRITTEN.................................................................. (883,594)
(Premiums received $1,299,474) ----------------
PUT OPTIONS WRITTEN -- (0.1)%
(214) U.S. 5-Year Treasury Futures Put.............. (22,811,063) 106.00 11/25/22 (103,656)
(425) U.S. 5-Year Treasury Futures Put.............. (45,302,344) 107.00 11/25/22 (408,399)
(75) U.S. 5-Year Treasury Futures Put.............. (8,011,523) 105.00 12/23/22 (29,883)
(325) U.S. Treasury Long Bond Futures Put........... (39,162,500) 116.00 11/25/22 (187,891)
(75) U.S. Treasury Long Bond Futures Put........... (9,574,219) 122.00 11/25/22 (80,859)
</TABLE>
Page 38 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- ---------------------------------------------- ---------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
WRITTEN OPTIONS (CONTINUED)
PUT OPTIONS WRITTEN (CONTINUED)
(75) U.S. Treasury Long Bond Futures Put........... $ (9,037,500) $124.00 11/25/22 $ (321,094)
(250) U.S. Treasury Long Bond Futures Put........... (30,125,000) 126.00 11/25/22 (1,472,656)
(10) U.S. Treasury Long Bond Futures Put........... (1,276,563) 132.00 11/25/22 (57,656)
----------------
TOTAL PUT OPTIONS WRITTEN................................................................... (2,662,094)
(Premiums received $1,289,764) ----------------
TOTAL WRITTEN OPTIONS....................................................................... (3,545,688)
(Premiums received $2,589,238) ----------------
NET OTHER ASSETS AND LIABILITIES -- 1.9%.................................................... 93,084,282
----------------
NET ASSETS -- 100.0%........................................................................ $ 4,863,247,062
================
</TABLE>
FUTURES CONTRACTS AT OCTOBER 31, 2022 (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. 2-Year Treasury Notes Long 640 Dec-2022 $ 130,805,000 $ (140,751)
U.S. 5-Year Treasury Notes Long 490 Dec-2022 52,230,937 (30,177)
U.S 10-Year Short Bond Futures Short 2,546 Dec-2022 (281,571,687) 4,416,495
Ultra 10-Year U.S. Treasury Notes Short 7,920 Dec-2022 (918,596,250) 68,861,437
U.S. Treasury Long Bond Futures Short 1,227 Dec-2022 (147,853,500) 9,422,819
Ultra U.S. Treasury Bond Futures Short 800 Dec-2022 (102,125,000) 6,838,972
--------------- ----------------
$(1,267,110,500) $ 89,368,795
=============== ================
</TABLE>
-----------------------------
(a) Floating or variable rate security.
(b) Inverse floating rate security.
(c) 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.
(d) Zero coupon security.
(e) Pursuant to procedures approved by the Trust's Board of Trustees, this
security has been determined to be illiquid by First Trust Advisors L.P.
(the "Advisor").
(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) This security's value was determined using significant unobservable inputs
(see Note 2A - Portfolio Valuation in the Notes to Financial Statements).
(h) This security is fair valued by the Advisor's Pricing Committee in
accordance with procedures approved by the Trust's Board of Trustees, and
in accordance with provisions of the Investment Company Act of 1940 and
rules thereunder, as amended. At October 31, 2022, securities noted as
such are valued at $8,750,111 or 0.2% of net assets.
(i) 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 approved 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, 2022,
securities noted as such amounted to $785,287,520 or 16.1% of net assets.
(j) 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).
(k) Step-up security. A security where the coupon increases or steps up at a
predetermined date.
(l) Investment in an affiliated fund.
See Notes to Financial Statements Page 39
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
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
REMIC - Real Estate Mortgage Investment Conduit
SOFR - Secured Overnight Financing Rate
STRIPS - Separate Trading of Registered Interest and Principal of Securities
TBA - To-Be-Announced Security
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2022 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
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage-Backed Securities..... $ 4,000,011,905 $ -- $ 3,991,261,794 $ 8,750,111
Mortgage-Backed Securities............................ 594,104,428 -- 594,104,428 --
U.S. Government Bonds and Notes....................... 287,310,631 -- 287,310,631 --
Asset-Backed Securities............................... 235,620,156 -- 235,620,156 --
Exchange-Traded Funds*................................ 523,731 523,731 -- --
U.S. Treasury Bills................................... 220,120,373 -- 220,120,373 --
--------------- --------------- --------------- ---------------
Total Investments..................................... 5,337,691,224 523,731 5,328,417,382 8,750,111
Call Options Purchased................................ 14,063 14,063 -- --
Put Options Purchased................................. 457,031 457,031 -- --
Futures Contracts**................................... 89,539,723 89,539,723 -- --
--------------- --------------- --------------- ---------------
Total................................................. $ 5,427,702,041 $ 90,534,548 $ 5,328,417,382 $ 8,750,111
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
U.S. Government Agency Mortgage-Backed Securities
Sold Short......................................... $ (564,453,850) $ -- $ (564,453,850) $ --
Call Options Written.................................. (883,594) (883,594) -- --
Put Options Written................................... (2,662,094) (2,662,094) -- --
Futures Contracts**................................... (170,928) (170,928) -- --
--------------- --------------- --------------- ---------------
Total................................................. $ (568,170,466) $ (3,716,616) $ (564,453,850) $ --
=============== =============== =============== ===============
</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.
Level 3 investments are fair valued by the Advisor's Pricing Committee and are
footnoted in the Portfolio of Investments. All Level 3 investments values are
based on unobservable inputs.
Page 40 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value - Unaffiliated...................................... $ 5,337,167,493
Investments, at value - Affiliated........................................ 523,731
---------------
Total investments, at value............................................... 5,337,691,224
Options contracts purchased, at value..................................... 471,094
Cash...................................................................... 275,276,534
Cash segregated as collateral for open futures and written options
contracts.............................................................. 40,294,401
Receivables:
Investment securities sold............................................. 6,682,673,388
Interest............................................................... 19,579,894
Variation margin....................................................... 8,806,302
Capital shares sold.................................................... 21,162
---------------
Total Assets........................................................ 12,364,813,999
---------------
LIABILITIES:
Investments sold short, at value (proceeds $568,271,906).................. 564,453,850
Options contracts written, at value....................................... 3,545,688
Payables:
Investment securities purchased........................................ 6,879,924,174
Capital shares purchased............................................... 39,934,247
Distribution to shareholders........................................... 10,962,000
Investment advisory fees............................................... 2,746,978
---------------
Total Liabilities................................................... 7,501,566,937
---------------
NET ASSETS................................................................ $ 4,863,247,062
===============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $ 5,311,418,240
Par value................................................................. 1,035,500
Accumulated distributable earnings (loss)................................. (449,206,678)
---------------
NET ASSETS................................................................ $ 4,863,247,062
===============
NET ASSET VALUE, per share................................................ $ 46.97
===============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)............................................. 103,550,002
===============
Investments, at cost - Unaffiliated....................................... $ 5,767,152,889
===============
Investments, at cost - Affiliated......................................... $ 662,348
===============
Total investments, at cost................................................ $ 5,767,815,237
===============
Premiums paid on options contracts purchased.............................. $ 433,003
===============
Premiums received on options contracts written............................ $ 2,589,238
===============
</TABLE>
See Notes to Financial Statements Page 41
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 129,827,717
Dividends - Unaffiliated.................................................. 335,446
Dividends - Affiliated.................................................... 10,456
---------------
Total investment income................................................ 130,173,619
---------------
EXPENSES:
Investment advisory fees.................................................. 36,627,971
---------------
Total expenses......................................................... 36,627,971
---------------
NET INVESTMENT INCOME (LOSS).............................................. 93,545,648
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Unaffiliated............................................. (359,905,823)
Investments - Affiliated............................................... (24,888)
Investments sold short................................................. 151,012,925
Futures contracts...................................................... 178,120,025
Purchased options contracts............................................ (2,170,216)
Written options contracts.............................................. 18,015,565
---------------
Net realized gain (loss).................................................. (14,952,412)
---------------
Net change in unrealized appreciation (depreciation) on:
Investments - Unaffiliated............................................. (441,143,921)
Investments - Affiliated............................................... (146,222)
Investments sold short................................................. 3,301,458
Futures contracts...................................................... 74,921,071
Purchased options contracts............................................ 38,091
Written options contracts.............................................. 7,006
---------------
Net change in unrealized appreciation (depreciation)...................... (363,022,517)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (377,974,929)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ (284,429,281)
===============
</TABLE>
Page 42 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2022 10/31/2021
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 93,545,648 $ 50,844,582
Net realized gain (loss).................................................. (14,952,412) 31,189,777
Net change in unrealized appreciation (depreciation)...................... (363,022,517) (86,269,103)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........... (284,429,281) (4,234,744)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (108,879,377) (48,092,827)
Return of capital......................................................... -- (90,717,550)
--------------- ---------------
Total distributions to shareholders....................................... (108,879,377) (138,810,377)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 116,467,481 1,099,737,143
Cost of shares redeemed................................................... (1,640,879,473) (565,466,073)
--------------- ---------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................... (1,524,411,992) 534,271,070
--------------- ---------------
Total increase (decrease) in net assets................................... (1,917,720,650) 391,225,949
NET ASSETS:
Beginning of period....................................................... 6,780,967,712 6,389,741,763
--------------- ---------------
End of period............................................................. $ 4,863,247,062 $ 6,780,967,712
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 134,550,002 124,200,002
Shares sold............................................................... 2,350,000 21,450,000
Shares redeemed........................................................... (33,350,000) (11,100,000)
--------------- ---------------
Shares outstanding, end of period......................................... 103,550,002 134,550,002
=============== ===============
</TABLE>
See Notes to Financial Statements Page 43
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
2022 2021 2020 2019 2018
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 50.40 $ 51.45 $ 51.87 $ 50.78 $ 51.76
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................... 0.85 0.39 0.87 1.24 1.17
Net realized and unrealized gain (loss)......... (3.32) (0.40) (0.10) 1.21 (0.74)
---------- ---------- ---------- ---------- ----------
Total from investment operations................ (2.47) (0.01) 0.77 2.45 0.43
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (0.69) (0.36) (0.99) (1.23) (1.13)
Net realized gain............................... (0.27) -- -- (0.05) (0.28)
Return of capital............................... -- (0.68) (0.20) (0.08) --
---------- ---------- ---------- ---------- ----------
Total distributions............................. (0.96) (1.04) (1.19) (1.36) (1.41)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.................. $ 46.97 $ 50.40 $ 51.45 $ 51.87 $ 50.78
========== ========== ========== ========== ==========
TOTAL RETURN (a)................................ (4.96)% (0.02)% 1.50% 4.88% 0.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $4,863,247 $6,780,968 $6,389,742 $3,765,469 $1,729,078
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................................... 1.66% 0.75% 1.57% 2.41% 2.32%
Portfolio turnover rate (c) (d)................. 831% 495% 434% 373% 331%
</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 641%,
368%, 245%, 246%, and 117% for the years ended October 31, 2022, 2021,
2020, 2019, and 2018, respectively.
Page 44 See Notes to Financial Statements
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
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 twelve 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"). The Fund represents a separate series of
shares of beneficial interest in the Trust. Unlike conventional mutual funds,
the Fund issues and redeems shares on a continuous basis, at net asset value
("NAV"), only in large blocks of shares known as "Creation Units."
The Fund is an actively managed exchange-traded fund ("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 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 readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Advisor's
Pricing Committee, in accordance with valuation procedures approved by the
Trust's Board of Trustees, and in accordance with provisions of the 1940 Act and
rules thereunder. Investments valued by the Advisor's Pricing Committee, if any,
are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
-----------------------------
(1) "Government Entities" means the U.S. government, its agencies and
instrumentalities, and U.S. government-sponsored entities.
Page 45
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are fair valued on the basis of
valuations provided by a third-party pricing service approved by the
Advisor's Pricing Committee, which may use the following valuation inputs
when available:
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.
Pricing services generally value fixed-income securities assuming orderly
transactions of an institutional round lot size, but a Fund may hold or
transact in such securities in smaller, odd lot sizes. Odd lots may trade
at lower prices than institutional round lots.
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 last trade 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 primary exchange for such securities.
Shares of open-end funds are valued 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 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 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 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
Page 46
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
might reasonably expect to receive for the security upon its current sale. When
fair value prices are used, generally they will differ from market quotations or
official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not
limited to, the following:
1) the most recent price provided by a pricing service;
2) the fundamental business data relating to the issuer;
3) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
4) the type, size and cost of a security;
5) the financial statements of the borrower/issuer, or financial
condition of the country of issue;
6) the credit quality and cash flow of the issuer, or country of
issue, based on the Pricing Committee's, sub-adviser's or
portfolio manager's analysis, as applicable, or external
analysis;
7) the information as to any transactions in or offers for the
security;
8) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
9) the coupon payments;
10) the quality, value and salability of collateral, if any,
securing the security;
11) 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);
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.
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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.
Page 47
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
The United Kingdom's Financial Conduct Authority (the "FCA"), which regulates
the London Interbank Offered Rates ("LIBOR") announced on March 5, 2021 that it
intended to phase-out all LIBOR reference rates, beginning December 31, 2021.
Since that announcement, the FCA has ceased publication of all non-USD LIBOR
reference rates and the 1-week and 2-month USD LIBOR reference rates as of
December 31, 2021. The remaining USD LIBOR settings will cease to be published
or no longer be representative immediately after June 30, 2023. The
International Swaps and Derivatives Association, Inc. ("ISDA") confirmed that
the FCA's March 5, 2021 announcement of its intention to cease providing LIBOR
reference rates, constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
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. There is no assurance that
any alternative reference rate, including SOFR, will be similar to or produce
the same value or economic equivalence as LIBOR or that instruments using an
alternative rate will have the same volume or liquidity.
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, 2022, the Fund did not hold when-issued or
delayed-delivery securities. At October 31, 2022, the Fund held $403,398,117 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
Page 48
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
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.
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.
Page 49
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
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)
substantially similar (same type, coupon and maturity) securities on a future
date. Mortgage dollar rolls are recorded as separate purchases 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, 2022 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 10/31/2022 10/31/2021 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2022 INCOME
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust Long Duration
Opportunities ETF 24,359 $ 813,538 $ -- $(118,697) $ (146,222) $ (24,888) $ 523,731 $ 10,456
</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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
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.
Page 50
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
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, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 77,623,014 $ 48,718,452
Capital gains................................... 30,590,238 --
Return of capital............................... -- 90,717,550
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ (8,428,878)
Accumulated capital and other gain (loss)....... --
Net unrealized appreciation (depreciation)...... (440,777,800)
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 2019,
2020, 2021, and 2022 remain open to federal and state audit. As of October 31,
2022, 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, 2022, the
Fund had no non-expiring capital loss carryforwards available for federal income
tax purposes.
During the taxable year ended October 31, 2022, the Fund utilized non-expiring
capital loss carryforwards in the amount of $72,543,076.
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, 2022, 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,
2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
-------------- -------------- ---------------
$ (24,570,905) $ 24,570,905 $ --
Page 51
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$5,303,383,969 $ 9,552,526 $ (450,330,326) $ (440,777,800)
</TABLE>
M. 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. 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 target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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, 2022, were $27,411,047,126 and $798,058,564,
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, 2022, were
$28,130,144,567 and $635,949,323, respectively. The cost of purchases to cover
investments sold short and the proceeds of investments sold short were
$24,060,595,419 and $24,205,458,266, respectively.
For the fiscal year ended October 31, 2022, the Fund had no in-kind
transactions.
Page 52
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2022, 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* $89,539,723 futures contracts* $ 170,928
Options Interest Options contracts purchased, Options contracts written,
rate risk at value 471,094 at value 3,545,688
</TABLE>
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Portfolio of Investments. Only the current day's variation margin is
presented on the Statement of Assets and Liabilities.
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the fiscal year
ended October 31, 2022, 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 $ 178,120,025
Purchased options contracts (2,170,216)
Written options contracts 18,015,565
Net change in unrealized appreciation (depreciation) on:
Futures contracts 74,921,071
Purchased options contracts 38,091
Written options contracts 7,006
</TABLE>
For the fiscal year ended October 31, 2022, the notional value of futures
contracts opened and closed were $20,782,845,989 and $23,711,657,265,
respectively.
During the fiscal year ended October 31, 2022, the premiums for purchased
options contracts opened were $3,066,965 and the premiums for purchased options
contracts closed, exercised and expired were $2,633,962.
During the fiscal year ended October 31, 2022, the premiums for written options
contracts opened were $27,292,408 and the premiums for written options contracts
closed, exercised and expired were $28,828,222.
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
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
Page 53
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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, 2024.
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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
Page 54
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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, 2022, 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, 2022, 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, 2022, 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, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 55
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--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022 (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, 2022 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.
For the year ended October 31, 2022, the amount of long-term capital gain
distributions designated by the Fund was $30,590,238 which is taxable at the
applicable capital gains tax rates for federal income tax purposes.
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended October 31, 2022, 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 significant
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
more broadly diversified.
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
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sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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
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OCTOBER 31, 2022 (UNAUDITED)
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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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OCTOBER 31, 2022 (UNAUDITED)
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.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
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, 2023 at a meeting held on June 12-13, 2022. The Board
determined that the continuation of the Agreement is in the best interests of
the Fund in light of the nature, extent and quality of the services provided and
such other matters as the Board considered to be relevant in the exercise of its
business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, 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 indirect benefits to the Advisor and its affiliate, First Trust
Portfolios L.P. ("FTP"); and information on the Advisor's compliance program.
The Board reviewed initial materials with the Advisor at the meeting held on
April 18, 2022, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the
April 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 12-13, 2022 meeting, as well as at the June meeting. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor continues to be a reasonable business arrangement from
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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 Securitized Products Group 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 Securitized
Products Group and noted the Board's prior meetings with members of the Group.
The Board considered the Advisor's statement that it applies the same oversight
model internally with its Securitized Products Group 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 April 18, 2022 meeting,
described to the Board the scope of its ongoing investment in additional
personnel and infrastructure to maintain and improve the quality of services
provided to the Fund and the other funds in the First Trust Fund Complex. In
light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of the services provided to the
Trust and the Fund by the Advisor under the Agreement have been and are expected
to remain satisfactory and that the Advisor has managed the Fund consistent with
its investment objectives, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any.
The Board received and reviewed information showing the fee rates and expense
ratios of the peer funds in the Expense Group, as well as advisory and unitary
fee rates charged by the Advisor to other fund (including ETFs) and non-fund
clients, as applicable. Because the Fund pays a unitary fee, the Board
determined that expense ratios were the most relevant comparative data point.
Based on the information provided, the Board noted that the unitary fee rate for
the Fund was 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 April 18,
2022 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, 2021
to the performance of the funds in the Performance Universe and to that of a
benchmark index. Based on the information provided, the Board noted that the
Fund outperformed the Performance Universe median and the benchmark index for
the one-year period ended December 31, 2021 and underperformed the Performance
Universe median and the benchmark index for the three- and five-year periods
ended December 31, 2021.
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 that its expenses
relating to providing advisory services to the Funds will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. The Board noted that any reduction in fixed costs associated with the
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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, 2021 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data, for the same period. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered indirect benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered that the Advisor had identified as an indirect benefit to the Advisor
and FTP their exposure to investors and brokers who, absent their exposure to
the Fund, may have had no dealings with the Advisor or FTP, and noted that the
Advisor does not utilize soft dollars in connection with the Fund. The Board
concluded that the character and amount of potential indirect benefits to the
Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") 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 Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreement for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the continuation of the
Agreement was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
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
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, 2021, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $6,866,264. This
figure is comprised of $358,261 paid (or to be paid) in fixed compensation and
$6,508,003 paid (or to be paid) in variable compensation. There were a total of
26 beneficiaries of the remuneration described above. Those amounts include
$1,832,092 paid (or to be paid) to senior management of First Trust Advisors
L.P. and $5,034,172 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Fund (collectively, "Code Staff").
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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 62
<PAGE>
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 63
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 64
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2022 (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
professional 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 2022
Page 65
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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
320 South Canal Street
Chicago, IL 60606
<PAGE>
[BLANK BACK COVER]
<PAGE>
First Trust Exchange-Traded Fund IV
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
For the Year Ended
October 31, 2022
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2022
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.
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Letter from the Chairman and CEO
October 31, 2022
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, 2022.
As I’m writing this letter in mid-November, it strikes me that things appear to be a little more chaotic in the current climate than normal. One of the things that may have contributed to the chaotic nature of the news flow of late was the November mid-term election. For the most part, except for a few seats in Congress, the election is behind us. We learned there would be no “red wave” (Republicans gaining a strong majority in Congress) but likely gridlock ahead. Gridlock has been good for stock market investors in the past few decades, particularly when there’s been a Democratic president and the Republicans have control of at least one house of Congress, according to Brian Wesbury, Chief Economist at First Trust.
The Federal Reserve (the “Fed”) has kept its promise to aggressively hike interest rates to combat robust inflation. As of November 13, 2022, the Fed has increased the Federal Funds target rate (upper bound) six times, from 0.25% to 4.00%. The Fed’s actions have some investors and pundits looking for evidence linking the interest rate hikes to a downturn in the economy. In short, the hope is that a pullback in economic activity might deter the Fed from executing further interest rate hikes. Fed Chairman Jerome Powell, however, recently said that the terminal rate (the ultimate rate the Fed is targeting) will likely need to be higher than previously estimated in order to curb stubbornly high inflation. The Consumer Price Index (“CPI”) is a commonly used measure of inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31, 2022, according to the U.S. Bureau of Labor Statistics. That is down from its recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was higher than 7.0% was over 40 years ago. While monetary policy is an ongoing process subject to change, the Fed does appear to be steadfast in its mission to bring the rate of inflation back to its preferred level of 2.0%, and that will take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this year, such as the war between Russia and Ukraine. Since setting its all-time high of 4,796.56 on January 3, 2022, the S&P 500® Index has been in a bear market (a price decline of 20% or more from the most recent high) for the better part of 310 days. Suffice it to say, we are all looking forward to the end of this bear market. With respect to corrections and bear markets, the silver lining is that the S&P 500® Index has never failed to fully recover the losses sustained in any previous downturn. Where might we see demand for stocks moving forward? One such source could be stock buybacks. As of the last week of October 2022, U.S. companies had announced stock buybacks totaling $1 trillion so far this year, according to Birinyi Associates. The fixed income market has not been immune to selling pressure either. Year-to-date through November 10, 2022, yields on the 10-Year Treasury Note increased by 258 basis points. As you may be aware, bond yields and bond prices are inversely related, particularly with respect to investment-grade bonds. As yields rise, prices fall and vice versa. As noted above, the Fed has more work to do, so bond investors should not be surprised to see interest rates and bond yields trend at least a bit higher in the months ahead.
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.
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
10/31/22 | 5 Years
Ended
10/31/22 | Inception
(11/3/15)
to 10/31/22 | | 5 Years
Ended
10/31/22 | Inception
(11/3/15)
to 10/31/22 |
| Fund Performance | | | | | | |
| NAV | -22.76% | 8.45% | 8.83% | | 50.03% | 80.69% |
| Market Price | -22.78% | 8.34% | 8.77% | | 49.24% | 80.03% |
| Index Performance | | | | | | |
| ICE BofA All US Convertible Index | -20.26% | 9.63% | 9.74% | | 58.34% | 91.48% |
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 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.
Fund Performance Overview (Unaudited) (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT) (Continued)
| Sector Allocation | % of Total
Investments |
| Information Technology | 32.0% |
| Health Care | 21.6 |
| Consumer Discretionary | 11.2 |
| Industrials | 8.8 |
| Communication Services | 7.2 |
| Utilities | 6.4 |
| Energy | 3.8 |
| Financials | 3.6 |
| Materials | 2.3 |
| Real Estate | 1.9 |
| Consumer Staples | 1.2 |
| Total | 100.0% |
| Top Ten Holdings | % of Total
Investments |
| DexCom, Inc., 11/15/25 | 3.3% |
| Palo Alto Networks, Inc., 7/1/23 | 2.6 |
| NextEra Energy, Inc., 3/1/23 | 2.5 |
| Enphase Energy, Inc., 3/1/28 | 2.3 |
| 2020 Cash Mandatory Exchangeable Trust, 6/1/23 | 1.9 |
| Etsy, Inc., 9/1/27 | 1.8 |
| Splunk, Inc., 9/15/25 | 1.6 |
| Jazz Investments I Ltd., 6/15/26 | 1.5 |
| Cloudflare, Inc., 8/15/26 | 1.5 |
| Southwest Airlines Co., 5/1/25 | 1.5 |
| Total | 20.5% |
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.
Portfolio Commentary
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2022 (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, Principal and Chief Investment Officer of SSI
Ravi Malik – CFA, Principal and Portfolio Manager of SSI
Michael J. Opre – CFA, Portfolio Manager of SSI
Florian Eitner – CFA, Portfolio Manager of SSI
Stephen R. Wachtel – CFA, Portfolio Manager of SSI
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Fund. Each portfolio manager has served as part of the portfolio management team of the Fund since 2015, except for Mr. Wachtel, who has served as part of the Fund’s portfolio management team since 2020.
Commentary
Market Recap – For the 12-month period ended October 31, 2022:
| • | Generational highs in inflation, monetary tightening by global central banks and moderating earnings growth have acted as headwinds for the economy and capital markets. |
| • | The U.S. economy flirts with recession, as estimated real gross domestic product growth of 1.8% in 2022 is forecast to drop to 0.4% in 2023. |
| • | Corporate earnings have moderated with 5.6% expected growth in 2022 and 5.9% in 2023. |
| • | High Yield credit spreads widened by 177 basis points (“bps”). |
| • | Ten-year Treasury yields rose 249 bps to 4.05% on rising inflation. |
| • | Within the convertible universe, the Energy, Utilities and Materials sectors outperformed, while the Consumer Discretionary, Media and Financials sectors lagged. |
| • | Small cap and yield alternatives convertibles outperformed. |
| • | Convertible new issuance slowed markedly from $93 billion in fiscal year 2021 to $39 billion in fiscal year 2022. |
Fund Performance
| • | Convertible performance was driven by negative returns in both equities and high yield markets for the 12-month period ended October 31, 2022. The S&P 500® Index declined 14.61% and the Bloomberg High Yield Index declined 11.76% for the same period. |
| • | Fixed income posted losses with the Bloomberg US Aggregate Bond Index down 15.68% for the period. |
| • | On a one-year trailing basis, as of October 31, 2022, the Fund generated a net loss of -22.76%, based on net asset value, while the ICE BofA All US Convertible Index (VXA0) (the “Benchmark)” declined 20.26%. |
Portfolio Commentary (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2022 (Unaudited)
| • | The Energy sector made the largest contribution to portfolio returns on a relative basis as solar equipment maker, Enphase Energy, Inc. benefitted from increasing adoption of green energy and natural gas producer, EQT Corp. benefitted from rising commodity prices. An underweight in retailers Wayfair LLC. and RH aided relative performance as the group underperformed on margin pressures and fears of weakening consumer spending. |
| • | Security selection in the Financials sector detracted from relative performance, as consumer finance company Upstart Holdings, Inc. and private equity firm, KKR & Co., Inc., were both hurt by widening credit spreads. An underweight in the Utilities sector also detracted from relative performance as investors sought defensive sectors as the Federal Reserve (the “Fed”) increased rates and the economy slowed. |
Investment Outlook
| • | In our opinion, consensus expectations for the Federal Funds target rate are now 4.5%-5%. We believe inflation should begin moderating gradually in the coming months to a mid-single digit rate, which may be enough progress for the Fed to pause interest rate hikes. |
| • | We believe longer treasury yields could reach 5% with the Fed withdrawing intervention and inflation slowing only gradually. |
| • | No economic growth or modest contraction is now consensus for the economy, in our opinion. |
| • | From a structural perspective, in our view, the convertible market is attractively positioned to capture the upside in the markets while providing downside protection. Equity sensitivity (delta) and investment value premium for the convertible market are near or at multi-year lows. |
| • | We believe the growth tilt in the Fund reflects our expectation of a moderation of growth worldwide with increasing probability of recession, but also a reasonable probability of a soft landing albeit with slowing growth. |
| • | To account for recession risk, the Fund remains focused on higher quality of earnings and balance sheets with an emphasis in convex convertible bonds. |
| • | The portfolio has a relatively low effective duration (currently 1.65 versus 1.95 for the Benchmark) and a strong credit profile (BB average credit rating versus BB- for the Benchmark). |
| • | We believe convertibles offer significant participation if the markets resume their upward trend, but can also offer income and downside protection if the market is range-bound or experiences a downturn. |
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Understanding Your Fund Expenses
October 31, 2022 (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, 2022.
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, 2022 | Ending
Account Value
October 31, 2022 | 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 | $919.00 | 0.95% | $4.60 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,020.42 | 0.95% | $4.84 |
| (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, 2022 through October 31, 2022), multiplied by 184/365 (to reflect the six-month period). |
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments
October 31, 2022
Principal
Value | | Description | | Stated
Coupon | | Stated
Maturity | | Value |
| CONVERTIBLE CORPORATE BONDS – 85.6% |
| | | Aerospace & Defense – 1.4% | | | | | | |
| $1,000,000 | | Parsons Corp.
| | 0.25% | | 08/15/25 | | $1,150,000 |
| 957,835 | | Safran S.A., Series SAF (EUR) (a)
| | 0.88% | | 05/15/27 | | 1,229,387 |
| | | | | 2,379,387 |
| | | Air Freight & Logistics – 0.7% | | | | | | |
| 667,000 | | Air Transport Services Group, Inc.
| | 1.13% | | 10/15/24 | | 729,565 |
| 540,000 | | ZTO Express Cayman, Inc. (b)
| | 1.50% | | 09/01/27 | | 437,130 |
| | | | | 1,166,695 |
| | | Airlines – 1.4% | | | | | | |
| 2,030,000 | | Southwest Airlines Co.
| | 1.25% | | 05/01/25 | | 2,503,497 |
| | | Automobiles – 1.2% | | | | | | |
| 1,625,000 | | Ford Motor Co.
| | (c) | | 03/15/26 | | 1,641,250 |
| 620,000 | | Li Auto, Inc.
| | 0.25% | | 05/01/28 | | 503,006 |
| | | | | 2,144,256 |
| | | Banks – 0.9% | | | | | | |
| 1,275,000 | | Deutsche Bank AG, Series GMTN
| | 1.00% | | 05/01/23 | | 1,500,184 |
| | | Beverages – 0.6% | | | | | | |
| 785,000 | | MGP Ingredients, Inc. (b)
| | 1.88% | | 11/15/41 | | 1,017,046 |
| | | Biotechnology – 7.3% | | | | | | |
| 745,000 | | Alnylam Pharmaceuticals, Inc. (b)
| | 1.00% | | 09/15/27 | | 750,215 |
| 1,745,000 | | BioMarin Pharmaceutical, Inc.
| | 0.60% | | 08/01/24 | | 1,749,362 |
| 640,000 | | Cerevel Therapeutics Holdings, Inc. (b)
| | 2.50% | | 08/15/27 | | 589,440 |
| 565,000 | | Cytokinetics, Inc. (b)
| | 3.50% | | 07/01/27 | | 636,473 |
| 1,850,000 | | Halozyme Therapeutics, Inc. (b)
| | 1.00% | | 08/15/28 | | 1,949,437 |
| 1,145,000 | | Insmed, Inc.
| | 0.75% | | 06/01/28 | | 914,283 |
| 975,000 | | Ionis Pharmaceuticals, Inc.
| | (c) | | 04/01/26 | | 961,594 |
| 640,000 | | Ironwood Pharmaceuticals, Inc.
| | 1.50% | | 06/15/26 | | 663,600 |
| 458,000 | | Neurocrine Biosciences, Inc.
| | 2.25% | | 05/15/24 | | 702,801 |
| 725,000 | | PTC Therapeutics, Inc.
| | 1.50% | | 09/15/26 | | 725,363 |
| 2,085,000 | | Sarepta Therapeutics, Inc. (b)
| | 1.25% | | 09/15/27 | | 2,225,737 |
| 892,000 | | Travere Therapeutics, Inc.
| | 2.25% | | 03/01/29 | | 838,480 |
| | | | | 12,706,785 |
| | | Chemicals – 0.5% | | | | | | |
| 231,000 | | Livent Corp.
| | 4.13% | | 07/15/25 | | 856,432 |
| | | Communications Equipment – 0.9% | | | | | | |
| 1,610,000 | | Lumentum Holdings, Inc.
| | 0.50% | | 12/15/26 | | 1,581,825 |
| | | Diversified Consumer Services – 0.4% | | | | | | |
| 860,000 | | Stride, Inc.
| | 1.13% | | 09/01/27 | | 780,020 |
| | | Diversified Financial Services – 0.9% | | | | | | |
| 1,525,000 | | JPMorgan Chase Financial Co. LLC (b)
| | 0.25% | | 05/01/23 | | 1,654,625 |
| | | Electrical Equipment – 0.7% | | | | | | |
| 570,000 | | Array Technologies, Inc. (b)
| | 1.00% | | 12/01/28 | | 520,410 |
| 495,000 | | Bloom Energy Corp.
| | 2.50% | | 08/15/25 | | 663,300 |
| | | | | 1,183,710 |
| | | Electronic Equipment, Instruments & Components – 1.0% | | | | | | |
| 1,068,000 | | Itron, Inc.
| | (c) | | 03/15/26 | | 860,808 |
See Notes to Financial Statements
Page 7
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2022
Principal
Value | | Description | | Stated
Coupon | | Stated
Maturity | | Value |
| CONVERTIBLE CORPORATE BONDS (Continued) |
| | | Electronic Equipment, Instruments & Components (Continued) | | | | | | |
| $842,000 | | Vishay Intertechnology, Inc.
| | 2.25% | | 06/15/25 | | $809,258 |
| | | | | 1,670,066 |
| | | Entertainment – 2.1% | | | | | | |
| 885,000 | | Liberty Media Corp.
| | 1.38% | | 10/15/23 | | 1,137,225 |
| 815,000 | | Liberty Media Corp.-Liberty Formula One (b)
| | 2.25% | | 08/15/27 | | 753,468 |
| 1,000,000 | | Live Nation Entertainment, Inc.
| | 2.50% | | 03/15/23 | | 1,213,905 |
| 579,000 | | Sea Ltd.
| | 2.38% | | 12/01/25 | | 551,845 |
| | | | | 3,656,443 |
| | | Equity Real Estate Investment Trusts – 1.8% | | | | | | |
| 900,000 | | Kite Realty Group L.P. (b)
| | 0.75% | | 04/01/27 | | 822,142 |
| 1,390,000 | | Pebblebrook Hotel Trust
| | 1.75% | | 12/15/26 | | 1,231,540 |
| 1,180,000 | | Summit Hotel Properties, Inc.
| | 1.50% | | 02/15/26 | | 1,076,750 |
| | | | | 3,130,432 |
| | | Health Care Equipment & Supplies – 6.0% | | | | | | |
| 1,970,000 | | Cutera, Inc. (b)
| | 2.25% | | 06/01/28 | | 2,136,465 |
| 5,000,000 | | DexCom, Inc.
| | 0.25% | | 11/15/25 | | 5,522,500 |
| 370,000 | | Envista Holdings Corp.
| | 2.38% | | 06/01/25 | | 614,385 |
| 1,039,000 | | Haemonetics Corp.
| | (c) | | 03/01/26 | | 862,370 |
| 941,000 | | Insulet Corp.
| | 0.38% | | 09/01/26 | | 1,207,303 |
| | | | | 10,343,023 |
| | | Health Care Providers & Services – 0.9% | | | | | | |
| 205,000 | | Elevance Health, Inc.
| | 2.75% | | 10/15/42 | | 1,598,385 |
| | | Health Care Technology – 0.4% | | | | | | |
| 558,000 | | Evolent Health, Inc.
| | 1.50% | | 10/15/25 | | 648,675 |
| | | Hotels, Restaurants & Leisure – 5.5% | | | | | | |
| 1,485,000 | | Airbnb, Inc.
| | (c) | | 03/15/26 | | 1,249,628 |
| 1,445,000 | | Booking Holdings, Inc.
| | 0.75% | | 05/01/25 | | 1,876,520 |
| 1,397,000 | | Expedia Group, Inc.
| | (c) | | 02/15/26 | | 1,207,341 |
| 812,000 | | H World Group Ltd.
| | 3.00% | | 05/01/26 | | 777,490 |
| 1,195,000 | | MakeMyTrip Ltd.
| | (c) | | 02/15/28 | | 1,203,365 |
| 740,000 | | Marriott Vacations Worldwide Corp.
| | (c) | | 01/15/26 | | 759,240 |
| 1,175,000 | | Royal Caribbean Cruises Ltd. (b)
| | 6.00% | | 08/15/25 | | 1,535,137 |
| 1,075,000 | | Vail Resorts, Inc.
| | (c) | | 01/01/26 | | 956,750 |
| | | | | 9,565,471 |
| | | Independent Power & Renewable Electricity Producers – 1.1% | | | | | | |
| 751,000 | | Ormat Technologies, Inc. (b)
| | 2.50% | | 07/15/27 | | 893,690 |
| 1,173,000 | | Sunnova Energy International, Inc. (b)
| | 2.63% | | 02/15/28 | | 955,995 |
| | | | | 1,849,685 |
| | | Interactive Media & Services – 2.9% | | | | | | |
| 755,000 | | Match Group Financeco 2, Inc. (b)
| | 0.88% | | 06/15/26 | | 656,850 |
| 3,600,000 | | Snap, Inc. (b)
| | 0.13% | | 03/01/28 | | 2,381,400 |
| 1,065,000 | | Twitter, Inc.
| | 0.25% | | 06/15/24 | | 1,194,930 |
| 867,000 | | Ziff Davis, Inc. (b)
| | 1.75% | | 11/01/26 | | 844,024 |
| | | | | 5,077,204 |
| | | Internet & Direct Marketing Retail – 1.8% | | | | | | |
| 3,595,000 | | Etsy, Inc.
| | 0.13% | | 09/01/27 | | 3,120,819 |
Page 8
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2022
Principal
Value | | Description | | Stated
Coupon | | Stated
Maturity | | Value |
| CONVERTIBLE CORPORATE BONDS (Continued) |
| | | IT Services – 7.2% | | | | | | |
| $1,825,000 | | Akamai Technologies, Inc.
| | 0.38% | | 09/01/27 | | $1,803,100 |
| 1,942,000 | | Block, Inc.
| | 0.13% | | 03/01/25 | | 1,809,701 |
| 3,165,000 | | Cloudflare, Inc.
| | (c) | | 08/15/26 | | 2,562,067 |
| 1,414,000 | | DigitalOcean Holdings, Inc. (b)
| | (c) | | 12/01/26 | | 1,041,147 |
| 981,000 | | MongoDB, Inc.
| | 0.25% | | 01/15/26 | | 1,106,323 |
| 1,992,000 | | Okta, Inc.
| | 0.13% | | 09/01/25 | | 1,682,244 |
| 1,200,000 | | Perficient, Inc. (b)
| | 0.13% | | 11/15/26 | | 903,600 |
| 1,680,000 | | Shift4 Payments, Inc.
| | (c) | | 12/15/25 | | 1,523,550 |
| | | | | 12,431,732 |
| | | Leisure Products – 0.2% | | | | | | |
| 353,000 | | Topgolf Callaway Brands Corp.
| | 2.75% | | 05/01/26 | | 445,001 |
| | | Machinery – 1.6% | | | | | | |
| 480,000 | | Chart Industries, Inc. (b)
| | 1.00% | | 11/15/24 | | 1,827,120 |
| 1,150,000 | | Greenbrier Cos, Inc. (The)
| | 2.88% | | 04/15/28 | | 1,035,000 |
| | | | | 2,862,120 |
| | | Media – 0.5% | | | | | | |
| 1,022,000 | | TechTarget, Inc. (b)
| | (c) | | 12/15/26 | | 820,155 |
| | | Metals & Mining – 1.7% | | | | | | |
| 397,000 | | ATI, Inc.
| | 3.50% | | 06/15/25 | | 800,153 |
| 1,000,000 | | Glencore Funding LLC, Series GLEN (a)
| | (c) | | 03/27/25 | | 1,085,275 |
| 1,150,000 | | MP Materials Corp. (b)
| | 0.25% | | 04/01/26 | | 1,100,550 |
| | | | | 2,985,978 |
| | | Oil, Gas & Consumable Fuels – 3.7% | | | | | | |
| 466,000 | | EQT Corp.
| | 1.75% | | 05/01/26 | | 1,330,197 |
| 1,214,000 | | Green Plains, Inc.
| | 2.25% | | 03/15/27 | | 1,393,065 |
| 1,215,000 | | Northern Oil and Gas, Inc. (b)
| | 3.63% | | 04/15/29 | | 1,367,483 |
| 895,000 | | Pioneer Natural Resources Co.
| | 0.25% | | 05/15/25 | | 2,300,597 |
| | | | | 6,391,342 |
| | | Personal Products – 0.6% | | | | | | |
| 1,285,000 | | Beauty Health Co. (The) (b)
| | 1.25% | | 10/01/26 | | 1,020,290 |
| | | Pharmaceuticals – 3.4% | | | | | | |
| 798,000 | | Coherus Biosciences, Inc.
| | 1.50% | | 04/15/26 | | 607,996 |
| 2,295,000 | | Jazz Investments I Ltd.
| | 2.00% | | 06/15/26 | | 2,574,703 |
| 1,355,000 | | Pacira BioSciences, Inc.
| | 0.75% | | 08/01/25 | | 1,322,819 |
| 1,380,000 | | Revance Therapeutics, Inc.
| | 1.75% | | 02/15/27 | | 1,363,613 |
| | | | | 5,869,131 |
| | | Professional Services – 0.5% | | | | | | |
| 441,000 | | KBR, Inc.
| | 2.50% | | 11/01/23 | | 880,677 |
| | | Road & Rail – 1.9% | | | | | | |
| 990,000 | | Lyft, Inc.
| | 1.50% | | 05/15/25 | | 875,655 |
| 2,840,000 | | Uber Technologies, Inc.
| | (c) | | 12/15/25 | | 2,359,789 |
| | | | | 3,235,444 |
| | | Semiconductors & Semiconductor Equipment – 7.4% | | | | | | |
| 3,050,000 | | Enphase Energy, Inc.
| | (c) | | 03/01/28 | | 3,926,875 |
| 1,900,000 | | MACOM Technology Solutions Holdings, Inc.
| | 0.25% | | 03/15/26 | | 1,821,625 |
| 1,400,000 | | Microchip Technology, Inc.
| | 0.13% | | 11/15/24 | | 1,414,875 |
| 1,820,000 | | ON Semiconductor Corp.
| | (c) | | 05/01/27 | | 2,392,390 |
See Notes to Financial Statements
Page 9
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2022
Principal
Value | | Description | | Stated
Coupon | | Stated
Maturity | | Value |
| CONVERTIBLE CORPORATE BONDS (Continued) |
| | | Semiconductors & Semiconductor Equipment (Continued) | | | | | | |
| $463,000 | | Silicon Laboratories, Inc.
| | 0.63% | | 06/15/25 | | $524,917 |
| 1,000,000 | | STMicroelectronics N.V., Series A (a)
| | (c) | | 08/04/25 | | 1,013,945 |
| 1,948,000 | | Wolfspeed, Inc. (b)
| | 0.25% | | 02/15/28 | | 1,785,342 |
| | | | | 12,879,969 |
| | | Software – 14.3% | | | | | | |
| 655,000 | | Alteryx, Inc.
| | 1.00% | | 08/01/26 | | 530,550 |
| 1,015,000 | | Bentley Systems, Inc.
| | 0.13% | | 01/15/26 | | 893,708 |
| 1,100,000 | | Bill.com Holdings, Inc.
| | (c) | | 12/01/25 | | 1,224,850 |
| 1,200,000 | | Box, Inc.
| | (c) | | 01/15/26 | | 1,496,400 |
| 1,438,000 | | Confluent, Inc. (b)
| | (c) | | 01/15/27 | | 1,085,690 |
| 1,507,000 | | Coupa Software, Inc.
| | 0.13% | | 06/15/25 | | 1,290,775 |
| 1,512,000 | | CyberArk Software Ltd.
| | (c) | | 11/15/24 | | 1,778,907 |
| 705,000 | | Datadog, Inc.
| | 0.13% | | 06/15/25 | | 805,110 |
| 1,240,000 | | Dropbox, Inc.
| | (c) | | 03/01/28 | | 1,078,180 |
| 995,000 | | Envestnet, Inc.
| | 0.75% | | 08/15/25 | | 850,725 |
| 1,115,000 | | Five9, Inc.
| | 0.50% | | 06/01/25 | | 991,235 |
| 2,260,000 | | Palo Alto Networks, Inc.
| | 0.75% | | 07/01/23 | | 4,383,270 |
| 455,000 | | Palo Alto Networks, Inc.
| | 0.38% | | 06/01/25 | | 802,848 |
| 1,921,000 | | RingCentral, Inc.
| | (c) | | 03/01/25 | | 1,607,637 |
| 2,963,000 | | Splunk, Inc.
| | 1.13% | | 09/15/25 | | 2,751,145 |
| 710,000 | | Tyler Technologies, Inc.
| | 0.25% | | 03/15/26 | | 668,465 |
| 1,445,000 | | Verint Systems, Inc.
| | 0.25% | | 04/15/26 | | 1,240,533 |
| 1,025,000 | | Zscaler, Inc.
| | 0.13% | | 07/01/25 | | 1,261,262 |
| | | | | 24,741,290 |
| | | Specialty Retail – 1.7% | | | | | | |
| 1,186,000 | | Burlington Stores, Inc.
| | 2.25% | | 04/15/25 | | 1,206,755 |
| 310,000 | | Dick’s Sporting Goods, Inc.
| | 3.25% | | 04/15/25 | | 1,100,190 |
| 460,000 | | National Vision Holdings, Inc.
| | 2.50% | | 05/15/25 | | 615,003 |
| | | | | 2,921,948 |
| | | Technology Hardware, Storage & Peripherals – 0.5% | | | | | | |
| 690,000 | | Pure Storage, Inc.
| | 0.13% | | 04/15/23 | | 840,420 |
| | | Total Convertible Corporate Bonds
| | 148,460,162 |
| | | (Cost $149,748,371) | | | | | | |
| Shares | | Description | | Stated
Rate | | Stated
Maturity | | Value |
| CONVERTIBLE PREFERRED SECURITIES – 11.9% |
| | | Banks – 1.4% | | | | | | |
| 2,085 | | Wells Fargo & Co., Series L
| | 7.50% | | (d) | | 2,430,130 |
| | | Capital Markets – 0.3% | | | | | | |
| 8,800 | | KKR & Co., Inc., Series C
| | 6.00% | | 09/15/23 | | 534,336 |
| | | Electric Utilities – 4.6% | | | | | | |
| 19,025 | | American Electric Power Co., Inc.
| | 6.13% | | 08/15/23 | | 945,923 |
| 86,625 | | NextEra Energy, Inc.
| | 5.28% | | 03/01/23 | | 4,282,740 |
| 18,530 | | NextEra Energy, Inc.
| | 6.93% | | 09/01/25 | | 861,645 |
| 13,575 | | PG&E Corp.
| | 5.50% | | 08/16/23 | | 1,820,679 |
| | | | | 7,910,987 |
| | | Health Care Equipment & Supplies – 1.5% | | | | | | |
| 21,840 | | Becton Dickinson and Co., Series B
| | 6.00% | | 06/01/23 | | 1,064,482 |
Page 10
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Portfolio of Investments (Continued)
October 31, 2022
| Shares | | Description | | Stated
Rate | | Stated
Maturity | | Value |
| CONVERTIBLE PREFERRED SECURITIES (Continued) |
| | | Health Care Equipment & Supplies (Continued) | | | | | | |
| 14,465 | | Boston Scientific Corp., Series A
| | 5.50% | | 06/01/23 | | $1,591,728 |
| | | | | 2,656,210 |
| | | Life Sciences Tools & Services – 1.2% | | | | | | |
| 1,577 | | Danaher Corp., Series B
| | 5.00% | | 04/15/23 | | 2,065,711 |
| | | Machinery – 0.4% | | | | | | |
| 6,000 | | RBC Bearings, Inc., Series A
| | 5.00% | | 10/15/24 | | 733,920 |
| | | Multi-Utilities – 0.6% | | | | | | |
| 10,200 | | NiSource, Inc.
| | 7.75% | | 03/01/24 | | 1,040,094 |
| | | Wireless Telecommunication Services – 1.9% | | | | | | |
| 2,600 | | 2020 Cash Mandatory Exchangeable Trust (b)
| | 5.25% | | 06/01/23 | | 3,235,700 |
| | | Total Convertible Preferred Securities
| | 20,607,088 |
| | | (Cost $20,566,727) | | | | | | |
| | | Total Investments – 97.5%
| | 169,067,250 |
| | | (Cost $170,315,098) | | | | | | |
| | Net Other Assets and Liabilities – 2.5%
| | 4,386,766 |
| | Net Assets – 100.0%
| | $173,454,016 |
| (a) | This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933, as amended (the “1933 Act”). |
| (b) | This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the 1933 Act, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. 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, 2022, securities noted as such amounted to $34,946,761 or 20.1% of net assets. |
| (c) | Zero coupon security. |
| (d) | Perpetual maturity. |
Valuation Inputs
A summary of the inputs used to value the Fund’s investments as of October 31, 2022 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | Total
Value at
10/31/2022 | Level 1
Quoted
Prices | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Convertible Corporate Bonds*
| $ 148,460,162 | $ — | $ 148,460,162 | $ — |
| Convertible Preferred Securities: | | | | |
Life Sciences Tools & Services
| 2,065,711 | — | 2,065,711 | — |
Wireless Telecommunication Services
| 3,235,700 | — | 3,235,700 | — |
Other Industry Categories*
| 15,305,677 | 15,305,677 | — | — |
Total Investments
| $ 169,067,250 | $ 15,305,677 | $ 153,761,573 | $— |
| * | See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
Page 11
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Statement of Assets and Liabilities
October 31, 2022
| ASSETS: | |
Investments, at value
(Cost $170,315,098)
| $ 169,067,250 |
Cash
| 4,579,117 |
| Receivables: | |
Interest
| 302,903 |
Dividends
| 6,536 |
Total Assets
| 173,955,806 |
| LIABILITIES: | |
| Payables: | |
Investment securities purchased
| 361,562 |
Investment advisory fees
| 140,228 |
Total Liabilities
| 501,790 |
NET ASSETS
| $173,454,016 |
| NET ASSETS consist of: | |
Paid-in capital
| $ 198,069,072 |
Par value
| 54,000 |
Accumulated distributable earnings (loss)
| (24,669,056) |
NET ASSETS
| $173,454,016 |
NET ASSET VALUE, per share
| $32.12 |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)
| 5,400,002 |
Page 12
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Statement of Operations
For the Year Ended October 31, 2022
| INVESTMENT INCOME: | |
Dividends
| $ 1,276,141 |
Interest
| (6,430,691) |
Other
| 36 |
Total investment income
| (5,154,514) |
| EXPENSES: | |
Investment advisory fees
| 1,964,881 |
Total expenses
| 1,964,881 |
NET INVESTMENT INCOME (LOSS)
| (7,119,395) |
| NET REALIZED AND UNREALIZED GAIN (LOSS): | |
| Net realized gain (loss) on: | |
Investments
| (11,144,573) |
In-kind redemptions
| 27,609,927 |
Foreign currency transactions
| (2,346) |
Net realized gain (loss)
| 16,463,008 |
| Net change in unrealized appreciation (depreciation) on: | |
Investments
| (67,343,628) |
Foreign currency translation
| (118) |
Net change in unrealized appreciation (depreciation)
| (67,343,746) |
NET REALIZED AND UNREALIZED GAIN (LOSS)
| (50,880,738) |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
| $(58,000,133) |
See Notes to Financial Statements
Page 13
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Statements of Changes in Net Assets
| | Year
Ended
10/31/2022 | | Year
Ended
10/31/2021 |
| OPERATIONS: | | | |
Net investment income (loss)
| $ (7,119,395) | | $ (7,706,873) |
Net realized gain (loss)
| 16,463,008 | | 75,470,869 |
Net change in unrealized appreciation (depreciation)
| (67,343,746) | | 8,568,794 |
Net increase (decrease) in net assets resulting from operations
| (58,000,133) | | 76,332,790 |
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | |
Investment operations
| (51,468,060) | | (5,979,972) |
| SHAREHOLDER TRANSACTIONS: | | | |
Proceeds from shares sold
| 141,338,091 | | 134,102,148 |
Cost of shares redeemed
| (163,876,174) | | (135,796,752) |
Net increase (decrease) in net assets resulting from shareholder transactions
| (22,538,083) | | (1,694,604) |
Total increase (decrease) in net assets
| (132,006,276) | | 68,658,214 |
| NET ASSETS: | | | |
Beginning of period
| 305,460,292 | | 236,802,078 |
End of period
| $173,454,016 | | $305,460,292 |
| CHANGES IN SHARES OUTSTANDING: | | | |
Shares outstanding, beginning of period
| 5,850,002 | | 5,900,002 |
Shares sold
| 3,500,000 | | 2,650,000 |
Shares redeemed
| (3,950,000) | | (2,700,000) |
Shares outstanding, end of period
| 5,400,002 | | 5,850,002 |
Page 14
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Financial Highlights
For a share outstanding throughout each period
| | Year Ended October 31, |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 |
Net asset value, beginning of period
| $ 52.22 | | $ 40.14 | | $ 31.57 | | $ 28.72 | | $ 29.01 |
| Income from investment operations: | | | | | | | | | |
Net investment income (loss)
| (1.39) | | (1.33) | | (0.55) | | (0.24) | | (0.09) |
Net realized and unrealized gain (loss)
| (8.63) | | 14.42 | | 9.65 | | 3.58 | | 0.52 |
Total from investment operations
| (10.02) | | 13.09 | | 9.10 | | 3.34 | | 0.43 |
| Distributions paid to shareholders from: | | | | | | | | | |
Net investment income
| (1.39) | | (0.62) | | (0.53) | | (0.49) | | (0.67) |
Net realized gain
| (8.69) | | (0.39) | | — | | — | | (0.05) |
Total distributions
| (10.08) | | (1.01) | | (0.53) | | (0.49) | | (0.72) |
Net asset value, end of period
| $32.12 | | $52.22 | | $40.14 | | $31.57 | | $28.72 |
Total return (a)
| (22.76)% | | 32.74% | | 29.10% | | 11.72% | | 1.46% |
| Ratios to average net assets/supplemental data: | | | | | | | | | |
Net assets, end of period (in 000’s)
| $ 173,454 | | $ 305,460 | | $ 236,802 | | $ 194,158 | | $ 202,467 |
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
| (3.44)% | | (2.60)% | | (1.36)% | | (0.63)% | | (2.16)% |
Portfolio turnover rate (b)
| 94% | | 135% | | 119% | | 64% | | 71% |
| (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. |
See Notes to Financial Statements
Page 15
Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022
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 eleven 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 blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund. The investment objective of the Fund is to seek 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 readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
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 primary exchange for such securities.
Convertible corporate bonds, notes and other debt securities are fair valued on the basis of valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
| 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 valued at the mean of their most recent bid and asked price, if available, and otherwise at their last trade price.
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
| 1) | the credit conditions in the relevant market and changes thereto; |
| 2) | the liquidity conditions in the relevant market and changes thereto; |
| 3) | the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates); |
| 4) | issuer-specific conditions (such as significant credit deterioration); and |
| 5) | any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost. |
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) 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 most recent price provided by a pricing service; |
| 2) | the fundamental business data relating to the issuer; |
| 3) | an evaluation of the forces which influence the market in which these securities are purchased and sold; |
| 4) | the type, size and cost of the security; |
| 5) | the financial statements of the issuer/borrower, or the condition of the country of issue; |
| 6) | the credit quality and cash flow of the issuer/borrower, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis; |
| 7) | the information as to any transactions in or offers for the security; |
| 8) | the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies; |
| 9) | the coupon payments; |
| 10) | the quality, value and salability of collateral, if any, securing the security; |
| 11) | 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; |
| 12) | the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; 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 last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price; |
| 2) | the type of security; |
| 3) | the size of the holding; |
| 4) | the initial cost of the security; |
| 5) | transactions in comparable securities; |
| 6) | price quotes from dealers and/or third-party pricing services; |
| 7) | relationships among various securities; |
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022
| 8) | information obtained by contacting the issuer, analysts, or the appropriate stock exchange; |
| 9) | an analysis of the issuer’s financial statements; |
| 10) | the existence of merger proposals or tender offers that might affect the value of the security; and |
| 11) | other relevant factors. |
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| • | Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
| o | Quoted prices for similar investments in active markets. |
| o | Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. |
| o | Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
| o | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment. |
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2022, is included with the Fund’s Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing requirements to determine fair value in good faith for purposes of the 1940 Act. The rule permits fund boards to designate a fund’s investment adviser to perform fair value determinations, subject to board oversight and certain other conditions. The rule also defines when market quotations are “readily available” for purposes of the 1940 Act and requires a fund to fair value a portfolio investment when a market quotation is not readily available. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the Trust’s Board of Trustees designated the Advisor as its valuation designee to perform fair value determinations and approved new Advisor Valuation Procedures for the Trust.
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. 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 shown in “Net change in unrealized appreciation (depreciation) on investments” on the Statement of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are shown in “Net realized gain (loss) on foreign currency transactions” on the Statement of Operations. The portion of foreign currency gains and losses related
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022
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” on the Statement of Operations.
D. 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. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by the Fund during the fiscal years ended October 31, 2022 and 2021, was as follows:
| Distributions paid from: | 2022 | 2021 |
Ordinary income
| $18,082,403 | $3,695,653 |
Capital gains
| 33,385,657 | 2,284,319 |
Return of capital
| — | — |
As of October 31, 2022, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income
| $314,378 |
Accumulated capital and other gain (loss)
| (18,296,727) |
Net unrealized appreciation (depreciation)
| (6,686,707) |
E. 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, 2022, for federal income tax purposes, the Fund had $18,296,727 of 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, 2022, 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 2019, 2020, 2021, and 2022 remain open to federal and state audit. As of October 31, 2022, 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
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022
and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2022, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | | Accumulated
Net Realized
Gain (Loss)
on Investments | | Paid-in
Capital |
| $7,795,874 | | $(35,005,408) | | $27,209,534 |
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Tax Cost | | Gross
Unrealized
Appreciation | | Gross
Unrealized
(Depreciation) | | Net Unrealized
Appreciation
(Depreciation) |
| $175,749,983 | | $9,698,176 | | $(16,380,909) | | $(6,682,733) |
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 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.
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 target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022
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, 2022, were $189,702,545 and $235,094,002, respectively.
For the fiscal year ended October 31, 2022, the cost of in-kind purchases and proceeds from in-kind sales were $31,710,229 and $53,682,415, respectively.
5. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as “Creation Units.” Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation (“NSCC”) the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
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, 2024.
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.
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022
8. 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 was the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint pricing arrangement for each of the series of the Trust, including the Fund. Pursuant to this arrangement, which is effective as of November 1, 2022, the management fee the Fund pays to First Trust, as investment manager, will be discounted as the Fund’s net assets reach certain predefined levels. During any period in which the Advisor’s management fee is reduced in accordance with the breakpoints described above, the investment sub-advisory fee (which is based on the Advisor’s management fee) paid to SSI will be reduced to reflect the reduction in the Advisor’s management fee.
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, 2022, 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, 2022, 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, 2022, 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 22, 2022
We have served as the auditor of one or more First Trust investment companies since 2001.
Additional Information
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (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 year ended October 31, 2022, the amount of long-term capital gain distributions designated by the Fund was $33,385,657, which is taxable at the applicable capital gain tax rates for federal income tax purposes.
For the taxable year ended October 31, 2022, the following percentage of income dividends paid by the Fund qualify for the dividends received deduction available to corporations and are hereby designated as qualified dividend income:
| Dividends Received Deduction | | Qualified Dividend Income |
| 5.21% | | 5.17% |
A portion of the ordinary dividends (including short-term capital gains) that the Fund paid to shareholders during the taxable year ended October 31, 2022, 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 significant 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 more broadly diversified.
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.
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (Unaudited)
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
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 or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
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
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (Unaudited)
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. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021. There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. 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. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
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; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; 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.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
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.
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (Unaudited)
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
| 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”) 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 SSI Investment Management LLC (the “Sub-Advisor”). The Board approved the continuation of the Agreements for a one-year period ending June 30, 2023 at a meeting held on June 12–13, 2022. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 18, 2022 and June 12–13, 2022, 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 indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 18, 2022, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 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 12–13, 2022 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the 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
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (Unaudited)
had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 18, 2022 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board noted that the Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. The Board reviewed the materials provided by the Sub-Advisor and considered 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, including the Board’s prior meetings with members of the portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor 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 April 18, 2022 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 all peer funds in the Expense Group were 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, 2021 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-year period ended December 31, 2021 and outperformed the Performance Universe median for the three- and five-year periods ended December 31, 2021. The Board also noted that the Fund underperformed the benchmark index for the one-, three- and five-year periods ended December 31, 2021.
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 that its expenses relating to providing advisory services to the Fund will likely increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. 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, 2021 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (Unaudited)
with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. 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 indirect benefits to the Advisor were not unreasonable.
The Board considered the Sub-Advisor’s statements that it has some fixed and some variable expenses in connection with providing services to the Fund, and that it expects its expenses related to the Fund to be greater in 2022 than they were in 2021, citing systems upgrades and increases in business costs due to inflationary pressures. 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 its 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 the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Fund. The Board noted that the Sub-Advisor experiences indirect benefits in the form of soft dollar commissions generated by the Fund and considered a summary of the Sub-Advisor’s soft dollar arrangements. The Board concluded that the character and amount of potential indirect benefits to the Sub-Advisor were not unreasonable.
Board Considerations Regarding Approval of Amendments to the Investment Management and Sub-Advisory Agreements
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.
The Board of Trustees of First Trust Exchange-Traded Fund IV (the “Trust”), including the Independent Trustees, unanimously approved the amendment (the “Advisory Agreement Amendment”) of the Investment Management Agreement (the “Advisory Agreement”) with First Trust Advisors L.P. (the “Advisor”) and the amendment (the “Sub-Advisory Agreement Amendment” and together with the Advisory Agreement Amendment, the “Amendments”) of the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Trust, the Advisor and SSI Investment Management LLC (the “Sub-Advisor”) on behalf of the First Trust SSI Strategic Convertible Securities ETF (the “Fund”).
The Board approved the Amendments at a meeting held on October 24, 2022. As part of the review process, the Board reviewed information and had preliminary discussions with the Advisor regarding the proposed Amendments at meetings held on April 18, 2022, June 12–13, 2022 and September 18–19, 2022. Following those preliminary discussions, the Board requested and received information from the Advisor regarding the proposed Amendments, and that information was considered at an executive session of the Independent Trustees and their counsel held prior to the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Advisory Agreement Amendment, the Board considered that the purpose of the Advisory Agreement Amendment is to modify the unitary fee rate for the Fund under the Advisory Agreement by introducing a breakpoint schedule pursuant to which the unitary fee rate paid by the Fund to the Advisor will be reduced as assets of the Fund meet certain thresholds. In reviewing the Sub-Advisory Agreement Amendment, the Board considered that the purpose of the Sub-Advisory Agreement Amendment is to modify the sub-advisory fee rate for the Fund under the Sub-Advisory Agreement to reflect the modification of the unitary fee rate schedule under the Advisory Agreement Amendment. The Board noted the Advisor’s representations that the quality and quantity of the services provided to the Fund by the Advisor under the Advisory Agreement and by the Sub-Advisor under the Sub-Advisory Agreement will not be reduced or modified as a result of the Advisory Agreement Amendment and the Sub-Advisory Agreement Amendment, and that the obligations of the Advisor under the Advisory Agreement and the obligations of the Sub-Advisor under the Sub-Advisory Agreement will remain the same in all respects.
The Board noted that it, including the Independent Trustees, last approved the continuation of the Agreements for a one-year period ending June 30, 2023 at a meeting held on June 12–13, 2022. The Board noted that in connection with such approval it had determined, based upon the information provided, that the terms of the Agreements were fair and reasonable and that the continuation of the Agreements was in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent Trustees, unanimously determined that the terms of the Amendments are fair and reasonable and that the Amendments are in the best interests of the Fund.
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 SSI Strategic Convertible Securities ETF (the “Fund”), in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative
Additional Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (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, 2021, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $154,140. This figure is comprised of $5,931 paid (or to be paid) in fixed compensation and $148,209 paid (or to be paid) in variable compensation. There were a total of 24 beneficiaries of the remuneration described above. Those amounts include $79,156 paid (or to be paid) to senior management of First Trust Advisors L.P. and $74,984 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Fund (collectively, “Code Staff”).
Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust’s remuneration policy (the “Remuneration Policy”) which is determined and implemented by First Trust’s senior management. The Remuneration Policy reflects First Trust’s ethos of good governance and encapsulates the following principal objectives:
i. to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the risk profiles of the funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the funds managed by First Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Board of Trustees and Officers
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (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, Edward-Elmhurst Medical Group; Physician and Officer, Wheaton Orthopedics (1990 to 2021) | 223 | None |
Thomas R. Kadlec, Trustee
(1957) | • Indefinite Term
• Since Inception | Retired; President, ADM Investor Services, Inc. (Futures Commission Merchant) (2010 to July 2022) | 223 | Director, National Futures Association and ADMIS Singapore Ltd.; Formerly, Director of ADM Investor Services, Inc., ADM Investor Services International, ADMIS Hong Kong Ltd., and Futures Industry Association |
Denise M. Keefe, Trustee
(1964) | • Indefinite Term
• Since 2021 | Executive Vice President, Advocate Aurora Health and President, Advocate Aurora Continuing Health Division (Integrated Healthcare System) | 223 | Director and Board Chair of Advocate Home Health Services, Advocate Home Care Products and Advocate Hospice; Director and Board Chair of Aurora At Home (since 2018); Director of Advocate Physician Partners Accountable Care Organization; Director and Board Chair of RML Long Term Acute Care Hospitals; and Director of Senior Helpers (since 2021) |
Robert F. Keith, Trustee
(1956) | • Indefinite Term
• Since Inception | President, Hibs Enterprises (Financial and Management Consulting) | 223 | Formerly, Director of Trust Company of Illinois |
Niel B. Nielson, Trustee
(1954) | • Indefinite Term
• Since Inception | Senior Advisor (2018 to Present), Managing Director and Chief Operating Officer (2015 to 2018), Pelita Harapan Educational Foundation (Educational Products and Services) | 223 | 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) | 223 | 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. |
Board of Trustees and Officers (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (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 2016 | Managing Director and Chief Financial Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer, 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 2016 | Senior Vice President, 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. |
Privacy Policy
First Trust SSI Strategic Convertible Securities ETF (FCVT)
October 31, 2022 (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 professional 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 2022
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INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
SSI Investment Management LLC
2121 Avenue of the Stars, Suite 2050
Los Angeles, CA 90067
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Long Duration Opportunities ETF (LGOV)
------------------
Annual Report
For the Year Ended
October 31, 2022
------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2022
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
Statements of Changes in Net Assets.......................................... 13
Financial Highlights......................................................... 14
Notes to Financial Statements................................................ 15
Report of Independent Registered Public Accounting Firm...................... 25
Additional Information....................................................... 26
Board of Trustees and Officers............................................... 33
Privacy Policy............................................................... 35
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 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 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 LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2022
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, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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)
10/31/22 to 10/31/22 to 10/31/22
<S> <C> <C> <C>
FUND PERFORMANCE
NAV -21.37% -1.24% -4.60%
Market Price -21.37% -1.24% -4.60%
INDEX PERFORMANCE
ICE BofA 5+ Year US Treasury Index -22.65% -2.06% -7.55%
------------------------------------------------------------------------------------------------------------------------------------
</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 at the time the Fund's NAV is 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 49.3%
U.S. Government Bonds and Notes 8.3
U.S. Treasury Bills 5.4
Money Market Funds 41.0
Call Options Purchased 0.8
Put Options Purchased 0.2
Call Options Written (0.1)
Net Other Assets and Liabilities(1) (4.9)
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF TOTAL LONG
FIXED-INCOME
INVESTMENTS, CASH
CREDIT QUALITY(2) & CASH EQUIVALENTS
---------------------------------------------------------------
Government and Agency 55.3%
Cash & Cash Equivalents 44.7
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS(3)
---------------------------------------------------------------
Government National Mortgage Association,
Series 2010-61, Class KE, 5.00%, 05/16/40 12.4%
Federal National Mortgage Association,
Series 2005-74, Class NZ, 6.00%, 09/25/35 9.7
Federal National Mortgage Association, Pool
TBA, 4.00%, 12/15/52 9.2
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2018-K159, Class A3,
3.95%, 11/25/33 8.7
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2021-K1522, Class A2,
2.36%, 10/25/36 7.0
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2021-K1521, Class A2,
2.18%, 08/25/36 6.8
U.S. Treasury Bond, 1.13%, 05/15/40 5.7
U.S. Treasury Bond, 1.13%, 08/15/40 5.6
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2018-K157, Class A3,
3.99%, 08/25/33 5.0
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2020-K120, Class
XAM, IO, 1.21%, 10/25/30 5.0
-------
Total 75.1%
=======
---------------------------------------------------------------
WEIGHTED AVERAGE EFFECTIVE NET DURATION
---------------------------------------------------------------
October 31, 2022 10.35 Years
High - March 31, 2022 10.73 Years
Low - November 30, 2021 9.55 Years
-----------------------------
(1) Includes variation margin on futures.
(2) The ratings are by S&P Global Ratings. A credit rating is an assessment
provided by a nationally recognized statistical rating organization
(NRSRO), of the creditworthiness of an issuer with respect to debt
obligations. Ratings are measured 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.
(3) Percentages are based on the long positions only. Money market funds are
excluded.
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, 2022
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
4/30/21 11,760 11,593
10/31/21 12,133 11,951
4/30/22 10,797 10,448
10/31/22 9,540 9,245
</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.
Performance in securitized product investment strategies can be impacted from
the benefits of purchasing odd lot positions. The impact of these investments
can be particularly meaningful when funds have limited assets under management
and may not be a sustainable source of performance as a fund grows in size.
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, 2022 (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
JAMES SNYDER - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
JEREMIAH CHARLES - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as part of the
portfolio management team of the Fund since 2019.
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, 2022 began with markets coming under
pressure as measures of inflation began to accelerate upward, and market
participants questioning whether inflation was truly transitory, as so
proclaimed by the Federal Reserve (the "Fed"). In a continuation of the yield
curve repricing following the September 2021 Federal Open Market Committee
meeting, bond yields once again resumed their march higher as the calendar year
flipped into 2022, as fears of the COVID-19 variant, Omicron, were pushed aside,
broader economic data remained strong, and incoming inflation data was rapidly
deteriorating. Finally, the Fed relented and abandoned its transitory language,
began to pivot and signaled very hawkish monetary policy to come. This hawkish
pivot included guidance on not only an aggressive path of future interest rate
hikes, but also signaled the use of the balance sheet to finally conclude new
purchases of U.S. Treasuries and Agency mortgage-backed securities ("MBS") and
subsequently, to let the securities mature and roll off via Quantitative
Tightening. Unfortunately for the Fed and the broader U.S. economy, inflationary
readings continued to push higher and the Fed was forced, albeit, in our
opinion, clearly too late in its action, to act very aggressively. This started
in June 2022 with the first 75 basis point ("bps") hike in nearly 30 years and
was followed by successive 75 bps hikes at the Fed's July and September 2022
meetings. This abrupt monetary policy change kicked off rather sharp moves
higher in interest rates, volatility, and risk asset pricing, with each coming
under duress throughout the 2022 calendar year. Over the course of the 12-month
period ended October 31, 2022, 2-Year Treasury yields rose +399 bps, the 5-Year
Treasury yield rose +305 bps, and the 10-Year yield rose +243 bps. These
dramatic interest rate increases caused measures of volatility to spike, with
the Merrill Lynch Option Volatility Estimate Index increasing to levels not seen
since the Great Financial Crisis of 2008-09. With upward pressure in rates and
sustained interest rate volatility, overall risk asset pricing and market
liquidity have come under significant pressure. Over the period, securitized
spreads have widened with the Agency mortgage basis closing at +175 bps on
October 31, 2022, which is +111 bps wider and the Government Option-Adjusted
Spread on Agency MBS widening 45 bps to close the period at 49 bps, with a
period high of 64 bps.
PERFORMANCE ANALYSIS
For the 12-month period ended October 31, 2022, the Fund returned -21.37%, net
of fees, on a net asset value ("NAV") basis.
For the same period, the ICE BofA 5+ Year US Treasury Index (the "Index")
returned -22.65%.
During the same period, the Fund outperformed the Index by 1.28% net of fees, on
a NAV basis. Given the 2020-2021 historic ascent of home price appreciation and
correspondingly, measures of inflation, the Fund elected to strategically run a
lower overall effective duration. We remained mindful of the perceived logical
response the Fed would be forced to counteract such purchasing power
destruction, and as such maintained this very defensive posture on interest
rates throughout the year. To help maintain this lower duration, the Fund
utilizes derivatives, predominantly in treasury futures and options. The Fund
uses these in both long and short positions, to manage both its overall interest
rate exposure, and its key rate or duration exposure by maturity point along the
yield curve. Additionally, the Fund uses long treasury futures to gain exposure
to the U.S. government interest rates market. Since the Fund uses futures in
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
such a way, and interest rates are higher on the year, the use of futures has
contributed to the negative total return of the Fund over the 12-month period
ended October 31, 2022. However, active management of duration, curve and
volatility exposures using these instruments has contributed to the relative
outperformance versus the benchmark. Given the positively convex attributes of
Agency commercial mortgage-backed securities, and the team's favorable view on
multifamily fundamentals, the Fund maintained a significant allocation to the
sector. Additionally, the team has also looked to improve liquidity, and as
such, reduced its Agency collateralized mortgage obligation holdings, and
reallocated to U.S. Treasury and Treasury futures positions, alongside an
increase in using the Agency MBS TBA Dollar Roll market. We felt that this was a
prudent reallocation of risk to improve liquidity. Combined, these strategies
helped to drive the relative outperformance, where the Fund outperformed the
Index by over 125 bps, net of fees, on a NAV basis calendar year-to-date.
MARKET OUTLOOK
As expected, on the back of a massive increase in M2 money supply, limited
housing inventory coupled with historically low rates, ongoing supply chain
delays and labor market shortages, inflationary pressure built to levels not
seen in 40 years. We remain mindful of both how hard it can be to tame inflation
once set in, and the impacts this can have on term premium pricing along the
U.S. yield curve. And while we believe that it won't be a straight line, we
expect yields across the curve will continue to move higher, albeit at a much
slower pace than experienced earlier this year. We believe the Fed may be forced
to hike interest rates higher than the market expects, and as such believe that
the curve inversion will continue to persist, although we do not expect
significantly deeper inversion. Inflation remains high, however we believe the
aggressive rate hikes implemented over the last several months have just begun
to work their way through the broader economy, and already, it appears the
housing market is beginning to cool off as month over month home price
appreciation has turned negative. Currently, we do not believe the Fed will be
an outright seller of its MBS holdings for long as measures of volatility and
illiquidity remain this elevated. We do anticipate that heightened levels of
rate volatility will remain over the shorter term, however, to expect measures
of rate volatility and spread pricing to simply return to post-GFC/pre-COVID-19
levels in the near term and perhaps even intermediate term, would be
unrealistic, in our view. Heavy handed Fed intervention appears to be over; for
as long as inflation persists, the Fed appears committed to the fight. Despite
the moderately bearish tone on rates, spreads are quite wide, and we believe
opportunities abound, as we are now very positive on generic Agency MBS spread
valuations.
We remain committed to finding value across the various sectors of the mortgage
market, but also along the term spectrum of the U.S. yield curve. Given the
massive increase in rates this year, we have begun to increase the interest rate
sensitivity in the Fund as duration risks appear to be more balanced than
earlier in the year, and should yields continue to climb, we will likely
continue to extend duration. We remain committed to actively managing the
convexity component in the portfolio; meaning we do not want to extend in
duration as rates rise, and conversely, we do not want to shorten or lose
duration into a rally. From an asset allocation perspective, we plan to take
advantage of very wide spreads in select securitized opportunities that the
managers find to be attractively priced, mindful of overall market and Fund
liquidity constraints. In our view, this approach would provide higher current
income, total return, and spread protection for shareholders. We believe this
strategy can be very effective with proper security selection, particularly when
combined with appropriate yield curve management. We plan to continue to
maintain a tradeable portfolio as that is critical to being able to act should
opportunities arise.
Page 6
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD (a) PERIOD (a) (b)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
Actual $1,000.00 $ 883.60 0.65% $3.09
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 49.3%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 12.9%
Federal National Mortgage Association
$ 942,978 Series 2005-74, Class NZ..................................... 6.00% 09/25/35 $ 1,013,158
Government National Mortgage Association
1,292,000 Series 2010-61, Class KE..................................... 5.00% 05/16/40 1,300,599
411,671 Series 2015-168, Class GI, IO................................ 5.50% 02/16/33 26,289
----------------
2,340,046
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 31.1%
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates
7,420,851 Series 2014-K036, Class X1, IO (a)........................... 0.69% 10/25/23 36,609
570,000 Series 2018-K157, Class A3................................... 3.99% 08/25/33 524,356
1,000,000 Series 2018-K159, Class A3................................... 3.95% 11/25/33 911,944
1,936,000 Series 2019-K095, Class XAM, IO (a).......................... 1.24% 06/25/29 131,494
6,850,000 Series 2020-K120, Class XAM, IO (a).......................... 1.21% 10/25/30 522,632
1,991,492 Series 2020-K1515, Class X1, IO (a).......................... 1.51% 02/25/35 236,489
2,634,646 Series 2020-K1516, Class X1, IO (a).......................... 1.51% 05/25/35 325,757
3,425,783 Series 2020-K1517, Class X1, IO (a).......................... 1.33% 07/25/35 360,037
1,000,000 Series 2021-K1521, Class A2.................................. 2.18% 08/25/36 716,026
1,000,000 Series 2021-K1522, Class A2.................................. 2.36% 10/25/36 729,105
Government National Mortgage Association
872,938 Series 2020-159, Class Z (b)................................. 2.50% 10/16/62 457,429
482,857 Series 2020-197, Class Z (a)................................. 2.25% 10/16/62 227,691
209,433 Series 2021-4, Class Z (a)................................... 2.00% 09/16/62 87,348
900,924 Series 2021-28, Class Z (a).................................. 2.00% 10/16/62 401,028
----------------
5,667,945
----------------
PASS-THROUGH SECURITIES -- 5.3%
Federal National Mortgage Association
1,000,000 Pool TBA..................................................... 5.00% 12/15/52 962,617
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................................... 8,970,608
(Cost $11,298,464) ----------------
U.S. GOVERNMENT BONDS AND NOTES -- 8.3%
1,000,000 U.S. Treasury Bond.............................................. 1.13% 05/15/40 594,492
500,000 U.S. Treasury Bond.............................................. 1.75% 08/15/41 325,254
1,000,000 U.S. Treasury Bond.............................................. 1.13% 08/15/40 589,570
----------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES....................................................... 1,509,316
(Cost $1,917,075) ----------------
U.S. TREASURY BILLS -- 5.4%
1,000,000 U.S. Treasury Bill.............................................. (c) 03/16/23 984,194
(Cost $986,182) ----------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
MONEY MARKET FUNDS -- 41.0%
7,466,268 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class -
2.85% (d)................................................................................ 7,466,268
(Cost $7,466,268) ----------------
TOTAL INVESTMENTS -- 104.0%................................................................. 18,930,386
(Cost $21,667,989) ----------------
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- -------------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
PURCHASED OPTIONS -- 1.0%
CALL OPTIONS PURCHASED -- 0.8%
20 U.S. 5-Year Treasury Futures Call................. $ 2,136,406 $ 107.00 01/27/23 $ 23,750
15 U.S. Treasury Long Bond Futures Call.............. 1,802,813 121.00 12/23/22 38,203
5 U.S. Treasury Long Bond Futures Call.............. 600,938 119.00 01/27/23 21,328
10 U.S. Treasury Long Bond Futures Call.............. 1,201,875 119.00 02/24/23 47,813
5 U.S. Treasury Long Bond Futures Call.............. 600,938 121.00 02/24/23 18,906
----------------
TOTAL CALL OPTIONS PURCHASED................................................................ 150,000
(Cost $148,893) ----------------
PUT OPTIONS PURCHASED -- 0.2%
10 U.S. 5-Year Treasury Futures Put.................. 1,068,203 107.50 02/24/23 18,203
10 U.S. 10-Year Treasury Futures Put................. 1,108,750 110.50 01/27/23 17,344
----------------
TOTAL PUT OPTIONS PURCHASED................................................................. 35,547
(Cost $31,067) ----------------
TOTAL PURCHASED OPTIONS..................................................................... 185,547
(Cost $179,960) ----------------
CALL OPTIONS WRITTEN -- (0.1)%
(5) U.S. Treasury Long Bond Futures Call.............. (600,938) 124.00 01/27/23 (10,469)
(Premiums received $15,612) ----------------
NET OTHER ASSETS AND LIABILITIES -- (4.9)%.................................................. (891,840)
----------------
NET ASSETS -- 100.0%........................................................................ $ 18,213,624
================
</TABLE>
FUTURES CONTRACTS AT OCTOBER 31, 2022 (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 Long Bond Futures Long 18 Dec-2022 $ 2,169,000 $ 2,579
Ultra 10-Year U.S. Treasury Notes Long 5 Dec-2022 579,922 (247)
Ultra U.S. Treasury Bond Futures Long 12 Dec-2022 1,531,875 (13,251)
-------------- ----------------
$ 4,280,797 $ (10,919)
============== ================
</TABLE>
-----------------------------
(a) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
(b) 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.
(c) Zero coupon security.
(d) Rate shown reflects yield as of October 31, 2022.
IO - Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
TBA - To-Be-Announced Security
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2022 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
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage-Backed Securities..... $ 8,970,608 $ -- $ 8,970,608 $ --
U.S. Government Bonds and Notes....................... 1,509,316 -- 1,509,316 --
U.S. Treasury Bills................................... 984,194 -- 984,194 --
Money Market Funds.................................... 7,466,268 7,466,268 -- --
--------------- --------------- --------------- ---------------
Total Investments..................................... 18,930,386 7,466,268 11,464,118 --
Call Options Purchased................................ 150,000 150,000 -- --
Put Options Purchased................................. 35,547 35,547 -- --
Futures Contracts*.................................... 2,579 2,579 -- --
--------------- --------------- --------------- ---------------
Total................................................. $ 19,118,512 $ 7,654,394 $ 11,464,118 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Call Options Written.................................. $ (10,469) $ (10,469) $ -- $ --
Futures Contracts*.................................... (13,498) (13,498) -- --
--------------- --------------- --------------- ---------------
Total................................................. $ (23,967) $ (23,967) $ -- $ --
=============== =============== =============== ===============
</TABLE>
* 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 Statements 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, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value.................................................. $ 18,930,386
Options contracts purchased, at value ................................. 185,547
Cash segregated as collateral for open futures and written
options contracts................................................... 36,374
Receivables:
Interest............................................................ 59,444
Dividends........................................................... 16,615
--------------
Total Assets........................................................ 19,228,366
--------------
LIABILITIES:
Options contracts written, at value.................................... 10,469
Payables:
Investment securities purchased..................................... 962,253
Variation margin.................................................... 31,776
Investment advisory fees............................................ 10,244
--------------
Total Liabilities................................................... 1,014,742
--------------
NET ASSETS............................................................. $ 18,213,624
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 25,253,857
Par value.............................................................. 8,500
Accumulated distributable earnings (loss).............................. (7,048,733)
--------------
NET ASSETS............................................................. $ 18,213,624
==============
NET ASSET VALUE, per share............................................. $ 21.43
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 850,002
==============
Investments, at cost................................................... $ 21,667,989
==============
Premiums paid on options contracts purchased........................... $ 179,960
==============
Premiums received on options contracts written......................... $ 15,612
==============
</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, 2022
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest............................................................... $ 647,213
Dividends.............................................................. 93,179
--------------
Total investment income............................................. 740,392
--------------
EXPENSES:
Investment advisory fees............................................... 196,922
--------------
Total expenses...................................................... 196,922
--------------
NET INVESTMENT INCOME (LOSS)........................................... 543,470
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... (2,342,910)
Futures contracts................................................... (1,722,463)
Purchased options contracts......................................... (19,487)
Written options contracts........................................... 2,831
--------------
Net realized gain (loss)............................................... (4,082,029)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... (2,863,747)
Futures contracts................................................... (48,569)
Purchased options contracts......................................... (1,068)
Written options contracts........................................... 9,383
--------------
Net change in unrealized appreciation (depreciation)................... (2,904,001)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (6,986,030)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (6,442,560)
==============
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/2022 10/31/2021
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 543,470 $ 545,413
Net realized gain (loss)............................................... (4,082,029) (323,347)
Net change in unrealized appreciation (depreciation)................... (2,904,001) (611,405)
-------------- ---------------
Net increase (decrease) in net assets resulting from operations........ (6,442,560) (389,339)
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (459,443) (1,088,250)
Return of capital...................................................... (36,043) (45,452)
-------------- ---------------
Total distributions to shareholders.................................... (495,486) (1,133,702)
-------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 7,339,085 18,673,006
Cost of shares redeemed................................................ (15,438,060) (5,624,256)
-------------- ---------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................ (8,098,975) 13,048,750
-------------- ---------------
Total increase (decrease) in net assets................................ (15,037,021) 11,525,709
NET ASSETS:
Beginning of period.................................................... 33,250,645 21,724,936
-------------- ---------------
End of period.......................................................... $ 18,213,624 $ 33,250,645
============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 1,200,002 750,002
Shares sold............................................................ 300,000 650,000
Shares redeemed........................................................ (650,000) (200,000)
-------------- ---------------
Shares outstanding, end of period...................................... 850,002 1,200,002
============== ===============
</TABLE>
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 ENDED OCTOBER 31,
------------------------------------------------ PERIOD ENDED
2022 2021 2020 10/31/2019 (a)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 27.71 $ 28.97 $ 28.04 $ 25.00
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.49 0.47 0.82 0.55
Net realized and unrealized gain (loss) (6.36) (0.77) 1.24 2.95
---------- ---------- ---------- ----------
Total from investment operations (5.87) (0.30) 2.06 3.50
---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.38) (0.47) (1.13) (0.46)
Net realized gains -- (0.45) -- --
Return of capital (0.03) (0.04) -- --
---------- ---------- ---------- ----------
Total distributions (0.41) (0.96) (1.13) (0.46)
---------- ---------- ---------- ----------
Net asset value, end of period $ 21.43 $ 27.71 $ 28.97 $ 28.04
========== ========== ========== ==========
TOTAL RETURN (b) (21.37)% (1.02)% 7.46% 14.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 18,214 $ 33,251 $ 21,725 $ 11,215
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets (c) 0.65% 0.69%(d) 0.69%(d) 0.65% (e)
Ratio of net investment income (loss) to
average net assets 1.79% 1.61% 1.89% 2.64% (e)
Portfolio turnover rate (f) (g) 98% 142% 174% 152%
</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 69%,
69%, 118% and 104% for the periods ended October 31, 2022, October 31,
2021, October 31, 2020 and October 31, 2019, respectively.
Page 14 See Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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 twelve funds that are offering shares. This
report covers the First Trust Long Duration Opportunities ETF (the "Fund"),
which trades under the ticker "LGOV" on the NYSE Arca, Inc. ("NYSE Arca"). The
Fund represents a separate series of shares of beneficial interest in the Trust.
Unlike conventional mutual funds, the Fund issues and redeems shares on a
continuous basis, at net asset value ("NAV"), only in large blocks of shares
known as "Creation Units."
The Fund is an actively managed exchange-traded fund ("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 objective 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 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 portfolio managers. 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 portfolio managers 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 readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Page 15
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
Trust" or the "Advisor"), in accordance with valuation procedures approved by
the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act
and rules thereunder. Investments valued by the Advisor's Pricing Committee, if
any, are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are fair valued on the basis of
valuations provided by a third-party pricing service approved by the
Advisor's Pricing Committee, which may use the following valuation inputs
when available:
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.
Pricing services generally value fixed-income securities assuming orderly
transactions of an institutional round lot size, but a Fund may hold or
transact in such securities in smaller, odd lot sizes. Odd lots may trade
at lower prices than institutional round lots.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade 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 primary exchange for such securities.
Shares of open-end funds are valued 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 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 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 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
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
service, does not reflect the security's fair value. As a general principle, the
current fair value of a security would appear to be the amount which the owner
might reasonably expect to receive for the security upon its current sale. When
fair value prices are used, generally they will differ from market quotations or
official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not
limited to, the following:
1) the most recent price provided by a pricing service;
2) the fundamental business data relating to the issuer;
3) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
4) the type, size and cost of a security;
5) the financial statements of the issuer, or the financial
condition of the country of issue;
6) the credit quality and cash flow of the issuer, or country of
issue, based on the Pricing Committee's, sub-adviser's or
portfolio manager's analysis, as applicable, or external
analysis;
7) the information as to any transactions in or offers for the
security;
8) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
9) the coupon payments;
10) the quality, value and salability of collateral, if any,
securing the security;
11) 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);
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.
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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.
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
The United Kingdom's Financial Conduct Authority (the "FCA"), which regulates
the London Interbank Offered Rates ("LIBOR") announced on March 5, 2021 that it
intended to phase-out all LIBOR reference rates, beginning December 31, 2021.
Since that announcement, the FCA has ceased publication of all non-USD LIBOR
reference rates and the 1-week and 2-month USD LIBOR reference rates as of
December 31, 2021. The remaining USD LIBOR settings will cease to be published
or no longer be representative immediately after June 30, 2023. The
International Swaps and Derivatives Association, Inc. ("ISDA") confirmed that
the FCA's March 5, 2021 announcement of its intention to cease providing LIBOR
reference rates, constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
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. There is no assurance that
any alternative reference rate, including SOFR, will be similar to or produce
the same value or economic equivalence as LIBOR or that instruments using an
alternative rate will have the same volume or liquidity.
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, 2022, the Fund had no when-issued,
delayed-delivery securities, or 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
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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 objective, 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
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.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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)
substantially similar (same type, coupon and maturity) securities on a future
date. Mortgage dollar rolls are recorded as separate purchases 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. 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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
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, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 459,443 $ 1,088,250
Capital gains................................... -- --
Return of capital............................... 36,043 45,452
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ --
Accumulated capital and other gain (loss)....... (4,265,975)
Net unrealized appreciation (depreciation)...... (2,782,758)
K. 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 2019,
2020, 2021, and 2022 remain open to federal and state audit. As of October 31,
2022, 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, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $4,265,975.
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, 2022, 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,
2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
-------------- -------------- ---------------
$ (173,358) $ 173,358 $ --
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 21,702,225 $ 48,425 $ (2,831,183) $ (2,782,758)
</TABLE>
L. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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 target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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, 2022, were $18,101,630 and $0, 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, 2022,
were $27,082,614 and $0, respectively. The cost of purchases to cover
investments sold short and the proceeds of investments sold short were
$1,020,703 and $1,020,703, respectively.
For the fiscal year ended October 31, 2022, the Fund had no in-kind
transactions.
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2022, 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* $ 2,579 on futures contracts* $ 13,498
Options Interest Options contracts Options contracts
rate risk purchased, at value 185,547 written, at value 10,469
</TABLE>
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Portfolio of Investments. Only the current day's variation margin is
presented on the Statement of Assets and Liabilities.
Page 22
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--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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, 2022, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
STATEMENT OF OPERATIONS LOCATION INTEREST RATE RISK
--------------------------------------------------------------------------------
Net realized gain (loss) on:
Futures contracts $ (1,722,463)
Purchased options contracts (19,487)
Written options contracts 2,831
Net change in unrealized appreciation (depreciation) on:
Futures contracts (48,569)
Purchased options contracts (1,068)
Written options contracts 9,383
For the fiscal year ended October 31, 2022, the notional value of futures
contracts opened and closed were $617,596,971 and $621,355,002, respectively.
During the fiscal year ended October 31, 2022, the premiums for purchased
options contracts opened were $3,132,372 and the premiums for purchased options
contracts closed, exercised and expired were $2,974,398.
During the fiscal year ended October 31, 2022, the premiums for written options
contracts opened were $550,078 and the premiums for written options contracts
closed, exercised and expired were $538,648.
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
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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, 2024.
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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
Page 24
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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, 2022, the related statement of operations for the year then ended, the
changes in net assets for each of the two years in the period then ended, the
financial highlights for the years ended 2022, 2021, and 2020 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, 2022, 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 ended, and the financial highlights for the years ended 2022, 2021, and
2020, 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, 2022, 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 21, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (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, 2022 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, 2022, 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 significant
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
more broadly diversified.
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the
Page 26
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
value of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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 LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of the Fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of the
Fund's shares and result in increased market volatility. During any such events,
the Fund's shares may trade at increased premiums or discounts to their net
asset value and the bid/ask spread on the Fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
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, 2023 at a meeting held on June 12-13, 2022. The
Board determined that the continuation of the Agreement is in the best interests
of the Fund in light of the nature, extent and quality of the services provided
and such other matters as the Board considered to be relevant in the exercise of
its business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, 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 indirect benefits to the Advisor and its affiliate, First Trust
Portfolios L.P. ("FTP"); and information on the Advisor's compliance program.
The Board reviewed initial materials with the Advisor at the meeting held on
April 18, 2022, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the
April 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 12-13, 2022 meeting, as well as at the June meeting. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor continues to be a reasonable business arrangement from
the Fund's perspective. The Board determined that, given the totality of the
information provided with respect to the Agreement, the Board had received
sufficient information to renew the Agreement. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor manages the Fund and knowing the Fund's unitary fee.
Page 29
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
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 Securitized Products Group 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 Securitized
Products Group and noted the Board's prior meetings with members of the Group.
The Board considered the Advisor's statement that it applies the same oversight
model internally with its Securitized Products Group 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 April 18, 2022 meeting,
described to the Board the scope of its ongoing investment in additional
personnel and infrastructure to maintain and improve the quality of services
provided to the Fund and the other funds in the First Trust Fund Complex. In
light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of the services provided to the
Trust and the Fund by the Advisor under the Agreement have been and are expected
to remain satisfactory and that the Advisor has managed the Fund consistent with
its investment objective, policies and restrictions.
The Board considered the unitary fee rate 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, brokerage
commissions and other expenses connected with the execution of portfolio
transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if
any, and extraordinary expenses, if any. The Board received and reviewed
information showing the fee rates and expense ratios of the peer funds in the
Expense Group, as well as advisory and unitary fee rates charged by the Advisor
to other fund (including ETFs) and non-fund clients, as applicable. Because the
Fund pays a unitary fee, the Board determined that expense ratios were the most
relevant comparative data point. Based on the information provided, the Board
noted that the unitary fee rate for the Fund was 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 April 18, 2022 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 all peer funds in the Expense Group were 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 the one-year period ended
December 31, 2021 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-year period ended December 31, 2021 and outperformed the benchmark index for
the one-year period ended December 31, 2021.
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 that its expenses
relating to providing advisory services to the Fund will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. 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, 2021 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
and product-line profitability data, for the same period. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered indirect benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered that the Advisor had identified as an indirect benefit to the Advisor
and FTP their exposure to investors and brokers who, absent their exposure to
the Fund, may have had no dealings with the Advisor or FTP, and noted that the
Advisor does not utilize soft dollars in connection with the Fund. The Board
concluded that the character and amount of potential indirect benefits to the
Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") 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 Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreement for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the continuation of the
Agreement was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
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 Long 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
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, 2021, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $35,517. This
figure is comprised of $1,853 paid (or to be paid) in fixed compensation and
$33,664 paid (or to be paid) in variable compensation. There were a total of 26
beneficiaries of the remuneration described above. Those amounts include $9,477
paid (or to be paid) to senior management of First Trust Advisors L.P. and
$26,040 paid (or to be paid) to other employees whose professional activities
have a material impact on the risk profiles of First Trust Advisors L.P. or the
Fund (collectively, "Code Staff").
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
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 32
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 33
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--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (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
professional 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 2022
Page 35
<PAGE>
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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
320 South Canal Street
Chicago, IL 60606
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
FT Cboe Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R) (KNG)
------------------
Annual Report
For the Year Ended
October 31, 2022
------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 13
Statement of Operations...................................................... 14
Statements of Changes in Net Assets.......................................... 15
Financial Highlights......................................................... 16
Notes to Financial Statements................................................ 17
Report of Independent Registered Public Accounting Firm...................... 24
Additional Information....................................................... 25
Board of Trustees and Officers............................................... 32
Privacy Policy............................................................... 34
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 Cboe Vest(SM) Financial LLC ("Cboe Vest" 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 (FT Cboe Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R);
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 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 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-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
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2022
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the FT Cboe
Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R) (the "Fund"), which
contains detailed information about the Fund for the twelve months ended October
31, 2022.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
The FT Cboe Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R) (the
"Fund") seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the Cboe
S&P 500(R) Dividend Aristocrats Target Income Index Monthly Series (the
"Index").
The Fund will normally invest at least 80% of its total assets (including
investment borrowings) in the common stocks and call options that comprise the
Index. The Fund, using an indexing investment approach, attempts to replicate,
before fees and expenses, the performance of the Index. The Index is owned,
developed, maintained and calculated by S&P Opco, LLC (the "Index Provider").
The Index is a rules-based buy-write index designed with the primary goal of
generating an annualized level of income from stock dividends and option
premiums that is approximately 3% over the annual dividend yield of the S&P
500(R) Index and a secondary goal of generating capital appreciation based on
the price returns of the equity securities contained in the Index. The Index's
objective to deliver a target level of income could result in the Fund selling
securities to meet the target, which could make the Fund less tax-efficient than
other ETFs. The Index is composed of two parts: (1) an equal-weighted portfolio
of the stocks contained in the S&P 500 Dividend Aristocrats Index (the
"Aristocrat Stocks") that have options that trade on a national securities
exchange and (2) a rolling series of short (written) call options on each of the
Aristocrat Stocks (the "Covered Calls"). The S&P 500 Dividend Aristocrats Index
includes companies in the S&P 500(R) Index that have increased dividend payments
each year for at least 25 consecutive years and have a float adjusted market-cap
of at least $3 billion as of the rebalancing reference date and have an average
daily value traded of at least $5 million.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (3/26/18) Inception (3/26/18)
10/31/22 to 10/31/22 to 10/31/22
<S> <C> <C> <C>
FUND PERFORMANCE
NAV -4.52% 9.41% 51.27%
Market Price -4.54% 9.41% 51.26%
INDEX PERFORMANCE
Cboe S&P 500(R) Dividend Aristocrats Target Income
Index Monthly Series -3.83% 10.24% 56.59%
S&P 500(R) Dividend Aristocrats Index -3.78% 10.75% 59.92%
S&P 500(R) Index -14.61% 10.43% 57.85%
------------------------------------------------------------------------------------------------------------------------------------
</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 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 is 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)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
SECTOR CLASSIFICATION INVESTMENTS
---------------------------------------------------------------
Consumer Staples 22.0%
Industrials 19.1
Materials 12.4
Financials 10.8
Health Care 10.6
Consumer Discretionary 7.8
Information Technology 4.8
Utilities 4.7
Real Estate 4.7
Energy 3.1
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF NET
FUND ALLOCATION ASSETS
---------------------------------------------------------------
Common Stocks 99.8%
Money Market Funds 0.5
Call Options Written (0.3)
Net Other Assets and Liabilities 0.0*
-------
Total 100.0%
=======
* Amount is less than 0.1%.
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
---------------------------------------------------------------
Caterpillar, Inc. 1.7%
W.W.Grainger, Inc. 1.7
Roper Technologies, Inc. 1.7
Archer-Daniels-Midland Co. 1.6
A.O.Smith Corp. 1.6
Kimberly-Clark Corp. 1.6
S&P Global, Inc. 1.6
Linde PLC 1.6
McDonald's Corp. 1.6
Federal Realty Investment Trust 1.6
-------
Total 16.3%
=======
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 26, 2018 - OCTOBER 31, 2022
FT Cboe Vest S&P 500(R) Cboe S&P 500(R) Dividend
Dividend Aristocrats Target Aristocrats Target Income S&P 500 Dividend S&P 500(R)
Income ETF(R) Index Monthly Series Aristocrats Index Index
<S> <C> <C> <C> <C>
3/26/18 $10,000 $10,000 $10,000 $10,000
4/30/18 9,957 9,962 9,958 9,974
10/31/18 10,285 10,331 10,349 10,313
4/30/19 11,264 11,355 11,449 11,320
10/31/19 11,929 12,076 12,181 11,791
4/30/20 10,550 10,720 10,856 11,418
10/31/20 11,814 12,042 12,225 12,935
4/30/21 15,088 15,446 15,754 16,667
10/31/21 15,847 16,285 16,622 18,485
4/30/22 15,601 16,096 16,436 16,701
10/31/22 15,127 15,659 15,992 15,785
</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
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the FT Cboe Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R)
("KNG" or 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
Cboe Vest(SM) Financial LLC ("Cboe Vest" or the "Sub-Advisor") serves as the
investment sub-advisor to the Fund. In this capacity, Cboe Vest is responsible
for the selection and ongoing monitoring of the securities in the Fund's
investment portfolio. Cboe Vest, with principal offices at 8350 Broad Street,
Suite 240, McLean, VA 22102, was founded in 2012. Cboe Vest had approximately
$9.3 billion under management or committed to management as of October 31, 2022.
PORTFOLIO MANAGEMENT TEAM
KARAN SOOD, DIRECTOR OF CBOE VEST
HOWARD RUBIN, MANAGING DIRECTOR OF CBOE VEST
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as a part of the
portfolio management team of the Fund since March 2021.
COMMENTARY
DISCUSSION OF FUND PERFORMANCE
This discussion is for the Fund for the 12-month period ended October 31, 2022
(the "current fiscal period"). The Fund seeks to track the Cboe S&P 500(R)
Dividend Aristocrats Target Income Index Monthly Series (the "SPATI Index" or
the "Benchmark").
MARKET RECAP
The strong global equity market rally of the prior fiscal year was followed by a
sharp downturn in the current period, as high levels of inflation took hold, in
large part due to easy monetary and fiscal policies, pandemic-induced supply
chain disruptions, and the impact of the Russia-Ukraine war on energy prices.
The Federal Reserve (the "Fed") responded to the increasing inflation rate by
hiking the Fed Funds target rate by 3% by the end of the current period. They
started slowly, with smaller hikes in March and May 2022, and picked up the pace
with larger hikes in June, July, and September of 2022. This Fed action to cool
inflation and the economy pushed stocks lower.
While equity markets were relatively flat for the first five months of the
current fiscal period (November 2021 through March 2022), they fell sharply over
the final seven months of the period (April 2022 through October 2022), as
inflation and the Fed's response to it, accelerated. U.S. equities, as measured
by the S&P 500(R) Index fell 14.61%. As in the prior period, the current fiscal
period also saw extreme variations in returns across the eleven primary sectors
within the S&P 500(R) Index. Four of the eleven sectors posted increases, with
the Energy sector far outpacing the rest of the market. The top three performing
sectors were Energy, Consumer Staples, and Utilities, which returned 64.3%,
4.9%, and 2.9%, respectively. The bottom three sectors were Communication
Services, Consumer Discretionary, and Real Estate. These bottom performing
sectors returned -40.6%, -28.5%, and -20.7%, respectively.
PERFORMANCE ANALYSIS
During the current fiscal period, the Fund generally held approximately equal
weights in 65 stocks, as well as written call options on almost all of these
stocks. The premiums received from the written call options, plus the dividends
received from the equities, sum to approximately 3.0% in excess of the dividend
yield of the S&P 500(R) Index annually. The options positions contributed a
positive 0.05% to the Fund's net asset value ("NAV") performance for the period.
For the current fiscal period, the Fund's NAV performance was -4.52%, and using
market prices was -4.54%, while the SPATI Index performance was -3.83%. The
underperformance of 0.69% can be explained by the following factors:
1. Fees and Expenses: Fees and expenses reduced the Fund's performance
by approximately 0.72%.
2. Execution Costs: Commissions, plus slippage due to trading
securities at prices other than mid-market, reduced the Fund's
performance by approximately 0.06%.
3. Fund versus Index Holdings: While the Fund attempts to hold
securities in the same proportion (i.e., weighting) as the Index, at
times the Fund weights may deviate from the Index weights. The
options positions may be "optimized" such that the Fund's option
weights are set to account for any liquidity concerns. That is,
options that trade with wider bid-ask spreads may be excluded from
the Fund holdings to minimize execution costs. For the current
fiscal period we estimate that the difference in weights between the
Fund and the Index had a net 0.09% positive impact to the Fund's
performance.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
IMPACT OF FUND HOLDINGS ON PERFORMANCE
The top five performing holdings in the Fund for the current fiscal period were
Exxon Mobil Corp., Cardinal Health, Inc., Chevron Corp., Archer-Daniels-Midland
Co., and Genuine Parts Co., with returns of 79.7%, 64.4%, 64.4%, 54.0%, and
39.2%, respectively.
The bottom five performing holdings for the current fiscal period were VF Corp.,
Stanley Black & Decker, Inc., T. Rowe Price Group, Inc., West Pharmaceutical
Services, and Pentair PLC, with returns of -59.8%, -55.2%, -49.3%, -46.4%, and
-40.9%, respectively.
IMPACT OF SECTOR WEIGHTINGS ON PERFORMANCE
For the current fiscal period, the Fund had sector weightings that were in line
with the benchmark, as the Fund seeks to track the SPATI Index. However, the
Fund's sector weightings were substantially different than the sector weightings
of the S&P 500(R) Index. Relative to the S&P 500(R) Index, the Fund was
significantly overweight the Consumer Staples, Industrials, and Materials
sectors, and was significantly underweight the Information Technology,
Communication Services, and Consumer Discretionary sectors. The net effect of
the Fund's sector weightings relative to those of the S&P 500(R) Index's sector
weightings positively impacted the Fund's performance.
Strong performances from the Fund's holdings within the Consumer Staples sector,
coupled with the Fund's relative overweight in this sector, contributed to
relative overperformance for the Fund, versus the S&P 500(R) Index for the
current fiscal period.
Weak performances in the Information Technology and Communication Services
sectors, coupled with the Fund's relative underweights in these sectors,
contributed to relative overperformance for the Fund, versus the S&P 500(R)
Index for the current fiscal period.
MARKET AND FUND OUTLOOK
During the current fiscal period, the Russia-Ukraine war, as well as high
inflation and the Fed's response to it, were front and center as key drivers of
equity market performance. Moving into the next fiscal year, these will again be
dominant themes, in our opinion. We believe the Fed's interest rate hikes in
2022 seem to have laid the groundwork for taming inflation in the coming year.
With the U.S. unemployment rate sitting below 4%, should the Fed need to tighten
further, they should be able to do so without causing abnormally high
unemployment rates, in our view. This should bode well for most U.S. equities,
in our opinion.
The Fund generally holds equal weights in stocks within the S&P 500(R) Index
that have increased their dividends for at least 25 consecutive years. These
stocks are considered, in our view, to have management teams that are extremely
prudent and keenly focused on long-term performance. We believe that the Fund is
properly positioned to achieve its investment objective.
Page 6
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (UNAUDITED)
As a shareholder of FT Cboe Vest S&P 500(R) Dividend Aristocrats Target Income
ETF(R) (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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD PERIOD (a)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
Actual $1,000.00 $ 969.80 0.75% $3.72
Hypothetical (5% return before expenses) $1,000.00 $1,021.42 0.75% $3.82
</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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
COMMON STOCKS -- 99.8%
AEROSPACE & DEFENSE -- 1.5%
31,151 General Dynamics Corp. (a).................................................................. $ 7,781,520
----------------
AIR FREIGHT & LOGISTICS -- 1.6%
81,126 Expeditors International of Washington, Inc. (a)............................................ 7,938,179
----------------
BEVERAGES -- 4.7%
117,807 Brown-Forman Corp., Class B................................................................. 8,010,876
131,926 Coca-Cola (The) Co. (a)..................................................................... 7,895,771
42,745 PepsiCo, Inc. (a)........................................................................... 7,761,637
----------------
23,668,284
----------------
BIOTECHNOLOGY -- 1.4%
50,335 AbbVie, Inc. (a)............................................................................ 7,369,044
----------------
BUILDING PRODUCTS -- 1.6%
149,508 A.O. Smith Corp. (a)........................................................................ 8,190,048
----------------
CAPITAL MARKETS -- 4.7%
332,822 Franklin Resources, Inc. (a)................................................................ 7,804,676
25,284 S&P Global, Inc. (a)........................................................................ 8,122,485
72,749 T. Rowe Price Group, Inc. (a)............................................................... 7,723,034
----------------
23,650,195
----------------
CHEMICALS -- 9.4%
31,137 Air Products and Chemicals, Inc. (a)........................................................ 7,796,705
28,070 Albemarle Corp. (a)......................................................................... 7,855,951
51,169 Ecolab, Inc. (a)............................................................................ 8,037,115
27,308 Linde PLC (a)............................................................................... 8,120,034
67,843 PPG Industries, Inc. (a).................................................................... 7,746,313
35,736 Sherwin-Williams (The) Co. (a).............................................................. 8,041,672
----------------
47,597,790
----------------
COMMERCIAL SERVICES & SUPPLIES -- 1.6%
18,692 Cintas Corp. (a)............................................................................ 7,991,765
----------------
CONTAINERS & PACKAGING -- 1.5%
672,123 Amcor PLC (a)............................................................................... 7,783,184
----------------
DISTRIBUTORS -- 1.6%
44,532 Genuine Parts Co. (a)....................................................................... 7,920,462
----------------
ELECTRIC UTILITIES -- 1.6%
103,643 NextEra Energy, Inc. (a).................................................................... 8,032,332
----------------
ELECTRICAL EQUIPMENT -- 1.5%
90,535 Emerson Electric Co. (a).................................................................... 7,840,331
----------------
EQUITY REAL ESTATE INVESTMENT TRUSTS -- 4.6%
33,364 Essex Property Trust, Inc. (a).............................................................. 7,414,815
81,754 Federal Realty Investment Trust (a)......................................................... 8,092,011
128,707 Realty Income Corp. (a)..................................................................... 8,014,585
----------------
23,521,411
----------------
FOOD & STAPLES RETAILING -- 4.7%
93,179 Sysco Corp. (a)............................................................................. 8,065,574
218,939 Walgreens Boots Alliance, Inc. (a).......................................................... 7,991,274
54,480 Walmart, Inc. (a)........................................................................... 7,754,138
----------------
23,810,986
----------------
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD PRODUCTS -- 4.7%
85,069 Archer-Daniels-Midland Co. (a).............................................................. $ 8,249,992
168,217 Hormel Foods Corp. (a)...................................................................... 7,813,680
101,946 McCormick & Co., Inc. (a)................................................................... 8,017,033
----------------
24,080,705
----------------
GAS UTILITIES -- 1.6%
74,938 Atmos Energy Corp. (a)...................................................................... 7,984,644
----------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 4.6%
77,271 Abbott Laboratories (a)..................................................................... 7,645,193
33,724 Becton, Dickinson and Co. (a)............................................................... 7,957,852
90,546 Medtronic PLC (a)........................................................................... 7,908,288
----------------
23,511,333
----------------
HEALTH CARE PROVIDERS & SERVICES -- 1.5%
102,913 Cardinal Health, Inc. (a)................................................................... 7,811,097
----------------
HOTELS, RESTAURANTS & LEISURE -- 1.6%
29,747 McDonald's Corp. (a)........................................................................ 8,110,817
----------------
HOUSEHOLD PRODUCTS -- 7.8%
102,400 Church & Dwight Co., Inc. (a)............................................................... 7,590,912
54,818 Clorox (The) Co. (a)........................................................................ 8,005,621
105,457 Colgate-Palmolive Co. (a)................................................................... 7,786,945
65,553 Kimberly-Clark Corp. (a).................................................................... 8,158,726
58,708 Procter & Gamble (The) Co. (a).............................................................. 7,906,206
----------------
39,448,410
----------------
INDUSTRIAL CONGLOMERATES -- 1.6%
64,158 3M Co. (a).................................................................................. 8,070,435
----------------
INSURANCE -- 6.1%
122,737 Aflac, Inc. (a)............................................................................. 7,991,406
120,403 Brown & Brown, Inc. (a)..................................................................... 7,078,492
37,344 Chubb Ltd. (a).............................................................................. 8,024,852
76,209 Cincinnati Financial Corp. (a).............................................................. 7,873,914
----------------
30,968,664
----------------
IT SERVICES -- 3.1%
32,059 Automatic Data Processing, Inc. (a)......................................................... 7,748,660
57,239 International Business Machines Corp. (a)................................................... 7,915,582
----------------
15,664,242
----------------
LIFE SCIENCES TOOLS & SERVICES -- 1.5%
32,098 West Pharmaceutical Services, Inc. (a)...................................................... 7,385,750
----------------
MACHINERY -- 8.0%
39,702 Caterpillar, Inc. (a)....................................................................... 8,593,895
60,206 Dover Corp. (a)............................................................................. 7,868,322
37,827 Illinois Tool Works, Inc. (a)............................................................... 8,077,199
186,243 Pentair PLC (a)............................................................................. 7,999,137
100,013 Stanley Black & Decker, Inc. (a)............................................................ 7,850,021
----------------
40,388,574
----------------
METALS & MINING -- 1.5%
56,364 Nucor Corp. (a)............................................................................. 7,405,102
----------------
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MULTILINE RETAIL -- 1.5%
46,935 Target Corp. (a)............................................................................ $ 7,709,074
----------------
MULTI-UTILITIES -- 1.6%
89,680 Consolidated Edison, Inc. (a)............................................................... 7,888,253
----------------
OIL, GAS & CONSUMABLE FUELS -- 3.1%
43,869 Chevron Corp. (a)........................................................................... 7,935,902
71,248 Exxon Mobil Corp. (a)....................................................................... 7,894,991
----------------
15,830,893
----------------
PHARMACEUTICALS -- 1.5%
44,420 Johnson & Johnson (a)....................................................................... 7,727,747
----------------
SOFTWARE -- 1.7%
20,376 Roper Technologies, Inc. (a)................................................................ 8,446,667
----------------
SPECIALTY RETAIL -- 1.6%
40,483 Lowe's Cos., Inc. (a)....................................................................... 7,892,161
----------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.5%
272,613 VF Corp. (a)................................................................................ 7,701,317
----------------
TRADING COMPANIES & DISTRIBUTORS -- 1.7%
14,464 W.W. Grainger, Inc. (a)..................................................................... 8,452,038
----------------
TOTAL COMMON STOCKS......................................................................... 505,573,454
(Cost $518,013,196) ----------------
MONEY MARKET FUNDS -- 0.5%
2,395,234 Dreyfus Government Cash Management Fund, Institutional Shares - 2.91% (b)................... 2,395,234
(Cost $2,395,234) ----------------
TOTAL INVESTMENTS -- 100.3%................................................................. 507,968,688
(Cost $520,408,430) ----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- -------------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
CALL OPTIONS WRITTEN -- (0.3)%
(22) 3M Co............................................. $ (276,738) $ 115.00 11/18/22 (24,860)
(61) A.O. Smith Corp................................... (334,158) 50.00 11/18/22 (32,086)
(39) Abbott Laboratories............................... (385,866) 95.00 11/18/22 (18,720)
(22) AbbVie, Inc....................................... (322,080) 145.00 11/18/22 (9,460)
(64) Aflac, Inc........................................ (416,704) 60.00 11/18/22 (33,920)
(14) Air Products and Chemicals, Inc................... (350,560) 240.00 11/18/22 (20,650)
(9) Albemarle Corp.................................... (251,883) 270.00 11/18/22 (19,170)
(279) Amcor PLC......................................... (323,082) 11.00 11/18/22 (22,320)
(47) Archer-Daniels-Midland Co......................... (455,806) 90.00 11/18/22 (36,660)
(32) Atmos Energy Corp................................. (340,960) 100.00 11/18/22 (24,640)
(14) Automatic Data Processing, Inc.................... (338,380) 230.00 11/18/22 (19,292)
(13) Becton, Dickinson and Co.......................... (306,761) 220.00 11/18/22 (24,700)
(127) Brown & Brown, Inc................................ (746,633) 60.00 11/18/22 (12,192)
(58) Cardinal Health, Inc.............................. (440,220) 72.50 11/18/22 (27,840)
(18) Caterpillar, Inc.................................. (389,628) 190.00 11/18/22 (49,140)
(27) Chevron Corp...................................... (488,430) 175.00 11/18/22 (24,057)
(28) Chubb Ltd......................................... (601,692) 200.00 11/18/22 (43,400)
(75) Church & Dwight Co., Inc.......................... (555,975) 75.00 11/18/22 (7,875)
(32) Cincinnati Financial Corp......................... (330,624) 100.00 11/18/22 (17,376)
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- -------------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
CALL OPTIONS WRITTEN (CONTINUED)
(11) Cintas Corp....................................... $ (470,305) $ 400.00 11/18/22 $ (34,210)
(25) Clorox (The) Co................................... (365,100) 135.00 11/18/22 (32,250)
(55) Coca-Cola (The) Co................................ (329,175) 55.00 11/18/22 (28,435)
(79) Colgate-Palmolive Co.............................. (583,336) 72.50 11/18/22 (22,120)
(48) Consolidated Edison, Inc.......................... (422,208) 85.00 11/18/22 (19,680)
(30) Dover Corp........................................ (392,070) 125.00 11/18/22 (23,250)
(20) Ecolab, Inc....................................... (314,140) 145.00 11/18/22 (28,600)
(45) Emerson Electric Co............................... (389,700) 82.50 11/18/22 (21,375)
(15) Essex Property Trust, Inc......................... (333,360) 230.00 11/18/22 (5,010)
(50) Expeditors International of Washington, Inc....... (489,250) 95.00 11/18/22 (29,250)
(37) Exxon Mobil Corp.................................. (409,997) 105.00 11/18/22 (26,899)
(47) Federal Realty Investment Trust................... (465,206) 90.00 11/18/22 (46,530)
(114) Franklin Resources, Inc........................... (267,330) 22.50 11/18/22 (17,670)
(16) General Dynamics Corp............................. (399,680) 240.00 11/18/22 (19,200)
(26) Genuine Parts Co.................................. (462,436) 160.00 11/18/22 (52,000)
(111) Hormel Foods Corp................................. (515,595) 45.00 11/18/22 (22,755)
(20) Illinois Tool Works, Inc.......................... (427,060) 195.00 11/18/22 (39,800)
(45) International Business Machines Corp.............. (622,305) 130.00 11/18/22 (40,275)
(42) Johnson & Johnson................................. (730,674) 170.00 11/18/22 (24,780)
(41) Kimberly-Clark Corp............................... (510,286) 115.00 11/18/22 (41,410)
(14) Linde PLC......................................... (416,290) 290.00 11/18/22 (23,240)
(13) Lowe's Cos., Inc.................................. (253,435) 180.00 11/18/22 (25,675)
(72) McCormick & Co., Inc.............................. (566,208) 75.00 11/18/22 (32,400)
(14) McDonald's Corp................................... (381,724) 250.00 11/18/22 (33,530)
(39) Medtronic PLC..................................... (340,626) 82.50 11/18/22 (22,913)
(42) NextEra Energy, Inc............................... (325,500) 72.50 11/18/22 (24,360)
(21) Nucor Corp........................................ (275,898) 135.00 11/18/22 (7,959)
(79) Pentair PLC....................................... (339,305) 40.00 11/18/22 (26,465)
(42) PepsiCo, Inc...................................... (762,636) 175.00 11/18/22 (33,768)
(38) PPG Industries, Inc............................... (433,884) 115.00 11/18/22 (11,780)
(44) Procter & Gamble (The) Co......................... (592,548) 130.00 11/18/22 (27,500)
(65) Realty Income Corp................................ (404,755) 57.50 11/18/22 (33,800)
(9) Roper Technologies, Inc........................... (373,086) 370.00 11/18/22 (42,750)
(12) S&P Global, Inc................................... (385,500) 300.00 11/18/22 (30,060)
(15) Sherwin-Williams (The) Co......................... (337,545) 210.00 11/18/22 (27,255)
(25) Stanley Black & Decker, Inc....................... (196,225) 75.00 11/18/22 (13,500)
(44) Sysco Corp........................................ (380,864) 80.00 11/18/22 (32,560)
(31) T. Rowe Price Group, Inc.......................... (329,096) 105.00 11/18/22 (16,709)
(18) Target Corp....................................... (295,650) 160.00 11/18/22 (18,180)
(47) VF Corp........................................... (132,775) 27.50 11/18/22 (7,708)
(7) W.W. Grainger, Inc................................ (409,045) 520.00 11/18/22 (42,336)
(160) Walgreens Boots Alliance, Inc..................... (584,000) 35.00 11/18/22 (28,960)
(25) Walmart, Inc...................................... (355,825) 135.00 11/18/22 (23,000)
(8) West Pharmaceutical Services, Inc................. (184,080) 230.00 11/18/22 (7,200)
----------------
TOTAL CALL OPTIONS WRITTEN.................................................................. (1,637,465)
(Premiums received $894,455) ----------------
NET OTHER ASSETS AND LIABILITIES -- 0.0%.................................................... 236,304
----------------
NET ASSETS -- 100.0%........................................................................ $ 506,567,527
================
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
(a) All or a portion of this security is pledged as collateral for the options
written. At October 31, 2022, the value of these securities amount to
$25,611,893 or 5.1% of net assets.
(b) Rate shown reflects yield as of October 31, 2022.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2022 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
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Common Stocks*........................................ $ 505,573,454 $ 505,573,454 $ -- $ --
Money Market Funds.................................... 2,395,234 2,395,234 -- --
--------------- --------------- --------------- ---------------
Total Investments..................................... $ 507,968,688 $ 507,968,688 $ -- $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Call Options Written.................................. $ (1,637,465) $ (1,198,512) $ (438,953) $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
Page 12 See Notes to Financial Statements
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value.................................................. $ 507,968,688
Cash segregated as collateral for open options contracts............... 6,137
Receivables:
Investment securities sold.......................................... 40,143,104
Capital shares sold................................................. 25,251,215
Dividends........................................................... 653,052
--------------
Total Assets........................................................ 574,022,196
--------------
LIABILITIES:
Options contracts written, at value.................................... 1,637,465
Payables:
Investment securities purchased..................................... 40,371,733
Capital shares purchased............................................ 25,139,721
Investment advisory fees............................................ 305,750
--------------
Total Liabilities................................................... 67,454,669
--------------
NET ASSETS............................................................. $ 506,567,527
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 545,455,809
Par value.............................................................. 100,750
Accumulated distributable earnings (loss).............................. (38,989,032)
--------------
NET ASSETS............................................................. $ 506,567,527
==============
NET ASSET VALUE, per share............................................. $ 50.28
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 10,075,000
==============
Investments, at cost................................................... $ 520,408,430
==============
Premiums received on options contracts written......................... $ 894,455
==============
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends.............................................................. $ 10,352,524
--------------
Total investment income............................................. 10,352,524
--------------
EXPENSES:
Investment advisory fees............................................... 3,381,346
--------------
Total expenses...................................................... 3,381,346
--------------
NET INVESTMENT INCOME (LOSS)........................................... 6,971,178
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... (21,303,550)
In-kind redemptions................................................. 28,216,756
Written options contracts........................................... 5,102,083
--------------
Net realized gain (loss)............................................... 12,015,289
--------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... (46,783,484)
Written options contracts........................................... (509,411)
--------------
Net change in unrealized appreciation (depreciation)................... (47,292,895)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (35,277,606)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (28,306,428)
==============
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2022 10/31/2021
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 6,971,178 $ 2,613,224
Net realized gain (loss)............................................... 12,015,289 (1,477,869)
Net change in unrealized appreciation (depreciation)................... (47,292,895) 30,845,059
-------------- ---------------
Net increase (decrease) in net assets resulting from operations........ (28,306,428) 31,980,414
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (17,788,530) (6,058,854)
-------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 343,702,208 201,715,231
Cost of shares redeemed................................................ (85,454,751) --
-------------- ---------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................ 258,247,457 201,715,231
-------------- ---------------
Total increase (decrease) in net assets................................ 212,152,499 227,636,791
NET ASSETS:
Beginning of period.................................................... 294,415,028 66,778,237
-------------- ---------------
End of period.......................................................... $ 506,567,527 $ 294,415,028
============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 5,375,000 1,575,000
Shares sold............................................................ 6,400,000 3,800,000
Shares redeemed........................................................ (1,700,000) --
-------------- ---------------
Shares outstanding, end of period...................................... 10,075,000 5,375,000
============== ===============
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD
----------------------------------------------------------------- ENDED
2022 2021 2020 2019 10/31/2018 (a)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 54.77 $ 42.40 $ 44.69 $ 40.28 $ 40.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............... 0.81 0.73 0.81 (b) 0.74 (b) 0.43 (b)
Net realized and unrealized gain (loss).... (3.28) 13.57 (1.35) (c) 5.52 0.70 (c)
---------- ---------- ---------- ---------- ----------
Total from investment operations........... (2.47) 14.30 (0.54) 6.26 1.13
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income...................... (1.45) (0.58) (1.75) (1.57) (0.40)
Net realized gain.......................... (0.57) (1.35) -- (0.29) (0.46)
---------- ---------- ---------- ---------- ----------
Total distributions........................ (2.02) (1.93) (1.75) (1.86) (0.86)
---------- ---------- ---------- ---------- ----------
Capital share transactions:
Transaction fees (Note 8).................. -- -- 0.00 (b)(d) 0.01 (b) 0.01 (b)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period............. $ 50.28 $ 54.77 $ 42.40 $ 44.69 $ 40.28
========== ========== ========== ========== ==========
TOTAL RETURN (e)........................... (4.52)% 34.14% (0.93)% 15.98% 2.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)....... $ 506,568 $ 294,415 $ 66,778 $ 43,574 $ 19,134
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets.................................. 0.75% 0.75% 0.75% 0.75% 0.75% (f)
Ratio of net investment income (loss) to
average net assets...................... 1.55% 1.65% 1.89% 1.75% 1.73% (f)
Portfolio turnover rate (g)................ 55% 62% 86% 83% 50%
</TABLE>
(a) Inception date is March 26, 2018, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) Based on average shares outstanding.
(c) Realized and unrealized gains (losses) per share are balancing amounts
necessary to reconcile the change in net asset value per share for the
period and may not reconcile with the aggregate gains and losses in the
Statement of Operations due to share transactions for the period.
(d) Amount is less than $0.01.
(e) 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.
(f) Annualized.
(g) 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
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022
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 twelve funds that are offering shares. This
report covers the FT Cboe Vest S&P 500(R) Dividend Aristocrats Target Income
ETF(R) (the "Fund"), which trades under the ticker "KNG" on the Cboe BZX
Exchange, Inc. ("Cboe BZX"). The Fund represents a separate series of shares of
beneficial interest in the Trust. Unlike conventional mutual funds, the Fund
issues and redeems shares on a continuous basis, at net asset value ("NAV"),
only in large blocks of shares known as "Creation Units."
The Fund's investment objective seeks investment results that correspond
generally to the price and yield (before the Fund's fees and expenses) of an
equity index called the Cboe S&P 500(R) Dividend Aristocrats Target Income Index
Monthly Series (the "Index"). The Fund will normally invest at least 80% of its
total assets (including investment borrowings) in the common stocks and call
options that comprise the Index. The Index's primary goal is to generate an
annualized level of income from stock dividends and option premiums that is
approximately 3% over the annual dividend yield of the S&P 500(R) Index and the
Index's secondary goal is to generate capital appreciation based on the price
returns of the equity securities contained in the Index.
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. The Fund's NAV is calculated by dividing the
value of all assets of the Fund (including accrued interest and dividends), less
all liabilities (including accrued expenses and dividends declared but unpaid),
by the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Trust" or the "Advisor"), in accordance with valuation procedures approved by
the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act
and rules thereunder. Investments valued by the Advisor's Pricing Committee, if
any, are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
Common stocks 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 primary exchange for such securities.
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 valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their closing bid price. Over-the-counter options contracts are valued at
the mean of their most recent and asked price, if available, and otherwise
at their closing bid price.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade price.
Shares of open-end funds are valued based on NAV per share.
Page 17
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FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Advisor's Pricing Committee at
fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a
third-party pricing service is unable to provide a market price; securities
whose trading has been formally suspended; a security whose market or fair value
price is not available from a pre-established pricing source; a security with
respect to which an event has occurred that is likely to materially affect the
value of the security after the market has closed but before the calculation of
the Fund's NAV or make it difficult or impossible to obtain a reliable market
quotation; and a security whose price, as provided by the third-party pricing
service, does not reflect the security's fair value. As a general principle, the
current fair value of a security would appear to be the amount which the owner
might reasonably expect to receive for the security upon its current sale. When
fair value prices are used, generally they will differ from market quotations or
official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not
limited to, the following:
1) the last sale price on the exchange on which they are
principally traded or, for Nasdaq and AIM securities, the
official closing price;
2) the type of security;
3) the size of the holding;
4) the initial cost of the security;
5) transactions in comparable securities;
6) price quotes from dealers and/or third-party pricing services;
7) relationships among various securities;
8) information obtained by contacting the issuer, analysts, or
the appropriate stock exchange;
9) an analysis of the issuer's financial statements;
10) the existence of merger proposals or tender offers that might
affect the value of the security; and
11) other relevant factors
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
Page 18
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FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022
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.
C. OPTIONS CONTRACTS
The Fund will employ a "partial covered call strategy," meaning that covered
calls will be written on a notional value of no more than 20% of the value of
each underlying stock contained in the S&P 500 Dividend Aristocrats Index (the
"Aristocrat Stocks"), such that the short position in each call option is
"covered" by a portion of the corresponding Aristocrat Stock held by the Fund to
generate income. A written (sold) call option gives the seller the obligation to
sell shares of the underlying asset at a specified price ("strike price") at a
specified date ("expiration date"). The writer (seller) of the call option
receives an amount (premium) for writing (selling) the option. In the event the
underlying asset appreciates above the strike price as of the expiration date,
the writer (seller) of the call option will have to pay the difference between
the value of the underlying asset and the strike price (which loss is offset by
the premium initially received), and in the event the underlying asset declines
in value, the call option may end up worthless and the writer (seller) of the
call option retains the premium.
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. 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.
Premiums received from writing options that expire unexercised are treated by
the Fund on the expiration date as realized gains from options written. The
difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or, if the premium is less than the amount paid for the closing
purchase transaction, as a realized loss. If a call option is exercised, the
premium is added to the proceeds from the sale of the underlying security in
determining whether the Fund has realized a gain or loss. Any gain or loss on
written options would be included in "Net realized gain (loss) on written
options contracts" on the Statement of Operations. The Fund, as a writer of an
option, bears the market risk of an unfavorable change in the price of the
security underlying the written option.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid quarterly 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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on 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, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 17,742,155 $ 5,267,572
Capital gains................................... 46,375 791,282
Return of capital............................... -- --
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ --
Accumulated capital and other gain (loss)....... --
Net unrealized appreciation (depreciation)...... (38,989,032)
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022
E. 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 2019,
2020, 2021, and 2022 remain open to federal and state audit. As of October 31,
2022, 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, 2022, the
Fund had no 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, 2022, 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, 2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
-------------- -------------- ---------------
$ 4,976,626 $ (23,241,930) $ 18,265,304
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 545,320,255 $ 28,738,832 $ (67,727,864) $ (38,989,032)
</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 Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
First Trust is responsible for the expenses of the Fund including the cost of
transfer agency, sub-advisory, custody, fund administration, legal, audit and
other services and license fees (if any), 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
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022
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 management fee equal to 0.75% of its average
daily net assets.
Cboe Vest(SM) Financial LLC ("Cboe Vest"), an affiliate of First Trust, serves
as the Fund's sub-advisor and manages the Fund's portfolio subject to First
Trust's supervision. Pursuant to the Investment Management Agreement, between
the Trust, on behalf of the Fund, and the Advisor, and the Investment
Sub-Advisory Agreement among the Trust, on behalf of the Fund, the Advisor and
Cboe Vest, First Trust will supervise Cboe Vest and its management of the
investment of the Fund's assets and will pay Cboe Vest for its services as the
Fund's sub-advisory fee equal to 0.20% of the average daily net assets of the
Fund. Cboe Vest's fee is paid by the Advisor out of its management fee.
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,
target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the Trust for acting in such capacities.
4. REORGANIZATION
On March 1, 2021, the Board of Trustees of Cboe Vest S&P 500(R) Dividend
Aristocrats Target Income ETF(R) ("Target Fund"), an index based exchange-traded
fund ("ETF") managed by Cboe Vest(SM), approved a reorganization into FT Cboe
Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R) (the "Acquiring Fund"
or "KNG"), an index based ETF managed by First Trust.
The reorganization resulted in a shift in the management responsibility for the
Target Fund. Other than the management responsibility, the primary
characteristics of Target Fund and the Acquiring Fund are materially the same.
The Acquiring Fund's investment objective, investment strategies, policies and
risks are identical in all material respects to those of the Target Fund.
Under the terms of the reorganization, which was tax-free, the assets of Target
Fund were transferred to, and the liabilities of Target Fund were assumed by
KNG. The shareholders of the Target Fund received shares of KNG with a value
equal to the aggregate net asset value of the shares of the Target Fund held by
them.
5. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended October 31, 2022, the cost of purchases and proceeds
from sales of investments, excluding short-term investments and in-kind
transactions, were $245,478,865 and $247,116,371, respectively.
For the fiscal year ended October 31, 2022, the cost of in-kind purchases and
proceeds from in-kind sales were $343,326,073 and $85,423,685, respectively.
6. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2022, 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>
Options Equity Risk -- $ -- Options contracts written, $1,637,465
at value
</TABLE>
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022
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, 2022, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
STATEMENT OF OPERATIONS LOCATION
--------------------------------------------------------------------------------
EQUITY RISK EXPOSURE
Net realized gain (loss) on written options contracts $ 5,102,083
Net change in unrealized appreciation (depreciation) on
written options contracts (509,411)
During the fiscal year ended October 31, 2022, the premiums for written options
contracts opened were $9,976,210 and the premiums for written options contracts
closed, exercised and expired were $9,554,898.
7. OFFSETTING ASSETS AND LIABILITIES
The Fund is subject to a Master Netting Arrangement, which governs the terms of
certain transactions with select counterparties. The Master Netting Arrangement
allows the Fund to close out and net its total exposure to a counterparty in the
event of a default with respect to all the transactions governed under a single
agreement with a counterparty. The Master Netting Arrangement also specifies
collateral posting arrangements at pre-arranged exposure levels. Under the
Master Netting Arrangement, collateral is routinely transferred if the total net
exposure to certain transactions (net of existing collateral already in place)
governed under the relevant Master Netting Arrangement with a counterparty in a
given account exceeds a specified threshold depending on the counterparty and
type of Master Netting Arrangement.
The following is a summary of the Assets and Liabilities subject to offsetting
in the Fund as of the end of the reporting period:
<TABLE>
<CAPTION>
NET AMOUNT GROSS AMOUNT NOT OFFSET
GROSS AMOUNT OF LIABILITIES IN THE STATEMENT OF
GROSS OFFSET IN THE PRESENTED IN THE ASSETS AND LIABILITIES
AMOUNT OF STATEMENT OF STATEMENT OF --------------------------------
DESCRIPTION/ RECOGNIZED ASSETS AND ASSETS AND FINANCIAL CASH COLLATERAL NET
COUNTERPARTY LIABILITIES LIABILITIES LIABILITIES INSTRUMENTS PLEDGED AMOUNT
---------------------------- -------------- -------------- ---------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Written Options
Societe Generale $ 1,637,465 $ -- $ 1,637,465 $ (1,637,465) $ -- $ --
</TABLE>
In some instances, the collateral amounts disclosed in the tables were adjusted
due to the requirement to limit the collateral amounts to avoid the effect of
overcollateralization. Actual collateral received/pledged may be more than the
amounts disclosed herein.
8. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
9. 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, 2024.
10. 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.
11. 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.
12. 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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
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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 FT Cboe
Vest S&P 500(R) Dividend Aristocrats Target Income ETF(R) (the "Fund"), a series
of the First Trust Exchange-Traded Fund IV, including the portfolio of
investments, as of October 31, 2022, the related statement of operations for the
year then ended, the statements of changes in net assets and financial
highlights for each of the two 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, 2022, and the results of its operations for the year then ended, and
the statement of changes in net assets and the financial highlights for each of
the two years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. The financial highlights for
the years ended October 31, 2020 and 2019 and for the period from March 26, 2018
(commencement of operations) through October 31, 2018 were audited by other
auditors whose report dated December 23, 2020, expressed an unqualified opinion
on such financial highlights.
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, 2022, 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 21, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (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, 2022, the following percentages of income
dividend paid by the Fund qualified for the dividends received deduction
available to corporations and are hereby designated as qualified dividend
income:
Dividends Received Deduction Qualified Dividend Income
---------------------------- -------------------------
51.48% 54.18%
For the fiscal year ended October 31, 2022, the amount of long-term capital gain
designated by the Fund was $46,375, which is taxable at the applicable capital
gain tax rates for federal income tax purposes.
A portion of the Fund's 2022 ordinary dividends (including short-term capital
gains) paid to shareholders during the fiscal year ended October 31, 2022, may
be eligible for the Qualified Business Income Deduction (QBI) under Internal
Revenue Code of 1986, as amended, Section 199A for the aggregate dividends 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 significant
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
more broadly diversified.
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.
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ADDITIONAL INFORMATION (CONTINUED)
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FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (UNAUDITED)
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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
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ADDITIONAL INFORMATION (CONTINUED)
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FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (UNAUDITED)
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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (UNAUDITED)
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.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AGREEMENT
AND FOR APPROVAL OF AMENDMENT TO THE 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 "Advisory Agreement") with First Trust
Advisors L.P. (the "Advisor") on behalf of the FT Cboe Vest S&P 500(R) Dividend
Aristocrats Target Income ETF(R) (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 Cboe Vest Financial LLC (the "Sub-Advisor"). The Board approved the
continuation of the Agreements for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board determined that the continuation of
the Agreements is in the best interests of the Fund in light of the nature,
extent and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, 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 indirect benefits to the Advisor and its
affiliates, First Trust Portfolios L.P. ("FTP") and First Trust Capital
Partners, LLC ("FTCP"), and the Sub-Advisor; and information on the Advisor's
and the Sub-Advisor's compliance programs. The Board reviewed initial materials
with the Advisor at the meeting held on April 18, 2022, prior to which the
Independent Trustees and their counsel met separately to discuss the information
provided by the Advisor and the Sub-Advisor. Following the April meeting,
counsel to the Independent Trustees, on behalf of the Independent Trustees,
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ADDITIONAL INFORMATION (CONTINUED)
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FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (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 12-13, 2022 meeting, as well as at the June meeting. The Board applied
its business judgment to determine whether the arrangements between the Trust
and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to
be reasonable business arrangements from the Fund's perspective. The Board
determined that, given the totality of the information provided with respect to
the Agreements, the Board had received sufficient information to renew the
Agreements. The Board considered that shareholders chose to invest or remain
invested in the Fund knowing that the Advisor and the Sub-Advisor manage the
Fund and knowing the Fund's unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality
of the services provided by the Advisor and the Sub-Advisor under the
Agreements. With respect to the Advisory Agreement, the Board considered that
the Advisor is responsible for the overall management and administration of the
Trust and the Fund and reviewed all of the services provided by the Advisor to
the Fund, including the oversight of the Sub-Advisor, as well as the background
and experience of the persons responsible for such services. The Board noted
that the Advisor oversees the Sub-Advisor's day-to-day management of the Fund's
investments, including portfolio risk monitoring and performance review. In
reviewing the services provided, the Board noted the compliance program that had
been developed by the Advisor and considered that it includes a robust program
for monitoring the Advisor's, the Sub-Advisor's and the Fund's compliance with
the 1940 Act, as well as the Fund's compliance with its investment objective,
policies and restrictions. The Board also considered a report from the Advisor
with respect to its risk management functions related to the operation of the
Fund. Finally, as part of the Board's consideration of the Advisor's services,
the Advisor, in its written materials and at the April 18, 2022 meeting,
described to the Board the scope of its ongoing investment in additional
personnel and infrastructure to maintain and improve the quality of services
provided to the Fund and the other funds in the First Trust Fund Complex. With
respect to the Sub-Advisory Agreement, in addition to the written materials
provided by the Sub-Advisor, at the June 12-13, 2022 meeting, the Board also
received a presentation from representatives of the Sub-Advisor, who discussed
the services that the Sub-Advisor provides to the Fund, including the
Sub-Advisor's day-to-day management of the Fund's investments. In considering
the Sub-Advisor's management of the Fund, the Board noted the background and
experience of the Sub-Advisor's portfolio management team. In light of the
information presented and the considerations made, the Board concluded that the
nature, extent and quality of the services provided to the Trust and the Fund by
the Advisor and the Sub-Advisor under the Agreements have been and are expected
to remain satisfactory and that the Sub-Advisor, under the oversight of the
Advisor, has managed the Fund consistent with its investment objective, policies
and restrictions.
The Board considered the unitary fee rate payable by the Fund under the Advisory
Agreement for the services provided. The Board noted that the sub-advisory fee
is paid by the Advisor from the unitary fee. The Board considered that as part
of the unitary fee the Advisor is responsible for the Fund's expenses, including
the cost of sub-advisory, transfer agency, custody, fund administration, legal,
audit and other services and license fees, if any, but excluding the fee payment
under the Advisory Agreement and interest, taxes, brokerage commissions and
other expenses connected with the execution of portfolio transactions,
distribution and service fees pursuant to a Rule 12b-1 plan, if any, and
extraordinary expenses, if any. The Board received and reviewed information
showing the fee rates and expense ratios of the peer funds in the Expense Group,
as well as advisory and unitary fee rates charged by the Advisor and the
Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable.
Because the Fund pays a unitary fee, the Board determined that expense ratios
were the most relevant comparative data point. Based on the information
provided, the Board noted that the 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 April 18, 2022 meeting,
discussed with Broadridge its methodology for assembling peer groups and
discussed with the Advisor limitations in creating peer groups for index ETFs,
including differences in underlying indexes and index-tracking methodologies
that can result in greater management complexities across seemingly comparable
ETFs, 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 for periods ended December 31, 2021 regarding
the performance of the Fund's underlying index, the correlation between the
Fund's performance and that of its underlying index, the Fund's tracking
difference and the Fund's excess return as compared to its benchmark index.
Based on the information provided and its ongoing review of performance, the
Board concluded that the Fund was correlated to its underlying index and that
the tracking difference for the Fund was within a reasonable range. In addition,
the Board reviewed data prepared by Broadridge comparing the Fund's performance
Page 29
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (UNAUDITED)
to that of the Performance Universe and to that of a broad-based benchmark
index, but given the Fund's objective of seeking investment results that
correspond generally to the performance of its underlying index, the Board
placed more emphasis on its review of correlation and tracking difference.
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 that its expenses
relating to providing advisory services to the Fund will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. 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 during
2021 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, 2021. The Board
noted the inherent limitations in the profitability analysis and concluded that,
based on the information provided, the Advisor's profitability level for the
Fund was not unreasonable. In addition, the Board considered indirect benefits
described by the Advisor that may be realized from its relationship with the
Fund. The Board considered that the Advisor had identified as an indirect
benefit to the Advisor and FTP their exposure to investors and brokers who,
absent their exposure to the Fund, may have had no dealings with the Advisor or
FTP. The Board also noted that FTCP has a controlling ownership interest in the
Sub-Advisor's parent company and considered potential indirect benefits to the
Advisor from such ownership interest. The Board concluded that the character and
amount of potential indirect benefits to the Advisor were not unreasonable.
The Board considered the Sub-Advisor's statement that it believes that the
sub-advisory fee for the Fund is appropriate. The Board noted the Sub-Advisor's
statements that it continues to invest in infrastructure, technology and
personnel, and that it anticipates that its expenses relating to providing
services to the Fund will remain approximately the same for the next twelve
months. 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
its 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
the potential indirect benefits to the Sub-Advisor from being associated with
the Advisor and the Fund, and noted the Sub-Advisor's statements that it is the
Sub-Advisor's policy currently not to enter into soft-dollar arrangements for
the procurement of research services in connection with client securities
transactions and that, as a result, there are no foreseen indirect benefits from
its relationship with the Fund. The Board also considered the potential indirect
benefits to the Sub-Advisor from FTCP's controlling ownership interest in the
Sub-Advisor's parent company. The Board concluded that the character and amount
of potential indirect benefits to the Sub-Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") of the Investment Management Agreement (the "Agreement") with First
Trust Advisors L.P. (the "Advisor") on behalf of the FT Cboe Vest S&P 500(R)
Dividend Aristocrats Target Income ETF (the "Fund").
The Board approved the Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
Page 30
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (UNAUDITED)
The Board noted that it, including the Independent Trustees, last approved the
continuation of the Agreement for a one-year period ending June 30, 2023 at a
meeting held on June 12-13, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the continuation of the
Agreement was in the best interests of the Fund in light of the nature, extent
and quality of the services provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
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 FT Cboe Vest S&P 500(R) Dividend Aristocrats
Target Income ETF(R) (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, 2021, the amount of remuneration paid (or to
be paid) by First Trust in respect of the Fund is $105,041. This figure is
comprised of $4,042 paid (or to be paid) in fixed compensation and $100,999 paid
(or to be paid) in variable compensation. There were a total of 24 beneficiaries
of the remuneration described above. Those amounts include $53,942 paid (or to
be paid) to senior management of First Trust and $51,099 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 31
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 32
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 33
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FT CBOE VEST S&P 500(R) DIVIDEND ARISTOCRATS TARGET INCOME ETF(R) (KNG)
OCTOBER 31, 2022 (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
professional 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 2022
Page 34
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<PAGE>
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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
INVESTMENT SUB-ADVISOR
Cboe Vest(SM) Financial LLC
8350 Broad Street, Suite 240
McLean, VA 22102
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
320 South Canal Street
Chicago, IL 60606
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)
----------------------------
Annual Report
For the Period
November 17, 2021
(Commencement of Operations)
through October 31, 2022
----------------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 13
Statement of Operations...................................................... 14
Statement of Changes in Net Assets........................................... 15
Financial Highlights......................................................... 16
Notes to Financial Statements................................................ 17
Report of Independent Registered Public Accounting Firm...................... 24
Additional Information....................................................... 25
Board of Trustees and Officers............................................... 29
Privacy Policy............................................................... 31
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 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 Limited Duration Investment Grade Corporate 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 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 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 LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2022
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Limited Duration Investment Grade Corporate ETF (the "Fund"), which contains
detailed information about the Fund since its inception on November 17, 2021
through October 31, 2022. Please note that information contained in this letter
and the annual report prior to the Fund's inception date does not apply to this
Fund.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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 LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
The First Trust Limited Duration Investment Grade Corporate ETF's (the "Fund")
primary investment objective is to deliver current income. Under normal market
conditions, the Fund seeks to achieve its objective by investing at least 80% of
its net assets (plus any borrowings for investment purposes) in investment grade
corporate debt securities. Corporate debt securities are debt obligations issued
by businesses to finance their operations. Notes, bonds, loans, debentures and
commercial paper are the most common types of corporate debt securities, with
the primary differences being their maturities and secured or unsecured status.
Commercial paper has the shortest term and is usually unsecured. Corporate debt
securities may have fixed or floating interest rates. The corporate debt
securities in which the Fund may invest may include senior loans.
At least 80% of the Fund's net assets will be invested in corporate debt
securities that are, at the time of purchase, investment grade (i.e., rated
Baa3/BBB- or above) by at least one nationally recognized statistical rating
organization ("NRSRO") rating such securities, or if unrated, debt securities
determined by the Fund's investment advisor to be of comparable quality. In the
case of a split rating between one or more of the NRSROs, the Fund will consider
the highest rating. For an unrated security to be considered investment grade,
the Fund's investment advisor will consider, at the time of purchase, whether
such security is of comparable quality based on fundamental credit analysis of
the unrated security and comparable securities that are rated by an NRSRO.
Although the Fund intends to invest primarily in investment grade corporate debt
securities, the Fund may invest up to 20% of its net assets (plus any borrowings
for investment purposes) in debt securities of any credit quality, including
senior loans and other debt 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 Fund's investment
advisor to be of comparable quality to rated investment grade securities. The
Fund is classified as "non-diversified" under the Investment Company Act of
1940, as amended. The Fund's investments will be concentrated (i.e., invest more
than 25% of Fund assets) in the industries or group of industries comprising the
financials sector.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
TOTAL RETURNS
Inception (11/17/21)
to 10/31/22
<S> <C>
FUND PERFORMANCE
NAV -6.28%
Market Price -6.13%
INDEX PERFORMANCE
Bloomberg US Corporate Bond 1-5 Year Index -7.72%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Cumulative Total Returns" represent the total change in value
of an investment over the period indicated. The total returns would have been
lower if certain fees had not been waived and expenses reimbursed by the
Advisor.
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. 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 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 LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS(1)
---------------------------------------------------------------
Banks 23.6%
Pharmaceuticals 12.5
Health Care Services 10.2
Software 9.6
Health Care Products 8.0
Electric 6.9
Media 5.3
Insurance 3.2
Telecommunications 2.3
Internet 2.0
Pipelines 1.9
Biotechnology 1.8
Aerospace/Defense 1.7
Environmental Control 1.5
Transportation 1.5
Lodging 1.2
Diversified Financial Services 1.2
Commercial Services 1.2
Machinery-Diversified 0.9
Beverages 0.9
Water 0.8
Real Estate Investment Trusts 0.7
Retail 0.6
Miscellaneous Manufacturing 0.5
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
ASSET CLASSIFICATION INVESTMENTS(1)
---------------------------------------------------------------
Corporate Bonds and Notes 85.2%
Foreign Corporate Bonds and Notes 11.9
Senior Floating-Rate Loan Interests 2.9
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
CREDIT QUALITY(2) INVESTMENTS(1)
---------------------------------------------------------------
AAA 1.4%
AA 0.9
AA- 13.2
A+ 10.8
A 14.2
A- 16.5
BBB+ 13.9
BBB 12.6
BBB- 13.4
BB+ 1.6
BB 1.0
B+ 0.5
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
TOP 10 ISSUERS INVESTMENTS(1)
---------------------------------------------------------------
JPMorgan Chase & Co. 4.5%
Bank of America Corp. 4.3
Goldman Sachs Group (The), Inc. 4.0
Comcast Corp. 3.7
UnitedHealth Group, Inc. 3.4
Morgan Stanley 3.3
Elevance Health, Inc. 3.2
Toronto-Dominion Bank (The) 2.7
AstraZeneca PLC 2.4
Marsh & McLennan Cos., Inc. 2.0
-------
Total 33.5%
=======
-----------------------------
(1) Percentages are based on long-term positions. Commercial paper and money
market funds are excluded.
(2) The ratings are by one or more nationally recognized statistical rating
organizations (NRSROs), including
S&P Global Ratings, Moody's Investors Service, Inc., Fitch Ratings, or a
comparably rated NRSRO. For situations in which a security is rated by more than
one NRSRO and the ratings are not equivalent, the highest ratings are used.
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. "NR" indicates no rating.
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 LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 17, 2021 - OCTOBER 31, 2022
First Trust Limited
Duration Investment Bloomberg U.S. Corporate
Grade Corporate ETF Bond 1-5 Year Index
<S> <C> <C>
11/17/21 $10,000 $10,000
4/30/22 9,554 9,491
10/31/22 9,372 9,228
</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 LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust") is the investment advisor to the First
Trust Limited Duration Investment Grade Corporate ETF (the "Fund" or "FSIG"). 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
WILLIAM HOUSEY, CFA, MANAGING DIRECTOR OF FIXED INCOME AND SENIOR PORTFOLIO
MANAGER OF FIRST TRUST
TODD LARSON, CFA, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST TRUST
ERIC R. MAISEL, CFA, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST TRUST
JEFFREY SCOTT, CFA, SENIOR VICE PRESIDENT, DEPUTY CREDIT OFFICER AND PORTFOLIO
MANAGER OF FIRST TRUST
NATHAN SIMONS, CFA, PORTFOLIO MANAGER OF FIRST TRUST
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as a part of the
portfolio management team of the Fund since November 2021.
COMMENTARY
MARKET RECAP
The Fund launched on November 17, 2021 as the U.S. economy benefited from low
interest rates, a strong labor market, optimism around growth expectations, and
hope that the re-opening global economies would ease inflation. At the time,
markets expected two to three interest rate hikes by the end of 2022. However,
as the Consumer Price Index ("CPI") continued to rise, the Federal Reserve (the
"Fed") gradually abandoned its view that inflation was "transitory," thereby
shifting forward the timeline for interest rate hikes.
Throughout the period from the Fund's inception date on November 17, 2021
through October 31, 2022 (the "reporting period"), inflation remained stubbornly
elevated with the October 2022 CPI printing 7.7% on a year-over-year basis;
meanwhile, the Fed continues to reiterate its commitment to a 2.0% inflation
target. The Fed increased the Federal Funds target rate by 300 basis points
("bps") during the reporting period, moving the upper bound from 0.25% to 3.25%
over the course of five meetings. In each of the last three meetings, the Fed
increased the Federal Funds target rate by a full 75 bps. Due to the persistence
of the inflation data, and how far it is from the Fed's target inflation rate,
we do not believe the Fed can "pivot" to a more accommodative posture until
either (1) inflation has tamed, or (2) a recession is near or already underway,
absent any major financial market calamity. During the reporting period, the
10-Year Treasury yield increased to 4.07% (+247 bps), the 5-Year Treasury yield
increased to 4.25% (+301 bps), and the 2-Year Treasury yield increased to 4.50%
(+400 bps). Credit spreads on 1-5 year investment grade corporate bonds widened
by 68 bps to 118 bps. While U.S. Equities reached all-time highs in January
2022, investor concerns over geopolitical risks, elevated inflation, and rapidly
increasing interest rates soon dampened market euphoria and tipped U.S. Equities
into a bear market. The S&P 500(R) Index returned -16.32% during the reporting
period.
FUND PERFORMANCE
For the period from the Fund's inception date of November 17, 2021 through
October 31, 2022, the Fund returned -6.28% on a net asset value ("NAV") basis
and -6.13% on a market price basis. The Bloomberg US Corporate Bond 1-5 Year
Index (the "Index") returned -7.72% over the same period.
In light of the volatile interest rate environment, defensive duration
positioning was the primary driver of the Fund's outperformance. The Fund's
allocation to floating rate term loans also proved a tailwind to performance;
term loans outperformed the broader fixed income market, one of the few asset
classes to generate positive total return in the period. Notably, as yields
moved higher and duration risk in short-maturity bonds grew more balanced, the
Fund reduced its allocation to floating rate term loans from approximately 19%
to 3% of the Fund's portfolio. As we became increasingly concerned with both the
trajectory of the economy and the health of the consumer, the Fund exited
sectors we believe to be more cyclical and increased exposure to less cyclical
sectors. However, exposure to auto manufacturing and semiconductor companies
served as a modest headwind to performance in the period. Finally, the Fund's
underweight to the banking sector, particularly European banks, also contributed
to the Fund's outperformance.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
MARKET OUTLOOK
Our market framework centers on the Fed staying the course, ultimately holding
rates at a level sufficient to tilt the economy into recession. We therefore
expect market volatility to continue as investors attempt to gauge the ultimate
Federal Funds target rate as well as the likelihood, and timing of, a recession.
Consequently, extending durations back to neutral is not yet warranted, in our
view, although we do believe we are much closer to that point in the cycle where
duration extension will be warranted. Additionally, we favor increasing credit
quality while defensively positioning in sectors with limited cyclicality such
as healthcare, software, and utilities. Improved valuations have created
attractive opportunities in short-maturity corporate bonds where yields exceed
duration and provide a cushion for expected volatility.
As we evaluate both existing and new investment opportunities, our decisions
remain rooted in rigorous bottom-up credit analysis and our focus remains on
identifying the best risk-reward balance.
Page 6
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (UNAUDITED)
As a shareholder of First Trust Limited Duration Investment Grade Corporate 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, 2022.
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, 2022 OCTOBER 31, 2022 PERIOD (a) PERIOD (b)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
Actual $1,000.00 $ 980.90 0.45% $2.25
Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29
</TABLE>
(a) These expense ratios reflect expense waivers. See Note 3 in the Notes to
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, 2022
through October 31, 2022), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- -------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 81.9%
AEROSPACE/DEFENSE -- 1.6%
$ 75,000 L3Harris Technologies, Inc.................................... 3.85% 06/15/23 $ 74,345
50,000 L3Harris Technologies, Inc.................................... 3.85% 12/15/26 46,757
150,000 Lockheed Martin Corp.......................................... 5.10% 11/15/27 150,364
----------------
271,466
----------------
BANKS -- 17.5%
50,000 Bank of America Corp. (a)..................................... 3.84% 04/25/25 48,401
100,000 Bank of America Corp. (a)..................................... 3.37% 01/23/26 94,287
100,000 Bank of America Corp., Medium-Term Note....................... 4.13% 01/22/24 98,826
175,000 Bank of America Corp., Medium-Term Note....................... 3.88% 08/01/25 168,953
50,000 Bank of America Corp., Medium-Term Note (a)................... 3.38% 04/02/26 46,963
250,000 Bank of America Corp., Medium-Term Note....................... 3.50% 04/19/26 233,552
50,000 Bank of New York Mellon (The) Corp. (a)....................... 4.41% 07/24/26 48,576
50,000 Bank of New York Mellon (The) Corp., Medium-Term
Note (a)................................................... 3.43% 06/13/25 48,510
500,000 Goldman Sachs Group (The), Inc................................ 3.00% 03/15/24 483,451
75,000 Goldman Sachs Group (The), Inc................................ 5.70% 11/01/24 74,962
35,000 Goldman Sachs Group (The), Inc................................ 3.85% 01/26/27 32,400
50,000 Goldman Sachs Group (The), Inc. (a)........................... 1.54% 09/10/27 41,981
200,000 JPMorgan Chase & Co........................................... 3.90% 07/15/25 193,189
100,000 JPMorgan Chase & Co. (a)...................................... 2.30% 10/15/25 93,290
325,000 JPMorgan Chase & Co........................................... 3.30% 04/01/26 303,445
35,000 JPMorgan Chase & Co. (a)...................................... 4.08% 04/26/26 33,624
100,000 JPMorgan Chase & Co. (a)...................................... 1.58% 04/22/27 86,046
100,000 Morgan Stanley (a)............................................ 3.62% 04/17/25 96,644
25,000 Morgan Stanley (a)............................................ 4.21% 04/20/28 23,149
225,000 Morgan Stanley, Medium-Term Note (a).......................... 2.72% 07/22/25 212,408
200,000 Morgan Stanley, Medium-Term Note.............................. 4.00% 07/23/25 192,263
125,000 US Bancorp (a)................................................ 5.73% 10/21/26 125,400
125,000 Wells Fargo & Co., Medium-Term Note (a)....................... 2.41% 10/30/25 116,449
----------------
2,896,769
----------------
BEVERAGES -- 0.9%
150,000 Anheuser-Busch Cos. LLC / Anheuser-Busch InBev Worldwide,
Inc........................................................ 3.65% 02/01/26 143,743
----------------
BIOTECHNOLOGY -- 0.9%
150,000 Amgen, Inc.................................................... 3.63% 05/22/24 147,142
----------------
COMMERCIAL SERVICES -- 1.1%
75,000 Global Payments, Inc.......................................... 4.00% 06/01/23 74,409
125,000 Global Payments, Inc.......................................... 1.50% 11/15/24 114,476
----------------
188,885
----------------
DIVERSIFIED FINANCIAL SERVICES -- 1.2%
200,000 American Express Co........................................... 3.95% 08/01/25 192,206
----------------
ELECTRIC -- 6.6%
275,000 AEP Transmission Co. LLC...................................... 3.10% 12/01/26 253,708
150,000 Baltimore Gas and Electric Co................................. 2.40% 08/15/26 135,771
75,000 Duke Energy Carolinas LLC..................................... 2.95% 12/01/26 69,336
200,000 FirstEnergy Transmission LLC (b).............................. 4.35% 01/15/25 193,113
125,000 Pacific Gas and Electric Co................................... 3.25% 02/16/24 120,826
25,000 Pacific Gas and Electric Co................................... 4.95% 06/08/25 24,242
25,000 Pacific Gas and Electric Co................................... 5.45% 06/15/27 23,576
65,000 Virginia Electric and Power Co., Series A..................... 3.10% 05/15/25 61,878
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- -------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
ELECTRIC (CONTINUED)
$ 150,000 Virginia Electric and Power Co., Series B..................... 3.75% 05/15/27 $ 140,749
75,000 WEC Energy Group, Inc......................................... 5.00% 09/27/25 74,727
----------------
1,097,926
----------------
ENVIRONMENTAL CONTROL -- 1.5%
85,000 Republic Services, Inc........................................ 3.20% 03/15/25 80,857
175,000 Republic Services, Inc........................................ 2.90% 07/01/26 160,233
----------------
241,090
----------------
HEALTH CARE PRODUCTS -- 5.9%
100,000 Abbott Laboratories........................................... 3.75% 11/30/26 96,073
235,000 Alcon Finance Corp. (b)....................................... 2.75% 09/23/26 209,269
300,000 Baxter International, Inc..................................... 1.32% 11/29/24 276,132
275,000 Stryker Corp.................................................. 3.38% 11/01/25 260,528
150,000 Zimmer Biomet Holdings, Inc................................... 1.45% 11/22/24 138,365
----------------
980,367
----------------
HEALTH CARE SERVICES -- 9.8%
200,000 Centene Corp.................................................. 4.25% 12/15/27 185,054
525,000 Elevance Health, Inc.......................................... 3.35% 12/01/24 505,374
100,000 HCA, Inc...................................................... 5.38% 02/01/25 98,761
75,000 HCA, Inc...................................................... 5.88% 02/15/26 74,322
75,000 Humana, Inc................................................... 3.95% 03/15/27 70,121
150,000 Roche Holdings, Inc. (b)...................................... 2.63% 05/15/26 138,840
200,000 UnitedHealth Group, Inc....................................... 5.00% 10/15/24 200,122
225,000 UnitedHealth Group, Inc....................................... 3.75% 07/15/25 218,456
50,000 UnitedHealth Group, Inc....................................... 3.70% 05/15/27 47,264
75,000 UnitedHealth Group, Inc....................................... 5.25% 02/15/28 75,180
----------------
1,613,494
----------------
INSURANCE -- 3.1%
200,000 Brown & Brown, Inc............................................ 4.20% 09/15/24 194,774
75,000 Marsh & McLennan Cos., Inc.................................... 3.88% 03/15/24 73,669
250,000 Marsh & McLennan Cos., Inc.................................... 3.75% 03/14/26 238,121
----------------
506,564
----------------
INTERNET -- 1.2%
200,000 Expedia Group, Inc. (b)....................................... 6.25% 05/01/25 199,713
----------------
LODGING -- 1.2%
50,000 Hilton Domestic Operating Co., Inc. (b)....................... 5.38% 05/01/25 49,375
150,000 Hyatt Hotels Corp............................................. 5.63% 04/23/25 147,407
----------------
196,782
----------------
MACHINERY-DIVERSIFIED -- 0.9%
150,000 John Deere Capital Corp., Medium-Term Note.................... 4.05% 09/08/25 146,459
----------------
MEDIA -- 3.6%
485,000 Comcast Corp.................................................. 3.95% 10/15/25 469,097
125,000 Comcast Corp.................................................. 5.35% 11/15/27 124,944
----------------
594,041
----------------
MISCELLANEOUS MANUFACTURING -- 0.4%
75,000 Parker-Hannifin Corp.......................................... 3.65% 06/15/24 72,950
----------------
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- -------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
PHARMACEUTICALS -- 9.8%
$ 150,000 AbbVie, Inc................................................... 2.60% 11/21/24 $ 142,560
75,000 AbbVie, Inc................................................... 3.20% 05/14/26 69,916
150,000 AmerisourceBergen Corp........................................ 3.40% 05/15/24 145,948
200,000 Bayer US Finance II LLC (b)................................... 3.88% 12/15/23 196,141
150,000 Becton Dickinson and Co....................................... 3.73% 12/15/24 145,471
300,000 Cigna Corp.................................................... 4.13% 11/15/25 290,096
300,000 CVS Health Corp............................................... 3.88% 07/20/25 289,515
75,000 Utah Acquisition Sub, Inc..................................... 3.95% 06/15/26 68,352
50,000 Viatris, Inc.................................................. 1.65% 06/22/25 44,648
225,000 Zoetis, Inc................................................... 4.50% 11/13/25 220,884
----------------
1,613,531
----------------
PIPELINES -- 1.8%
50,000 Energy Transfer LP............................................ 5.88% 01/15/24 50,085
135,000 Energy Transfer, L.P.......................................... 2.90% 05/15/25 125,363
135,000 Plains All American Pipeline, L.P. / PAA Finance Corp......... 4.65% 10/15/25 130,527
----------------
305,975
----------------
REAL ESTATE INVESTMENT TRUSTS -- 0.7%
50,000 VICI Properties, L.P. / VICI Note Co., Inc. (b)............... 4.63% 06/15/25 46,957
75,000 VICI Properties, L.P. / VICI Note Co., Inc. (b)............... 4.25% 12/01/26 67,675
----------------
114,632
----------------
RETAIL -- 0.6%
109,000 Nordstrom, Inc................................................ 2.30% 04/08/24 102,435
----------------
SOFTWARE -- 8.7%
100,000 Autodesk, Inc................................................. 4.38% 06/15/25 98,028
100,000 Fidelity National Information Services, Inc................... 4.50% 07/15/25 97,275
200,000 Infor, Inc. (b)............................................... 1.75% 07/15/25 179,969
225,000 Microsoft Corp................................................ 3.30% 02/06/27 214,002
100,000 Oracle Corp................................................... 2.50% 04/01/25 93,445
75,000 Oracle Corp................................................... 3.25% 11/15/27 66,598
175,000 PTC, Inc. (b)................................................. 3.63% 02/15/25 166,157
225,000 Roper Technologies, Inc....................................... 3.80% 12/15/26 210,663
50,000 Salesforce, Inc............................................... 3.70% 04/11/28 47,142
90,000 SS&C Technologies, Inc. (b)................................... 5.50% 09/30/27 83,949
185,000 VMware, Inc................................................... 4.50% 05/15/25 180,587
----------------
1,437,815
----------------
TELECOMMUNICATIONS -- 2.2%
225,000 T-Mobile USA, Inc............................................. 3.50% 04/15/25 214,705
75,000 T-Mobile USA, Inc............................................. 5.38% 04/15/27 74,101
75,000 Verizon Communications, Inc................................... 4.13% 03/16/27 71,363
----------------
360,169
----------------
WATER -- 0.7%
125,000 American Water Capital Corp................................... 3.85% 03/01/24 122,780
----------------
TOTAL CORPORATE BONDS AND NOTES........................................................... 13,546,934
(Cost $14,048,166) ----------------
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- -------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES -- 11.4%
BANKS -- 5.2%
$ 65,000 Lloyds Banking Group PLC (a).................................. 2.44% 02/05/26 $ 59,091
250,000 Royal Bank of Canada.......................................... 3.38% 04/14/25 238,484
250,000 Toronto-Dominion Bank (The)................................... 3.77% 06/06/25 239,971
200,000 Toronto-Dominion Bank (The), Medium-Term Note................. 4.29% 09/13/24 196,029
50,000 UBS Group AG (a) (b).......................................... 4.49% 08/05/25 48,309
35,000 UBS Group AG (b).............................................. 4.13% 04/15/26 32,651
50,000 UBS Group AG (a) (b).......................................... 1.49% 08/10/27 41,226
----------------
855,761
----------------
BIOTECHNOLOGY -- 0.8%
150,000 CSL Finance PLC (b)........................................... 3.85% 04/27/27 141,409
----------------
HEALTH CARE PRODUCTS -- 1.7%
300,000 DH Europe Finance II Sarl..................................... 2.20% 11/15/24 283,255
----------------
PHARMACEUTICALS -- 2.3%
400,000 AstraZeneca PLC............................................... 3.38% 11/16/25 381,250
----------------
TRANSPORTATION -- 1.4%
250,000 Canadian Pacific Railway Co................................... 1.35% 12/02/24 230,768
----------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES................................................... 1,892,443
(Cost $1,969,473) ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (c) MATURITY (d) VALUE
---------------- -------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS -- 2.8%
INTERNET -- 0.8%
123,255 Go Daddy Operating Co. LLC, Term Loan B2, 1 Mo. LIBOR +
1.75%, 0.00% Floor......................................... 5.50% 02/15/24 122,330
----------------
MEDIA -- 1.5%
257,608 Charter Communications Operating LLC, Term Loan B1, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................. 5.51% 04/30/25 254,159
----------------
SOFTWARE -- 0.5%
89,262 SS&C Technologies Holdings, Inc., Term Loan B-5, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................. 5.50% 04/16/25 87,208
----------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS................................................. 463,697
(Cost $468,443) ----------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED
YIELD
PRINCIPAL ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- -------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 1.5%
ELECTRONICS -- 1.5%
250,000 Jabil, Inc.................................................... 3.90% 11/01/22 250,000
----------------
TOTAL COMMERCIAL PAPER.................................................................... 250,000
(Cost $250,000) ----------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------------------------ ----------------
<S> <C> <C>
MONEY MARKET FUNDS -- 2.7%
444,115 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class -
2.85% (e).............................................................................. $ 444,115
(Cost $444,115) ----------------
TOTAL INVESTMENTS -- 100.3%............................................................... 16,597,189
(Cost $17,180,197) ----------------
NET OTHER ASSETS AND LIABILITIES -- (0.3)%................................................ (55,559)
----------------
NET ASSETS -- 100.0%...................................................................... $ 16,541,630
================
</TABLE>
(a) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at October 31, 2022. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(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, 2022, securities noted as such
amounted to $1,794,753 or 10.8% of net assets.
(c) 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 SOFR obtained from
the U.S. Department of the Treasury's Office of Financial Research, (iii)
the prime rate offered by one or more United States banks or (iv) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
or SOFR floor that establishes a minimum LIBOR or SOFR rate. When a range
of rates is disclosed, the Fund holds more than one contract within the
same tranche with identical LIBOR or SOFR period, spread and floor, but
different LIBOR or SOFR reset dates.
(d) 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.
(e) Rate shown reflects yield as of October 31, 2022.
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,
2022 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
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Corporate Bonds and Notes*............................ $ 13,546,934 $ -- $ 13,546,934 $ --
Foreign Corporate Bonds and Notes*.................... 1,892,443 -- 1,892,443 --
Senior Floating-Rate Loan Interests*.................. 463,697 -- 463,697 --
Commercial Paper*..................................... 250,000 -- 250,000 --
Money Market Funds.................................... 444,115 444,115 -- --
--------------- --------------- --------------- ---------------
Total Investments..................................... $ 16,597,189 $ 444,115 $ 16,153,074 $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value.................................................. $ 16,597,189
Cash................................................................... 275,254
Receivables:
Interest............................................................ 148,730
Dividends........................................................... 1,188
--------------
Total Assets........................................................ 17,022,361
--------------
LIABILITIES:
Payables:
Investment securities purchased..................................... 474,782
Investment advisory fees............................................ 5,949
--------------
Total Liabilities................................................... 480,731
--------------
NET ASSETS............................................................. $ 16,541,630
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 17,534,681
Par value.............................................................. 9,000
Accumulated distributable earnings (loss).............................. (1,002,051)
--------------
NET ASSETS............................................................. $ 16,541,630
==============
NET ASSET VALUE, per share............................................. $ 18.38
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 900,002
==============
Investments, at cost................................................... $ 17,180,197
==============
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 2022 (a)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest............................................................... $ 292,413
Dividends.............................................................. 4,469
--------------
Total investment income............................................. 296,882
--------------
EXPENSES:
Investment advisory fees............................................... 58,726
--------------
Total expenses...................................................... 58,726
Less fees waived by the investment advisor.......................... (10,678)
--------------
Net expenses........................................................ 48,048
--------------
NET INVESTMENT INCOME (LOSS)........................................... 248,834
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments................................ (434,326)
Net change in unrealized appreciation (depreciation) on investments.... (583,008)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (1,017,334)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (768,500)
==============
</TABLE>
(a) Inception date is November 17, 2021, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD
ENDED
10/31/2022 (a)
--------------
<S> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 248,834
Net realized gain (loss)............................................... (434,326)
Net change in unrealized appreciation (depreciation)................... (583,008)
--------------
Net increase (decrease) in net assets resulting from operations........ (768,500)
--------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (233,551)
--------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 24,179,235
Cost of shares redeemed................................................ (6,635,554)
--------------
Net increase (decrease) in net assets resulting from shareholder
transactions........................................................ 17,543,681
--------------
Total increase (decrease) in net assets................................ 16,541,630
NET ASSETS:
Beginning of period.................................................... --
--------------
End of period.......................................................... $ 16,541,630
==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ --
Shares sold............................................................ 1,250,002
Shares redeemed........................................................ (350,000)
--------------
Shares outstanding, end of period...................................... 900,002
==============
</TABLE>
(a) Inception date is November 17, 2021, 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 15
<PAGE>
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD
ENDED
10/31/2022 (a)
--------------
<S> <C>
Net asset value, beginning of period........... $ 20.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................... 0.39
Net realized and unrealized gain (loss)........ (1.64)
----------
Total from investment operations............... (1.25)
----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.......................... (0.37)
----------
Net asset value, end of period................. $ 18.38
==========
TOTAL RETURN (b)............................... (6.28)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........... $ 16,542
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets.. 0.55% (c)
Ratio of net expenses to average net assets.... 0.45% (c)
Ratio of net investment income (loss) to
average net assets.......................... 2.33% (c)
Portfolio turnover rate (d).................... 113%
</TABLE>
(a) Inception date is November 17, 2021, 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 return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total return would have been lower if certain
fees had not been waived by the investment advisor.
(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
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022
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 twelve funds that are offering shares. This
report covers the First Trust Limited Duration Investment Grade Corporate ETF
(the "Fund"), a non-diversified series of the Trust, which trades under the
ticker "FSIG" on The NYSE Arca, Inc. ("NYSE Arca"). The Fund represents a
separate series of beneficial interest in the Trust. Unlike conventional mutual
funds, the Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large blocks of shares known as "Creation Units."
The primary investment objective of the Fund is to deliver current income. Under
normal market conditions, the Fund seeks to achieve its objective by investing
at least 80% of its net assets (including investment borrowings) in investment
grade corporate debt securities. Corporate debt securities are debt obligations
issued by businesses to finance their operations. Notes, bonds, loans,
debentures and commercial paper are the most common types of corporate debt
securities, with the primary differences being their maturities and secured or
unsecured status. At least 80% of the Fund's net assets will be invested in
corporate debt securities that are, at the time of purchase, investment grade
(i.e. rated Baa3/BBB- or above) by at least one nationally recognized
statistical rating organization ("NRSRO") rating such securities, or if unrated,
debt securities determined by the Fund's investment advisor, First Trust
Advisors L.P. ("First Trust" or the "Advisor") to be of comparable quality. In
the case of a split rating between one or more of the NRSROs, the Fund will
consider the highest rating. For an unrated security to be considered investment
grade, the Advisor will consider, at the time of purchase, whether such security
is of comparable quality based on fundamental credit analysis of the unrated
security and comparable securities that are rated by an NRSRO.
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 readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Advisor's
Pricing Committee, in accordance with valuation procedures approved by the
Trust's Board of Trustees, and in accordance with provisions of the 1940 Act and
rules thereunder. Investments valued by the Advisor's Pricing Committee, if any,
are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
Corporate bonds, corporate notes and other debt securities are fair valued
on the basis of valuations provided by a third-party pricing service
approved by the Advisor's Pricing Committee, which may use the following
valuation inputs when available:
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
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022
Shares of open-end funds are valued based on NAV per share.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade 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 Advisor's Pricing Committee at
fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a
third-party pricing service is unable to provide a market price; securities
whose trading has been formally suspended; a security whose market or fair value
price is not available from a pre-established pricing source; a security with
respect to which an event has occurred that is likely to materially affect the
value of the security after the market has closed but before the calculation of
the Fund's NAV or make it difficult or impossible to obtain a reliable market
quotation; and a security whose price, as provided by the third-party pricing
service, does not reflect the security's fair value. As a general principle, the
current fair value of a security would appear to be the amount which the owner
might reasonably expect to receive for the security upon its current sale. When
fair value prices are used, generally they will differ from market quotations or
official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not
limited to, the following:
1) the most recent price provided by a pricing service;
2) the fundamental business data relating to the borrower/issuer;
3) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
4) the type, size and cost of a security;
5) the financial statements of the borrower/issuer, or the
financial condition of the country of issue;
6) the credit quality and cash flow of the borrower/issuer, or
country of issue, based on the Pricing Committee's,
sub-adviser's or portfolio manager's analysis, as applicable,
or external analysis;
7) the information as to any transactions in or offers for the
security;
8) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
9) the coupon payments;
10) the quality, value and salability of collateral, if any,
securing the security;
11) 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;
12) 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.
Page 18
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022
13) borrower's/issuer's competitive position within the industry;
14) borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
15) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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 United Kingdom's Financial Conduct Authority (the "FCA"), which regulates
the London Interbank Offered Rates ("LIBOR") announced on March 5, 2021 that it
intended to phase-out all LIBOR reference rates, beginning December 31, 2021.
Since that announcement, the FCA has ceased publication of all non-USD LIBOR
reference rates and the 1-week and 2-month USD LIBOR reference rates as of
December 31, 2021. The remaining USD LIBOR settings will cease to be published
or no longer be representative immediately after June 30, 2023. The
International Swaps and Derivatives Association, Inc. ("ISDA") confirmed that
the FCA's March 5, 2021 announcement of its intention to cease providing LIBOR
reference rates, constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
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. There is no assurance that
any alternative reference rate, including SOFR, will be similar to or produce
the same value or economic equivalence as LIBOR or that instruments using an
alternative rate will have the same volume or liquidity.
Page 19
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022
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 as of
October 31, 2022.
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. The Fund had no unfunded loan commitments as of October
31, 2022.
D. 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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
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 period ended October
31, 2022 was as follows:
Distributions paid from:
Ordinary income................................. $ 233,551
Capital gains................................... --
Return of capital............................... --
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 11,477
Accumulated capital and other gain (loss)....... (380,508)
Net unrealized appreciation (depreciation)...... (633,020)
E. 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 year ended October
31, 2022 remains open to federal and state audit. As of October 31, 2022,
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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022
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, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $380,508.
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 period ended October 31, 2022, 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 period ended October 31,
2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
-------------- -------------- ---------------
$ (3,806) $ 3,806 $ --
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 17,230,209 $ 4,338 $ (637,358) $ (633,020)
</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 Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, acquired
fund fees and expenses, if any, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses.
The Fund has agreed to pay First Trust an annual unitary management fee equal to
0.55% of its average daily net assets.
Pursuant to a contractual agreement, First Trust has agreed to waive management
fees of 0.10% of average daily net assets until November 12, 2023. The waiver
agreement may be terminated by action of the Board at any time upon 60 days'
written notice by the Trust, on behalf of the Fund, or by First Trust only after
November 12, 2023. During the fiscal period ended October 31, 2022, the Advisor
waived fees of $10,678.
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022
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 target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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 period ended October 31, 2022, the cost of purchases and proceeds
from sales of investments, excluding short-term investments and in-kind
transactions, were $29,119,323 and $12,291,106, respectively.
For the fiscal period ended October 31, 2022, there were no in-kind
transactions.
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022
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, 2024.
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. 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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
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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 Limited Duration Investment Grade Corporate ETF (the "Fund"), a series of
the First Trust Exchange-Traded Fund IV, including the portfolio of investments,
as of October 31, 2022, and the related statements of operations, changes in net
assets, and the financial highlights for the period from November 17, 2021
(commencement of operations) through October 31, 2022, 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,
2022, and the results of its operations, the changes in its net assets, and the
financial highlights for the period from November 17, 2021 (commencement of
operations) through October 31, 2022 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, 2022, by correspondence with
the custodian and brokers; when replies were not received from 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, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022 (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 period ended
October 31, 2022 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 period ended October 31, 2022, 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 significant
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
more broadly diversified.
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
Page 25
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022 (UNAUDITED)
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022 (UNAUDITED)
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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods,
Page 27
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022 (UNAUDITED)
at which time the preferred security holders may obtain limited rights. In
certain circumstances, an issuer of preferred securities may defer payment on
the securities and, in some cases, redeem the securities prior to a specified
date. Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") of the Investment Management Agreement (the "Agreement") with First
Trust Advisors L.P. (the "Advisor") on behalf of the First Trust Limited
Duration Investment Grade Corporate ETF (the "Fund").
The Board approved the Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those
preliminary discussions, the Board requested and received information from the
Advisor regarding the proposed Amendment, and that information was considered at
an executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting. In reviewing
the Amendment, the Board considered that the purpose of the Amendment is to
modify the unitary fee rate for the Fund under the Agreement by introducing a
breakpoint schedule pursuant to which the unitary fee rate paid by the Fund to
the Advisor will be reduced as assets of the Fund meet certain thresholds. The
Board noted the Advisor's representations that the quality and quantity of the
services provided to the Fund by the Advisor under the Agreement will not be
reduced or modified as a result of the Amendment, and that the obligations of
the Advisor under the Agreement will remain the same in all respects.
The Board noted that it, including the Independent Trustees, approved the
Agreement for an initial two-year period ending November 12, 2023 at a meeting
held on September 13, 2021. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the approval of the Agreement
was in the best interests of the Fund in light of the nature, extent and quality
of the services expected to be provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
The Board noted that the Advisor had previously agreed to waive a portion of its
unitary fee for the Fund and that the modified unitary fee rate schedule for the
Fund under the Amendment would not be implemented until the expiration of the
Fund's contractual fee waiver. The Board considered that the effective unitary
fee rate paid by the Fund under the Agreement after taking into account the
contractual fee waiver is less than the effective unitary fee rate that the Fund
would pay pursuant to the modified unitary fee rate schedule under the
Amendment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
Page 28
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 29
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 30
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST LIMITED DURATION INVESTMENT GRADE CORPORATE ETF (FSIG)
OCTOBER 31, 2022 (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
professional 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 2022
Page 31
<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
320 South Canal Street
Chicago, IL 60606
<PAGE>
{BLANK BACK COVER}
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
FT Cboe Vest Rising Dividend Achievers Target Income ETF (RDVI)
----------------------------
Annual Report
For the Period
October 19, 2022
(Commencement of Operations)
through
October 31, 2022
----------------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 6
Portfolio of Investments..................................................... 7
Statement of Assets and Liabilities.......................................... 10
Statement of Operations...................................................... 11
Statement of Changes in Net Assets........................................... 12
Financial Highlights......................................................... 13
Notes to Financial Statements................................................ 14
Report of Independent Registered Public Accounting Firm...................... 20
Additional Information....................................................... 21
Board of Trustees and Officers............................................... 27
Privacy Policy............................................................... 29
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 Cboe Vest(SM) Financial LLC ("Cboe Vest" 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 (FT Cboe Vest Rising Dividend Achievers Target 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-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 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 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 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 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.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2022
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the FT Cboe
Vest Rising Dividend Achievers Target Income ETF (the "Fund"), which contains
detailed information about the Fund since its inception on October 19, 2022
through October 31, 2022. Please note that information contained in this letter
and the annual report prior to the Fund's inception date does not apply to this
Fund.
As I'm writing this letter in mid-November, it strikes me that things appear to
be a little more chaotic in the current climate than normal. One of the things
that may have contributed to the chaotic nature of the news flow of late was the
November mid-term election. For the most part, except for a few seats in
Congress, the election is behind us. We learned there would be no "red wave"
(Republicans gaining a strong majority in Congress) but likely gridlock ahead.
Gridlock has been good for stock market investors in the past few decades,
particularly when there's been a Democratic president and the Republicans have
control of at least one house of Congress, according to Brian Wesbury, Chief
Economist at First Trust.
The Federal Reserve (the "Fed") has kept its promise to aggressively hike
interest rates to combat robust inflation. As of November 13, 2022, the Fed has
increased the Federal Funds target rate (upper bound) six times, from 0.25% to
4.00%. The Fed's actions have some investors and pundits looking for evidence
linking the interest rate hikes to a downturn in the economy. In short, the hope
is that a pullback in economic activity might deter the Fed from executing
further interest rate hikes. Fed Chairman Jerome Powell, however, recently said
that the terminal rate (the ultimate rate the Fed is targeting) will likely need
to be higher than previously estimated in order to curb stubbornly high
inflation. The Consumer Price Index ("CPI") is a commonly used measure of
inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31,
2022, according to the U.S. Bureau of Labor Statistics. That is down from its
recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was
higher than 7.0% was over 40 years ago. While monetary policy is an ongoing
process subject to change, the Fed does appear to be steadfast in its mission to
bring the rate of inflation back to its preferred level of 2.0%, and that will
take some time, in my opinion. Stay tuned!
Equity and fixed income markets have contended with numerous headwinds this
year, such as the war between Russia and Ukraine. Since setting its all-time
high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear
market (a price decline of 20% or more from the most recent high) for the better
part of 310 days. Suffice it to say, we are all looking forward to the end of
this bear market. With respect to corrections and bear markets, the silver
lining is that the S&P 500(R) Index has never failed to fully recover the losses
sustained in any previous downturn. Where might we see demand for stocks moving
forward? One such source could be stock buybacks. As of the last week of October
2022, U.S. companies had announced stock buybacks totaling $1 trillion so far
this year, according to Birinyi Associates. The fixed income market has not been
immune to selling pressure either. Year-to-date through November 10, 2022,
yields on the 10-Year Treasury Note increased by 258 basis points. As you may be
aware, bond yields and bond prices are inversely related, particularly with
respect to investment-grade bonds. As yields rise, prices fall and vice versa.
As noted above, the Fed has more work to do, so bond investors should not be
surprised to see interest rates and bond yields trend at least a bit higher in
the months ahead.
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)
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
The FT Cboe Vest Rising Dividend Achievers Target Income ETF (the "Fund") seeks
to provide investors with current income with a secondary objective of providing
capital appreciation. The shares of the Fund are listed on Cboe BZX Exchange,
Inc. under the ticker symbol "RDVI." The Fund will normally invest primarily in
U.S. exchange-traded equity securities contained in the Nasdaq US Rising
Dividend Achievers(TM) Index (the "Index") and by utilizing an "option strategy"
consisting of writing (selling) U.S. exchange-traded call options on the S&P
500(R) Index or exchange-traded funds that track the S&P 500(R) Index
("Underlying ETFs"). Under normal market conditions, the Fund will invest at
least 80% of its net assets (plus any borrowings for investment purposes) in
dividend-paying securities and/or investments that provide exposure to
dividend-paying securities.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
TOTAL RETURNS
Inception (10/19/22)
to 10/31/22
<S> <C>
FUND PERFORMANCE
NAV 7.18%
Market Price 7.23%
INDEX PERFORMANCE
Nasdaq US Rising Dividend Achievers(TM) Index 7.46%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "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. 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)
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI) (CONTINUED)
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
SECTOR CLASSIFICATION INVESTMENTS
---------------------------------------------------------------
Financials 36.0%
Information Technology 25.0
Health Care 10.3
Materials 8.3
Consumer Discretionary 5.6
Energy 4.2
Industrials 4.2
Communication Services 4.2
Consumer Staples 2.2
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF
FUND ALLOCATION NET ASSETS
---------------------------------------------------------------
Common Stocks 100.0%
Call Options Written (0.1)
Net Other Assets and Liabilities 0.1
-------
Total 100.0%
=======
---------------------------------------------------------------
% OF TOTAL
LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
---------------------------------------------------------------
Cummins, Inc. 2.2%
Archer-Daniels-Midland Co. 2.2
Prudential Financial, Inc. 2.2
EOG Resources, Inc. 2.2
Elevance Health, Inc. 2.2
Citizens Financial Group, Inc. 2.2
Aflac, Inc. 2.1
Synchrony Financial 2.1
Interpublic Group of (The) Cos., Inc. 2.1
Omnicom Group, Inc. 2.1
-------
Total 21.6%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
OCTOBER 19, 2022 - OCTOBER 31, 2022
FT Cboe Vest Rising
Dividend Achievers Nasdaq US Rising Dividend
Target Income ETF Achievers(TM) Index
<S> <C> <C>
10/29/22 $10,000 $10,000
10/31/22 10,718 10,746
</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 3
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the FT Cboe Vest Rising Dividend Achievers Target Income ETF ("RDVI"
or 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
Cboe Vest(SM) Financial LLC ("Cboe Vest" or the "Sub-Advisor") serves as the
investment sub-advisor to the Fund. In this capacity, Cboe Vest is responsible
for the selection and ongoing monitoring of the securities in the Fund's
investment portfolio. Cboe Vest, with principal offices at 8350 Broad Street,
Suite 240, McLean, VA 22102, was founded in 2012. Cboe Vest had approximately
$9.3 billion under management or committed to management as of October 31, 2022.
PORTFOLIO MANAGEMENT TEAM
KARAN SOOD, MANAGING DIRECTOR OF CBOE VEST
HOWARD RUBIN, MANAGING DIRECTOR OF CBOE VEST
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as a part of the
portfolio management team of the Fund since October 2022.
COMMENTARY
DISCUSSION OF FUND PERFORMANCE
This discussion is for the FT Cboe Vest Rising Dividend Achievers Target Income
ETF for the 12-month period ended October 31, 2022 (the "current fiscal
period"). The Fund's inception date was October 19, 2022. Thus, the Fund's
performance for this report is from October 19, 2022 through October 31, 2022.
The Fund's performance is compared to an index called the Nasdaq US Rising
Dividend Achievers(TM) Index (the "Index" or "NQDVRIST").
MARKET RECAP
The strong global equity market rally of the prior fiscal year was followed by a
sharp downturn in the current period, as high levels of inflation took hold, in
large part due to easy monetary and fiscal policies, pandemic-induced supply
chain disruptions, and the impact of the Russia-Ukraine war on energy prices.
The Federal Reserve (the "Fed") responded to the increasing inflation rate by
hiking the Fed Funds target rate by 3% by the end of the current period. They
started slowly, with smaller hikes in March and May of 2022, and picked up the
pace with larger hikes in June, July, and September of 2022. This Fed action to
cool inflation and the economy pushed stocks lower.
While equity markets were relatively flat for the first five months of the
current fiscal period (November 2021 through March 2022), they fell sharply over
the final seven months of the period (April 2022 through October 2022), as
inflation and the Fed's response to it, accelerated. U.S. equities, as measured
by the S&P 500(R) Index, fell 14.61%. As in the prior period, the current fiscal
period also saw extreme variations in returns across the eleven primary sectors
within the S&P 500(R) Index. Four of the eleven sectors posted increases, with
the Energy sector far outpacing the rest of the market. The top three performing
sectors were Energy, Consumer Staples, and Utilities, which returned 64.3%,
4.9%, and 2.9%, respectively. The bottom three sectors were Communication
Services, Consumer Discretionary, and Real Estate. These bottom performing
sectors returned -40.6%, -28.5%, and -20.7%, respectively.
PERFORMANCE ANALYSIS
Under normal market conditions, the Fund will pursue its investment objective by
investing primarily in U.S. exchange-traded equity securities contained in the
Index and by utilizing an "option strategy" consisting of writing (selling) U.S.
exchange-traded call options on the S&P 500(R) Index or exchange-traded funds
that track the S&P 500(R) Index ("Underlying ETFs"). The options positions
contributed a negative 0.17% to the Fund's NAV performance for the period.
During the current fiscal period, the Fund generally held approximately equal
weights in 50 stocks, as well as written call options on the S&P 500(R) Index.
The premiums received from the written call options, plus the dividends received
from the equities, sum to approximately 8.0% in excess of the dividend yield of
the S&P 500(R) Index annually.
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
For the period from October 19, 2022, the Fund's inception date, through October
31, 2022, the Fund's net asset value ("NAV") performance was 7.18%, and using
market prices for the Fund, was 7.23%, while the Index performance was 7.46%.
The underperformance of 0.28%, using NAV returns, can be explained by the
following factors:
1. Fees and Expenses: Fees and expenses reduced the Fund's performance
by approximately 0.03%.
2. Execution Costs: Commissions, plus slippage due to trading
securities at prices other than mid-market, had no impact on the
Fund's performance.
3. Fund versus Index Holdings: While the Fund attempts to hold equity
securities in the same proportion (i.e., weighting) as the Index,
the Fund also holds/writes call options on the S&P 500(R) Index,
whereas the Index does not. For the current fiscal period, we
estimate that the difference in the holdings between the Fund and
the Index had a net 0.25% negative impact to the Fund's performance.
IMPACT OF FUND HOLDINGS ON PERFORMANCE
The top five performing holdings in the Fund from inception through October 31,
2022 were LAM Research Corp., KLA Corp., Applied Materials, Inc., Synchrony
Financial, and Elevance Health, Inc., with returns of 22.6%, 16.4%, 14.3%,
13.3%, and 12.1%, respectively.
The bottom five performing holdings in the Fund from inception through October
31, 2022 were The Allstate Corp., Microsoft Corp., Huntsman Corp., Cincinnati
Financial Corp., and Pioneer Natural Resources Co., with returns of -6.6%,
-1.8%, 1.9%, 2.3%, and 2.3%, respectively.
IMPACT OF SECTOR WEIGHTINGS ON PERFORMANCE
For the current fiscal period, the Fund had sector weightings that were in line
with the Index. However, the Fund's sector weightings were substantially
different than the sector weightings of the S&P 500(R) Index. Relative to the
S&P 500(R) Index, the Fund was significantly overweight the Financials sector,
and was significantly underweight the Communication Services sector. The net
effect of the Fund's sector weightings relative to those of the S&P 500(R)
Index's sector weightings positively impacted the Fund's performance relative to
that of the S&P 500(R) Index.
Strong performances from the Fund's holdings within the Financials sector,
coupled with the Fund's relative overweight in this sector, contributed to
relative overperformance for the Fund, versus the S&P 500(R) Index.
Weak performances in the Communication Services sector, coupled with the Fund's
relative underweight in this sector, also contributed to relative
overperformance for the Fund, versus the S&P 500(R) Index.
MARKET OUTLOOK
During the current fiscal year, the Russia-Ukraine war, as well as high
inflation and the Fed's response to it, were front and center as key drivers of
equity market performance. Moving into the next fiscal year, these will again be
dominant themes, in our opinion. We believe the Fed's interest rate hikes in
2022 seem to have laid the groundwork for taming inflation in the coming year.
With the U.S. unemployment rate sitting below 4%, should the Fed need to tighten
further, they should be able to do so without causing abnormally high
unemployment rates, in our opinion. We believe this should bode well for most
U.S. equities.
The Fund generally holds equities similar in name and weight to those equities
in Index. This Index is designed to assemble a portfolio of stocks that are
positioned to continue increasing dividends. These stocks are considered, in our
view, to have management teams that are extremely prudent and keenly focused on
long-term performance. We believe that the Fund is properly positioned to
achieve its investment objectives.
Page 5
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (UNAUDITED)
As a shareholder of FT Cboe Vest Rising Dividend Achievers Target 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 (or since inception) and held through the six-month period (or shorter)
ended October 31, 2022.
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 Period"
to estimate the expenses you paid on your account during this six-month (or
shorter) 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 EXPENSES PAID
EXPENSE RATIO DURING THE PERIOD
BEGINNING ENDING BASED ON THE OCTOBER 19, 2022 (a)
ACCOUNT VALUE ACCOUNT VALUE NUMBER OF DAYS TO
OCTOBER 19, 2022 (a) OCTOBER 31, 2022 IN THE PERIOD OCTOBER 31, 2022 (b)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
Actual $1,000.00 $1,071.80 0.75% $0.26
Hypothetical (5% return before expenses) $1,000.00 $1,021.42 0.75% $3.82
</TABLE>
(a) Inception date.
(b) Actual expenses are equal to the annualized expense ratio as indicated in
the table multiplied by the average account value over the period (October
19, 2022 through October 31, 2022), multiplied by 13/365. Hypothetical
expenses are assumed for the most recent six-month period.
Page 6
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------------------------ ----------------
<S> <C> <C>
COMMON STOCKS -- 100.0%
BANKS -- 12.0%
1,207 Bank of America Corp. (a)................................................................. $ 43,500
1,117 Citizens Financial Group, Inc. (a)........................................................ 45,685
350 JPMorgan Chase & Co. (a).................................................................. 44,058
2,330 KeyCorp (a)............................................................................... 41,637
1,879 Regions Financial Corp. (a)............................................................... 41,244
897 U.S. Bancorp (a).......................................................................... 38,078
----------------
254,202
----------------
CAPITAL MARKETS -- 5.9%
124 Goldman Sachs Group (The), Inc. (a)....................................................... 42,719
1,255 Jefferies Financial Group, Inc. (a)....................................................... 43,185
470 Morgan Stanley (a)........................................................................ 38,620
----------------
124,524
----------------
CHEMICALS -- 4.1%
670 Corteva, Inc. (a)......................................................................... 43,778
1,605 Huntsman Corp. (a)........................................................................ 42,950
----------------
86,728
----------------
COMMUNICATIONS EQUIPMENT -- 2.0%
951 Cisco Systems, Inc. (a)................................................................... 43,204
----------------
CONSUMER FINANCE -- 8.0%
268 American Express Co. (a).................................................................. 39,785
404 Capital One Financial Corp. (a)........................................................... 42,832
406 Discover Financial Services (a)........................................................... 42,411
1,267 Synchrony Financial (a)................................................................... 45,054
----------------
170,082
----------------
FOOD PRODUCTS -- 2.2%
484 Archer-Daniels-Midland Co. (a)............................................................ 46,938
----------------
HEALTH CARE PROVIDERS & SERVICES -- 6.3%
84 Elevance Health, Inc. (a)................................................................. 45,929
80 Humana, Inc. (a).......................................................................... 44,646
78 UnitedHealth Group, Inc. (a).............................................................. 43,302
----------------
133,877
----------------
HOUSEHOLD DURABLES -- 2.0%
1,047 PulteGroup, Inc. (a)...................................................................... 41,870
----------------
INSURANCE -- 10.2%
692 Aflac, Inc. (a)........................................................................... 45,056
316 Allstate (The) Corp. (a).................................................................. 39,895
422 Cincinnati Financial Corp. (a)............................................................ 43,601
1,027 Fidelity National Financial, Inc. (a)..................................................... 40,443
446 Prudential Financial, Inc. (a)............................................................ 46,915
----------------
215,910
----------------
IT SERVICES -- 6.0%
660 Cognizant Technology Solutions Corp., Class A (a)......................................... 41,085
128 Mastercard, Inc., Class A (a)............................................................. 42,007
212 Visa, Inc., Class A (a)................................................................... 43,918
----------------
127,010
----------------
MACHINERY -- 4.2%
194 Cummins, Inc. (a)......................................................................... 47,435
190 Snap-on, Inc. (a)......................................................................... 42,189
----------------
89,624
----------------
</TABLE>
See Notes to Financial Statements Page 7
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------------------------ ----------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MEDIA -- 4.2%
1,509 Interpublic Group of (The) Cos., Inc. (a)................................................. $ 44,953
614 Omnicom Group, Inc. (a)................................................................... 44,669
----------------
89,622
----------------
METALS & MINING -- 2.1%
1,405 Freeport-McMoRan, Inc. (a)................................................................ 44,524
----------------
OIL, GAS & CONSUMABLE FUELS -- 4.2%
338 EOG Resources, Inc. (a)................................................................... 46,144
170 Pioneer Natural Resources Co. (a)......................................................... 43,589
----------------
89,733
----------------
PAPER & FOREST PRODUCTS -- 2.1%
785 Louisiana-Pacific Corp. (a)............................................................... 44,470
----------------
PHARMACEUTICALS -- 4.0%
244 Johnson & Johnson (a)..................................................................... 42,449
895 Pfizer, Inc. (a).......................................................................... 41,662
----------------
84,111
----------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 13.1%
462 Applied Materials, Inc. (a)............................................................... 40,790
1,409 Intel Corp. (a)........................................................................... 40,058
120 KLA Corp. (a)............................................................................. 37,974
98 Lam Research Corp. (a).................................................................... 39,668
310 NVIDIA Corp. (a).......................................................................... 41,841
328 QUALCOMM, Inc. (a)........................................................................ 38,593
248 Texas Instruments, Inc. (a)............................................................... 39,836
----------------
278,760
----------------
SOFTWARE -- 1.8%
166 Microsoft Corp. (a)....................................................................... 38,534
----------------
SPECIALTY RETAIL -- 3.6%
566 Best Buy Co., Inc. (a).................................................................... 38,720
304 Williams-Sonoma, Inc. (a)................................................................. 37,644
----------------
76,364
----------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 2.0%
272 Apple, Inc. (a)........................................................................... 41,709
----------------
TOTAL INVESTMENTS -- 100.0%............................................................... 2,121,796
(Cost $2,054,609) ----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- ------------------------------------------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
CALL OPTIONS WRITTEN -- (0.1)%
(6) S&P 500 Mini Index.............................. $ (232,320) $390.00 11/04/22 (2,346)
(Premiums received $3,576) ----------------
NET OTHER ASSETS AND LIABILITIES -- 0.1%.................................................. 1,881
----------------
NET ASSETS -- 100.0%...................................................................... $ 2,121,331
================
</TABLE>
(a) All or a portion of this security is pledged as collateral for the options
written. At October 31, 2022, the value of these securities amount to
$1,060,602 or 50.0% of net assets.
Page 8 See Notes to Financial Statements
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2022 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
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Common Stocks*........................................ $ 2,121,796 $ 2,121,796 $ -- $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Call Options Written.................................. $ (2,346) $ (2,346) $ -- $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 9
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value.................................................. $ 2,121,796
Cash................................................................... 645
Cash segregated as collateral for open options contracts............... 657
Receivables:
Dividends........................................................... 746
Capital shares sold................................................. 85
--------------
Total Assets........................................................ 2,123,929
--------------
LIABILITIES:
Options contracts written, at value.................................... 2,346
Investment advisory fees payable....................................... 252
--------------
Total Liabilities................................................... 2,598
--------------
NET ASSETS............................................................. $ 2,121,331
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 2,054,338
Par value.............................................................. 1,000
Accumulated distributable earnings (loss).............................. 65,993
--------------
NET ASSETS............................................................. $ 2,121,331
==============
NET ASSET VALUE, per share............................................. $ 21.21
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 100,002
==============
Investments, at cost................................................... $ 2,054,609
==============
Premiums received on options contracts written......................... $ 3,576
==============
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 2022 (a)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends.............................................................. $ 747
--------------
Total investment income............................................. 747
--------------
EXPENSES:
Investment advisory fees............................................... 252
--------------
Total expenses...................................................... 252
--------------
NET INVESTMENT INCOME (LOSS)........................................... 495
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on written options contracts.................. (2,919)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... 67,187
Written options contracts........................................... 1,230
--------------
Net change in unrealized appreciation (depreciation)................... 68,417
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 65,498
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ 65,993
==============
</TABLE>
(a) Inception date is October 19, 2022, 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 11
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
10/31/2022 (a)
--------------
<S> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 495
Net realized gain (loss)............................................... (2,919)
Net change in unrealized appreciation (depreciation)................... 68,417
--------------
Net increase (decrease) in net assets resulting from operations........ 65,993
--------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 2,055,338
Cost of shares redeemed................................................ --
--------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................ 2,055,338
--------------
Total increase (decrease) in net assets................................ 2,121,331
NET ASSETS:
Beginning of period.................................................... --
--------------
End of period.......................................................... $ 2,121,331
==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ --
Shares sold............................................................ 100,002
Shares redeemed........................................................ --
--------------
Shares outstanding, end of period...................................... 100,002
==============
</TABLE>
(a) Inception date is October 19, 2022, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
Page 12 See Notes to Financial Statements
<PAGE>
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD ENDED
10/31/2022 (a)
--------------
<S> <C>
Net asset value, beginning of period $ 19.79
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.00 (b)
Net realized and unrealized gain (loss) 1.42
----------
Total from investment operations 1.42
----------
Net asset value, end of period $ 21.21
==========
TOTAL RETURN (c) 7.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,121
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.75% (d)
Ratio of net investment income (loss) to
average net assets 1.47% (d)
Portfolio turnover rate (e) 0%
</TABLE>
(a) Inception dates is October 19, 2022, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) Amount is less than $0.01.
(c) 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 return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(d) Annualized.
(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 13
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022
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 twelve funds that are offering shares. This
report covers the FT Cboe Vest Rising Dividend Achievers Target Income ETF (the
"Fund"), which trades under the ticker "RDVI" on the Cboe BZX Exchange, Inc.
("Cboe BZX"). The Fund represents a separate series of shares of beneficial
interest in the Trust. Unlike conventional mutual funds, the Fund issues and
redeems shares on a continuous basis, at net asset value ("NAV"), only in large
blocks of shares known as "Creation Units."
The Fund is an actively managed exchange-traded fund. The Fund's investment
objective seeks to provide investors with current income with a secondary
objective of providing capital appreciation. Under normal market conditions, the
Fund will pursue its investment objective by investing primarily in U.S.
exchange-traded equity securities contained in the Nasdaq US Rising Dividend
Achievers(TM) Index (the "Index") and by utilizing an "option strategy"
consisting of writing (selling) U.S. exchange-traded call options on the S&P
500(R) Index or exchange-traded funds that track the S&P 500(R) Index
("Underlying ETFs"). Under normal market conditions, the Fund will invest at
least 80% of its net assets (plus any borrowings for investment purposes) in
dividend-paying securities and/or investments that provide exposure to
dividend-paying securities.
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. The Fund's NAV is calculated by dividing the
value of all assets of the Fund (including accrued interest and dividends), less
all liabilities (including accrued expenses and dividends declared but unpaid),
by the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent readily available market quotations such as last sale or
official closing prices from a national or foreign exchange (i.e., a regulated
market) and are primarily obtained from third-party pricing services. Fair value
prices represent any prices not considered market value prices and are either
obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Trust" or the "Advisor"), in accordance with valuation procedures approved by
the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act
and rules thereunder. Investments valued by the Advisor's Pricing Committee, if
any, are footnoted as such in the footnotes to the Portfolio of Investments. The
Fund's investments are valued as follows:
Common stocks 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 primary exchange for such securities.
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 valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their closing bid price. Over-the-counter options contracts are valued at
the mean of their most recent bid and asked price, if available, and
otherwise at their closing bid price.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their last trade price.
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Advisor's Pricing Committee at
fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a
third-party pricing service is unable to provide a market price; securities
whose trading has been formally suspended; a security whose market or fair value
price is not available from a pre-established pricing source; a security with
respect to which an event has occurred that is likely to materially affect the
value of the security after the market has closed but before the calculation of
the Fund's NAV or make it difficult or impossible to obtain a reliable market
quotation; and a security whose price, as provided by the third-party pricing
service, does not reflect the security's fair value. As a general principle, the
current fair value of a security would appear to be the amount which the owner
might reasonably expect to receive for the security upon its current sale. When
fair value prices are used, generally they will differ from market quotations or
official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not
limited to, the following:
1) the last sale price on the exchange on which they are
principally traded or, for Nasdaq and AIM securities, the
official closing price;
2) the type of security;
3) the size of the holding;
4) the initial cost of the security;
5) transactions in comparable securities;
6) price quotes from dealers and/or third-party pricing services;
7) relationships among various securities;
8) information obtained by contacting the issuer, analysts, or
the appropriate stock exchange;
9) an analysis of the issuer's financial statements;
10) the existence of merger proposals or tender offers that might
affect the value of the security; and
11) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
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, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
Page 15
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022
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.
C. OPTIONS CONTRACTS
The Fund will utilize an "option strategy" consisting of writing (selling) U.S.
exchanged-traded call options on the S&P 500(R) Index or exchange-traded funds
that track the S&P 500(R) Index. A written (sold) call option gives the seller
the obligation to sell shares of the underlying asset at a specified price
("strike price") at a specified date ("expiration date"). The writer (seller) of
the call option receives an amount (premium) for writing (selling) the option.
In the event the underlying asset appreciates above the strike price as of the
expiration date, the writer (seller) of the call option will have to pay the
difference between the value of the underlying asset and the strike price (which
loss is offset by the premium initially received), and in the event the
underlying asset declines in value, the call option may end up worthless and the
writer (seller) of the call option retains the premium.
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. 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.
Premiums received from writing options that expire unexercised are treated by
the Fund on the expiration date as realized gains from options written. The
difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or, if the premium is less than the amount paid for the closing
purchase transaction, as a realized loss. If a call option is exercised, the
premium is added to the proceeds from the sale of the underlying security in
determining whether the Fund has realized a gain or loss. Any gain or loss on
written options would be included in "Net realized gain (loss) on written
options contracts" on the Statement of Operations. The Fund, as a writer of an
option, bears the market risk of an unfavorable change in the price of the
security underlying the written option.
D. 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. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on 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 Fund did not pay a distribution during its fiscal period ended October 31,
2022.
As of October 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 495
Accumulated capital and other gain (loss)....... (1,689)
Net unrealized appreciation (depreciation)...... 67,187
E. 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 period ended 2022
remains open to federal and state audit. As of October 31, 2022, 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.
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022
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, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $1,689.
Certain losses realized during the current fiscal period may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal period ended October 31, 2022, 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
period October 31, 2022, there were no tax adjustments made to accumulated
distributable earnings (loss) accounts due to differences between book and tax
treatments.
As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross
unrealized depreciation, and net unrealized appreciation/(depreciation) on
investments (including short positions and derivatives, if any) for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 2,054,609 $ 77,224 $ (10,037) $ 67,187
</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 Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
First Trust is responsible for the expenses of the Fund including the cost of
transfer agency, sub-advisory, custody, fund administration, legal, audit and
other services and license fees (if any), 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. The Fund has
agreed to pay First Trust an annual management fee equal to 0.75% of its average
daily net assets.
Cboe Vest(SM) Financial LLC ("Cboe Vest"), an affiliate of First Trust, serves
as the Fund's sub-advisor and manages the Fund's portfolio subject to First
Trust's supervision. Pursuant to the Investment Management Agreement, between
the Trust, on behalf of the Fund, and the Advisor, and the Investment
Sub-Advisory Agreement among the Trust, on behalf of the Fund, the Advisor and
Cboe Vest, First Trust will supervise Cboe Vest and its management of the
investment of the Fund's assets and will pay Cboe Vest for its services as the
Fund's sub-advisory fee equal to 0.20% of the average daily net assets of the
Fund. Cboe Vest's fee is paid by the Advisor out of its management fee.
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.
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022
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,
target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs 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 Chairs
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 period ended October 31, 2022, the cost of purchases and proceeds
from sales of investments, excluding short-term investments and in-kind
transactions, were $0 and $0, respectively.
For the fiscal period ended October 31, 2022, the cost of in-kind purchases and
proceeds from in-kind sales were $2,054,609 and $0, respectively.
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2022, 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>
Options Equity Risk -- $ -- Options contracts written,
at value $ 2,346
</TABLE>
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the fiscal period
ended October 31, 2022, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
STATEMENT OF OPERATIONS LOCATION
--------------------------------------------------------------------------------
EQUITY RISK EXPOSURE
Net realized gain (loss) on written options contracts $ (2,919)
Net change in unrealized appreciation (depreciation) on
written options contracts 1,230
During the fiscal period ended October 31, 2022, the premiums for written
options contracts opened were $5,545 and the premiums for written options
contracts closed, exercised and expired were $1,969.
The Fund does not have the right to offset financial assets and financial
liabilities related to options contracts on the Statement of Assets and
Liabilities.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund or one of the Fund's
service providers to purchase and redeem Fund shares directly with the Fund in
large blocks of shares known as "Creation Units." Prior to the start of trading
on every business day, the Fund publishes through the National Securities
Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets
that it will accept in exchange for a Creation Unit of the Fund's shares. An
Authorized Participant that wishes to effectuate a creation of the Fund's shares
deposits with the Fund the "basket" of securities, cash or other assets
identified by the Fund that day, and then receives the Creation Unit of the
Fund's shares in return for those assets. After purchasing a Creation Unit, the
Authorized Participant may continue to hold the Fund's shares or sell them in
the secondary market. The redemption process is the reverse of the purchase
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022
process: the Authorized Participant redeems a Creation Unit of the Fund's shares
for a basket of securities, cash or other assets. The combination of the
creation and redemption process with secondary market trading in the Fund's
shares and underlying securities provides arbitrage opportunities that are
designed to help keep the market price of the Fund's shares at or close to the
NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
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 October 18, 2024.
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 was
the following subsequent event:
At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint
pricing arrangement for each of the series of the Trust, including the Fund.
Pursuant to this arrangement, which is effective as of November 1, 2022, the
management fee the Fund pays to First Trust, as investment manager, will be
discounted as the Fund's net assets reach certain predefined levels.
Page 19
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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 FT Cboe
Vest Rising Dividend Achievers Target Income ETF (the "Fund"), a series of the
First Trust Exchange-Traded Fund IV, including the portfolio of investments, as
of October 31, 2022, and the related statements of operations, changes in net
assets, and the financial highlights for the period from October 19, 2022
(commencement of operations) through October 31, 2022, 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,
2022, and the results of its operations, the changes in its net assets, and the
financial highlights for the period from October 19, 2022 (commencement of
operations) through October 31, 2022 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, 2022, by correspondence with
the custodian and brokers; when replies were not received from 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, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 20
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (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
There were no distributions made by the Fund during the Fund's fiscal period
ended October 31, 2022; therefore, no analysis for the corporate dividends
received deduction and qualified dividend income was completed.
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 significant
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
more broadly diversified.
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.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (UNAUDITED)
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
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 OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. 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 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. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
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.
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (UNAUDITED)
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. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a
reference rate over a phase-out period that began December 31, 2021. There is no
assurance that any alternative reference rate, including the Secured Overnight
Financing Rate ("SOFR") will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative rate will have the
same volume or liquidity. 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, and they 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. Market risk is the risk that a particular security, or shares of a
fund in general, may fall in value. 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. In February
2022, Russia invaded Ukraine which has caused and could continue to cause
significant market disruptions and volatility within the markets in Russia,
Europe, and the United States. The hostilities and sanctions resulting from
those hostilities could have a significant impact on certain fund investments as
well as fund performance. The COVID-19 global pandemic and the ensuing policies
enacted by governments and central banks have caused and may continue to cause
significant volatility and uncertainty in global financial markets. While the
U.S. has resumed "reasonably" normal business activity, many countries continue
to impose lockdown measures. Additionally, there is no guarantee that vaccines
will be effective against emerging variants of the disease. These events also
adversely affect the prices and liquidity of a fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of a
fund's shares and result in increased market volatility. During any such events,
a fund's shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on a fund's shares may widen.
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;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; 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.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
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.
PREFERRED SECURITIES RISK. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt securities in a company's capital
structure in terms of priority to corporate income, subjecting them to greater
credit risk than those debt securities. Generally, holders of preferred
securities have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of periods, at
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (UNAUDITED)
which time the preferred security holders may obtain limited rights. In certain
circumstances, an issuer of preferred securities may defer payment on the
securities and, in some cases, redeem the securities prior to a specified date.
Preferred securities may also be substantially less liquid than other
securities, including common stock.
VALUATION RISK. The valuation of certain securities may carry more risk than
that of common stock. Uncertainties in the conditions of the financial markets,
unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. A fund may hold
investments in sizes smaller than institutionally sized round lot positions
(sometimes referred to as odd lots). However, third-party pricing services
generally provide evaluations on the basis of institutionally-sized round lots.
If a fund sells certain of its investments in an odd lot transaction, the sale
price may be less than the value at which such securities have been held by the
fund. Odd lots often trade at lower prices than institutional round lots. There
is no assurance that the fund will be able to sell a portfolio security at the
price established by the pricing service, which could result in a loss to the
fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AND INVESTMENT
SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, approved the Investment Management Agreement
(the "Advisory Agreement") with First Trust Advisors L.P. (the "Advisor"), on
behalf of FT Cboe Vest Rising Dividend Achievers Target Income ETF (the "Fund"),
and the Investment Sub-Advisory Agreement (the "Sub-Advisory Agreement" and
together with the Advisory Agreement, the "Agreements") among the Trust, on
behalf of the Fund, the Advisor and Cboe Vest Financial LLC (the "Sub-Advisor"),
for an initial two-year term at a meeting held on September 19, 2022. The Board
determined that the Agreements are in the best interests of the Fund in light of
the nature, extent and quality of the services expected to be provided and such
other matters as the Board considered to be relevant in the exercise of its
business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements for
the Fund, the Independent Trustees received a separate report from each of the
Advisor and the Sub-Advisor in advance of the Board meeting 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 to be provided by the Advisor and the Sub-Advisor to the Fund
(including the relevant personnel responsible for these services and their
experience); the proposed 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 exchange-traded funds ("ETFs") managed by the Advisor;
the proposed sub-advisory fee rate as compared to fees charged to other clients
of the Sub-Advisor; the estimated expense ratio of the Fund as compared to
expense ratios of the funds in the Fund's Expense Group and Expense Universe;
the nature of expenses to be incurred in providing services to the Fund and the
potential for the Advisor and the Sub-Advisor to realize economies of scale, if
any; profitability and other financial data for the Advisor; financial data for
the Sub-Advisor; any indirect benefits to the Advisor and its 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 Independent Trustees and their counsel also met
separately to discuss the information provided by the Advisor and the
Sub-Advisor. 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 are reasonable business arrangements from the Fund's
perspective.
In evaluating whether to approve the Agreements for the Fund, the Board
considered the nature, extent and quality of the services to be provided by the
Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory
Agreement, the Board considered that the Advisor will be responsible for the
overall management and administration of the Fund and reviewed all of the
services to be provided by the Advisor to the Fund, including the oversight of
the Sub-Advisor, as well as the background and experience of the persons who
will be responsible for such services. The Board considered that the Fund will
be an actively-managed ETF and will employ an advisor/sub-advisor management
structure and considered that the Advisor manages other ETFs with a similar
structure in the First Trust Fund Complex. The Board noted that the Advisor will
oversee the Sub-Advisor's day-to-day management of the Fund's investments,
including portfolio risk monitoring and performance review. In reviewing the
services to be 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,
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (UNAUDITED)
policies and restrictions. The Board noted that employees of the Advisor provide
management services to other ETFs and to other funds in the First Trust Fund
Complex with diligence and care. With respect to the Sub-Advisory Agreement, in
addition to the written materials provided by the Sub-Advisor, at the September
19, 2022 meeting, the Board also received a presentation from representatives of
the Sub-Advisor, who discussed the services that the Sub-Advisor will provide to
the Fund, and the Trustees were able to ask questions about the proposed
investment strategy for the Fund. The Board noted the background and experience
of the Sub-Advisor's portfolio management team and the Sub-Advisor's investment
style. Because the Fund had yet to commence investment operations, the Board
could not consider the historical investment performance of the Fund. In light
of the information presented and the considerations made, the Board concluded
that the nature, extent and quality of the services to be provided to the Fund
by the Advisor and the Sub-Advisor under the Agreements are expected to be
satisfactory.
The Board considered the proposed unitary fee rate payable by the Fund under the
Advisory Agreement for the services to be provided. The Board noted that, under
the unitary fee arrangement, the Fund would pay the Advisor a unitary fee equal
to an annual rate of 0.75% of its average daily net assets. The Board considered
that, from the unitary fee for the Fund, the Advisor would pay the Sub-Advisor a
sub-advisory fee equal to an annual rate of 0.20% of the Fund's average daily
net assets. The Board noted that the Advisor would be 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, 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 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 ETF) and non-fund clients, as applicable. Because the Fund
will pay a unitary fee, the Board determined that expense ratios were the most
relevant comparative data point. Based on the information provided, the Board
noted that the unitary fee rate for the Fund was below the median total (net)
expense ratio of the peer funds in the Expense Group. With respect to the
Expense Group, the Board discussed with representatives of the Advisor how the
Expense Group was assembled and how the Fund compared and differed from the peer
funds. The Board took this information into account in considering the peer
data. With respect to fees charged to other clients, the Board considered the
Advisor's statement that the Fund will be unique to the market and the First
Trust Fund Complex, but will be most similar to three other actively-managed
ETFs in the First Trust Fund Complex that are managed by the Advisor and employ
options-based strategies, each of which pays a unitary fee equal to an annual
rate of 0.75% or 0.85% of its average daily net assets. In light of the
information considered and the nature, extent and quality of the services
expected to be provided to the Fund under the Agreements, the Board determined
that the proposed unitary fee, including the sub-advisory fee to be paid by the
Advisor to the Sub-Advisor from the unitary fee, was fair and reasonable.
The Board noted that the proposed unitary fee for the Fund was not structured to
pass on to shareholders the benefits of any economies of scale as the Fund's
assets grow. The Board noted that any reduction in fixed costs associated with
the management of the Fund would benefit the Advisor and the Sub-Advisor, but
that the unitary fee structure provides a level of certainty in expenses for the
Fund. The Board noted that the Advisor has continued to build infrastructure and
add new staff to improve the services to the funds in the First Trust Fund
Complex. The Board took into consideration the types of costs to be borne by the
Advisor in connection with its services to be performed for the Fund under the
Advisory Agreement. The Board considered the Advisor's estimate of the asset
level for the Fund at which the Advisor expects the Advisory Agreement to be
profitable to the Advisor and the Advisor's estimate of the profitability of the
Advisory Agreement if the Fund's assets reach $100 million. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's estimated profitability level for the
Fund was not unreasonable. The Board reviewed financial information provided by
the Sub-Advisor, but did not review any potential profitability of the
Sub-Advisory Agreement to the Sub-Advisor. The Board considered that the
Sub-Advisor would be paid by the Advisor from the Fund's unitary fee and its
understanding that the sub-advisory fee rate was the product of an arm's length
negotiation. In addition, the Board considered indirect benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
noted that FTCP has a controlling ownership interest in the Sub-Advisor's parent
company and considered potential indirect benefits to the Advisor from such
ownership interest. The Board also considered that the Advisor had identified as
an indirect benefit to the Advisor and FTP their exposure to investors and
brokers who, absent their exposure to the Fund, may have had no dealings with
the Advisor or FTP. The Board also noted the Sub-Advisor's statements that it is
the Sub-Advisor's policy currently not to enter into soft-dollar arrangements
for the procurement of research services in connection with client securities
transactions and that, as a result, there are no foreseen indirect benefits from
its relationship with the Fund. The Board also considered the potential indirect
benefits to the Sub-Advisor from FTCP's controlling ownership interest in the
Sub-Advisor's parent company. The Board concluded that the character and amount
of potential indirect benefits to the Advisor and the Sub-Advisor were not
unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined that the terms of the
Agreements are fair and reasonable and that the approval of the Agreements is in
the best interests of the Fund. No single factor was determinative in the
Board's analysis.
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (UNAUDITED)
BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT
MANAGEMENT AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the amendment (the
"Amendment") of the Investment Management Agreement (the "Agreement") with First
Trust Advisors L.P. (the "Advisor") on behalf of the FT Cboe Vest Rising
Dividend Achievers Target Income ETF (the "Fund").
The Board approved the Amendment at a meeting held on October 24, 2022. As part
of the review process, the Board reviewed information and had preliminary
discussions with the Advisor regarding the proposed Amendment at meetings held
on June 12-13, 2022 and September 18-19, 2022. Following those preliminary
discussions, the Board requested and received information from the Advisor
regarding the proposed Amendment, and that information was considered at an
executive session of the Independent Trustees and their counsel held prior to
the October 24, 2022 meeting, as well as at the October meeting.
In reviewing the Amendment, the Board considered that the purpose of the
Amendment is to modify the unitary fee rate for the Fund under the Agreement by
introducing a breakpoint schedule pursuant to which the unitary fee rate paid by
the Fund to the Advisor will be reduced as assets of the Fund meet certain
thresholds. The Board noted the Advisor's representations that the quality and
quantity of the services provided to the Fund by the Advisor under the Agreement
will not be reduced or modified as a result of the Amendment, and that the
obligations of the Advisor under the Agreement will remain the same in all
respects.
The Board noted that it, including the Independent Trustees, approved the
Agreement for an initial two-year period ending October 18, 2024 at a meeting
held on September 19, 2022. The Board noted that in connection with such
approval it had determined, based upon the information provided, that the terms
of the Agreement were fair and reasonable and that the approval of the Agreement
was in the best interests of the Fund in light of the nature, extent and quality
of the services expected to be provided and such other matters as the Board
considered to be relevant in the exercise of its business judgment.
Based on all of the information considered, the Board, including the Independent
Trustees, unanimously determined that the terms of the Amendment are fair and
reasonable and that the Amendment is in the best interests of the Fund.
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BOARD OF TRUSTEES AND OFFICERS
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FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (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
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMIS
Hong Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair
(1964) Aurora Health and President, Advocate of Advocate Home Health
o Since 2021 Aurora Continuing Health Division Services, Advocate Home
(Integrated Healthcare System) Care Products and
Advocate Hospice;
Director and Board Chair of
Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust
(1956) (Financial and Management Consulting) Company of Illinois
o Since Inception
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (2015 to 2018), Pelita
Harapan Educational Foundation
(Educational Products and Services)
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INTERESTED TRUSTEE
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James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None
Chairman of the Board Advisors L.P. and First Trust
o Since Inception Portfolios L.P., (1955)
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 27
<PAGE>
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (UNAUDITED)
<TABLE>
<CAPTION>
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
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OFFICERS(2)
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<S> <C> <C> <C>
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since 2016 Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief Accounting First Trust Portfolios L.P.
Officer o Since 2016
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) 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 28
<PAGE>
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PRIVACY POLICY
--------------------------------------------------------------------------------
FT CBOE VEST RISING DIVIDEND ACHIEVERS TARGET INCOME ETF (RDVI)
OCTOBER 31, 2022 (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
professional 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 2022
Page 29
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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
INVESTMENT SUB-ADVISOR
Cboe Vest(SM) Financial LLC
8350 Broad Street, Suite 240
McLean, VA 22102
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
320 South Canal Street
Chicago, IL 60606
<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. |
| (f) | | A copy of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 13(a)(1). |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s Board of Trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees (Registrant) -- The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $329,325 for the fiscal year ended October 31, 2021 and $359,013 for the fiscal year ended October 31, 2022.
(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, 2021 and $0 for the fiscal year ended October 31, 2022.
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year ended October 31, 2022.
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, 2021 and $0 for the fiscal year ended October 31, 2022.
(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 $200,901 for the fiscal year ended October 31, 2021 and $296,018 for the fiscal year ended October 31, 2022.
Tax Fees (Investment Advisor) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant’s advisor and distributor were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year ended October 31, 2022.
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, 2021 and $0 for the fiscal year ended October 31, 2022.
These fees were for tax consultation and/or tax return preparation and professional services rendered for PFIC (Passive Foreign Investment Company) Identification Services.
(d) All Other Fees (Registrant) -- The aggregate fees billed for products and services provided by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year ended October 31, 2022.
All Other Fees (Investment Advisor) -- The aggregate fees billed for products and services provided by the principal accountant to the registrant’s investment advisor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year ended October 31, 2022.
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, 2021 and $0 for the fiscal year ended October 31, 2022.
(e)(1) Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant’s advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor’s independence.
(e)(2) The percentage of services described in each of paragraphs (b) through (d) for the registrant and the registrant’s investment advisor and distributor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(C) or paragraph(C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
| | Registrant: | | Advisor and Distributor: | |
| | (b) 0% | | (b) 0% | |
| | (c) 0% | | (c) 0% | |
| | (d) 0% | | (d) 0% | |
(f) The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant for the fiscal year ended October 31, 2021 were $200,901 for the registrant, $16,500 for the registrant’s investment advisor and $29,500 for the registrant’s distributor; and for the fiscal year ended October 31, 2022 were $296,018 for the registrant, $0 for the registrant’s investment advisor and $0 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 advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
(i) Not applicable.
(j) Not applicable.
Items 5. Audit Committee of Listed Registrants.
| (a) | | The registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the registrant. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith 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. |
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.
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) |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | | /s/ James M. Dykas |
| | | James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
| By (Signature and Title)* | | /s/ Donald P. Swade |
| | | Donald P. Swade, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer) |
* Print the name and title of each signing officer under his or her signature.
