0001517936 ftetfiv:C000229146Member ftetfiv:BerryGlobalInc550041528Member 2024-10-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number
First Trust Exchange-Traded Fund IV
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant's telephone number, including area code:
Date of reporting period:
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Shareholders.
(a) Following is a copy of the annual reports transmitted to shareholders pursuant to Rule 30e-1 under the Act.
First Trust North American
Energy Infrastructure Fund
EMLP | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust North American Energy Infrastructure Fund (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/EMLP. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust North American Energy Infrastructure Fund | $111 | 0.95% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 34.48% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, a blended benchmark consisting of a 50/50 blend of the PHLX Utility Sector Index and the Alerian MLP Total Return Index, which returned 30.60% for the same Period.
This outperformance was attributable to overweight positions in natural gas pipeline companies that outperformed the blended benchmark that are also not included in the blended benchmark. Underweight positions in crude oil pipeline master limited partnerships relative to the blended benchmark also contributed to the Fund’s relative performance. Energy Income Partners, LLC, the Fund’s sub-advisor, has sought to consistently run a more conservative portfolio with 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 compared to the blended benchmark.
The Fund posted positive returns for the Period as earnings growth and multiple expansion benefited the pipeline and utility companies in the portfolio. This was partially offset by multiple contractions of some renewable developers and a liquefied natural gas infrastructure company in the Fund.
Top Contributors:
DT Midstream, Inc.
Targa Resources Corp.
Kinder Morgan, Inc.
ONEOK, Inc.
Energy Transfer, L.P.
Top Detractors:
NextEra Energy Partners, L.P.
Cheniere Energy Partners, L.P.
USA Compression Partners, L.P.
Exelon Corp.
Northland Power, Inc.
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust North American Energy Infrastructure Fund | 34.48% | 10.80% | 6.16% |
| Blended Benchmark(1) | 30.60% | 13.30% | 7.09% |
| S&P 500® Index | 38.02% | 15.27% | 13.00% |
| (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 27 most prominent energy Master Limited Partnerships (MLPs). |
Visit www.ftportfolios.com/etf/EMLP for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $2,790,077,299 |
| Total number of portfolio holdings | 64 |
| Total advisory fee paid | $23,532,551 |
| Portfolio turnover rate | 23% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Enterprise Products Partners, L.P. | 8.3% |
| Energy Transfer, L.P. | 7.0% |
| ONEOK, Inc. | 5.3% |
| Kinder Morgan, Inc. | 4.8% |
| DT Midstream, Inc. | 4.5% |
| Plains GP Holdings, L.P., Class A | 4.4% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class | 4.0% |
| Sempra | 4.0% |
| MPLX, L.P. | 3.8% |
| Targa Resources Corp. | 3.4% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/EMLP to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust EIP Carbon Impact ETF
ECLN | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust EIP Carbon Impact ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/ECLN. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust EIP Carbon Impact ETF | $110 | 0.95% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 32.63% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the PHLX Utility Sector Index, which returned 38.20% for the same Period.
This underperformance was attributable to an underweight position in a merchant power company that experienced above normal earnings growth and multiple expansion relative to the other regulated utilities in the Fund. Overweight positions in some renewable developers and a liquefied natural gas (“LNG”) infrastructure company also contributed to the Fund’s relative performance. Energy Income Partners, LLC, the Fund’s sub-advisor, has sought to consistently run a more conservative portfolio with 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 compared to the benchmark.
The Fund posted positive returns for the Period as earnings growth and multiple expansion benefited the pipeline and utility companies in the portfolio. This was partially offset by multiple contractions of some renewable developers and an LNG infrastructure company in the Fund.
Top Contributors:
Top Detractors:
NextEra Energy Partners, L.P.
EDP Renovaveis S.A.
Cheniere Energy Partners, L.P.
Orsted A/S
CenterPoint Energy, Inc.
FUND PERFORMANCE (August 19, 2019 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(8/19/19) |
| First Trust EIP Carbon Impact ETF | 32.63% | 9.45% | 9.70% |
| PHLX Utility Sector Index | 38.20% | 7.82% | 8.50% |
| S&P 500® Index | 38.02% | 15.27% | 15.56% |
Visit www.ftportfolios.com/etf/ECLN for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $14,609,993 |
| Total number of portfolio holdings | 53 |
| Total advisory fee paid | $243,841 |
| Portfolio turnover rate | 16% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class | 7.0% |
| DT Midstream, Inc. | 6.1% |
| Targa Resources Corp. | 4.7% |
| Sempra | 4.0% |
| Atmos Energy Corp. | 3.9% |
| American Electric Power Co., Inc. | 3.7% |
| Xcel Energy, Inc. | 3.7% |
| PPL Corp. | 3.5% |
| Williams (The) Cos., Inc. | 3.4% |
| WEC Energy Group, Inc. | 3.2% |
Any amount shown as 0.0% represents less than 0.1%.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/ECLN to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
FT Energy Income Partners Strategy ETF
EIPX | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the FT Energy Income Partners Strategy ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/EIPX. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| FT Energy Income Partners Strategy ETF | $105 | 0.95% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 20.83% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the S&P Global 1200 Energy Index, which returned 6.85% for the same Period.
This outperformance was attributable to overweight positions in natural gas pipeline companies, pipeline master limited partnerships, and electric utilities that outperformed the benchmark and are either underweight or are not included in the benchmark. Underweight positions in cyclical energy companies such as oil and gas producers, in addition to integrated oil companies relative to the benchmark, also contributed to the Fund’s relative performance. The Fund tends to be overweight companies that have more stable and growing earnings such as pipeline and utility companies relative to the benchmark, while the benchmark tends to be overweight cyclical energy companies such as oil and gas producers and integrated oil companies.
The Fund posted positive returns for the Period as earnings growth and multiple expansion benefited the pipeline and utility companies in the portfolio. This was partially offset by lower year-over-year crude oil prices and refining margins that had a negative impact on earnings of the oil and gas producers and integrated oil companies in the Fund.
Top Contributors:
Top Detractors:
BP PLC
Halliburton Co.
Schlumberger NV
NextEra Energy Partners, L.P.
Vital Energy Services, Inc.
FUND PERFORMANCE (November 2, 2022 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(11/2/22) |
| FT Energy Income Partners Strategy ETF | 20.83% | 14.65% |
| S&P Global 1200 Energy Index | 6.85% | 5.76% |
| MSCI World Index | 33.68% | 22.76% |
Visit www.ftportfolios.com/etf/EIPX for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $332,447,071 |
| Total number of portfolio holdings | 81 |
| Total advisory fee paid | $2,696,410 |
| Portfolio turnover rate | 23% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Enterprise Products Partners, L.P. | 6.9% |
| Shell PLC, ADR | 5.4% |
| Energy Transfer, L.P. | 5.3% |
| TotalEnergies SE, ADR | 4.8% |
| Imperial Oil Ltd. | 4.5% |
| MPLX, L.P. | 3.9% |
| Exxon Mobil Corp. | 3.8% |
| Kinder Morgan, Inc. | 3.2% |
| ONEOK, Inc. | 3.0% |
| Plains GP Holdings, L.P., Class A | 2.7% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/EIPX to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Senior Loan Fund
FTSL | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Senior Loan Fund (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FTSL. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Senior Loan Fund | $89 | 0.85% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 9.42% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the Morningstar® LSTA® US Leveraged Loan Index, which returned 10.56% for the same Period.
The following key factors impacted Fund performance relative to the benchmark during the Period:
Credit Quality: The Fund maintained a defensive high-quality bias. Performance across the credit quality spectrum was mixed during the Period but lower quality assets generally outperformed. The Fund benefited from underweight allocations to assets rated CCC and below and assets rated BB. Conversely, the Fund’s underweight allocation to assets rated B and overweight allocation to higher-quality assets rated BBB were detractors to Fund performance.
Asset Type: The Fund’s high yield bond allocation was a significant positive contributor to performance relative to the benchmark as high yield bonds broadly outperformed loans during the Period. The Fund began the Period with an 11.64% allocation to bonds and ended the Period with a 12.02% allocation to bonds. Mitigating that benefit was the Fund’s selection of loans and its net cash position.
Sector/Industry: Relative to the benchmark, the primary contributors to the Fund’s performance were selection within the Media & Entertainment sector, an underweight allocation to the Transportation sector, and selection within the Food, Beverage & Tobacco sector. Conversely, the Fund’s selection within the Software & Services, Pharmaceuticals, and Biotechnology & Life Sciences sectors, as well as its overweight allocation to the Defensive Insurance sector, were the primary detractors to Fund performance.
Loan Spreads, Yields and Prices: Loan spreads over the Secured Overnight Financing Rate compressed by 100 basis points (“bps”) to S+444 bps. While loan spreads ended the Period below the long-term average of S+516 bps (December 1997 – October 2024), yields of 9.09% remain well above the long-term average of 6.99% (January 1999 – October 2024) driven by elevated base rates. Loan prices increased by $2.14 to $96.90 and remain at a discount to par ($100).
Defaults: The Fund experienced zero defaults during the Period, compared to 15 defaults in the benchmark. Since the Fund’s inception, the Fund experienced 10 defaults, compared to 189 defaults in the benchmark over the same timeframe. The loan market default rate fell from 1.43% at the beginning of the Period to 0.73% at the end of the Period, remaining below the long-term average of 2.63% (January 1999 – October 2024). The avoidance of defaults generally benefits performance.
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust Senior Loan Fund | 9.42% | 4.86% | 4.03% |
| Morningstar® LSTA® US Leveraged Loan Index | 10.56% | 6.02% | 4.92% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.49% |
Visit www.ftportfolios.com/etf/FTSL for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $2,162,866,940 |
| Total number of portfolio holdings | 237 |
| Total advisory fee paid | $18,917,277 |
| Portfolio turnover rate | 125% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Software | 17.6% |
| Insurance | 13.2% |
| Hotels, Restaurants & Leisure | 7.2% |
| Health Care Technology | 6.7% |
| Money Market Funds | 5.4% |
| IT Services | 5.4% |
| Professional Services | 4.9% |
| Containers & Packaging | 4.7% |
| Health Care Providers & Services | 4.2% |
| All Other | 30.7% |
(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 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. “NR” indicates no rating. The credit ratings shown relate to the credit worthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FTSL to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Tactical High Yield ETF
HYLS | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Tactical High Yield ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/HYLS. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Tactical High Yield ETF | $113 | 1.05% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 14.91% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the ICE BofA US High Yield Constrained Index, which returned 16.49% for the same Period.
The following key factors impacted Fund performance relative to the benchmark during the Period:
Credit Quality: Performance across the credit quality spectrum was mixed during the Period but lower quality assets generally outperformed. The Fund benefited from an underweight allocation to assets rated BB. Conversely, the Fund’s overweight allocation to assets rated B, CCC and below, and higher-quality assets rated BBB were detractors to Fund performance.
Asset Type: The Fund’s senior loan allocation detracted from performance relative to the benchmark as loans underperformed bonds during the Period (the Morningstar® LSTA® US Leveraged Loan Index returned 10.56% for the Period). The Fund began the Period with a 9.24% allocation to loans and ended the Period with a 10.88% allocation to loans.
Leverage: The Fund began the Period with 5.90% leverage and ended the Period unlevered. The Fund’s use of leverage was a significant contributor to performance relative to the benchmark. Mitigating that benefit was the Fund’s net cash position while unlevered.
Sector/Industry: Relative to the benchmark, the primary contributors to the Fund’s performance were its underweight allocation to the Energy sector, selection within the Capital Goods sector and an underweight allocation to, and selection within, the Leisure sector. Conversely, the Fund’s selection within the Technology and Electronics, Healthcare, and Insurance sectors were the primary detractors to the Fund’s performance.
U.S. Treasury Rates: 10-Year U.S. Treasury yields declined by 65 basis points (“bps”) to 4.28% after entering the Period at a high of 4.93% and bouncing off a low of 3.62%. Falling Treasury rates are generally a tailwind to fixed income assets.
Bond Spreads, Yields and Prices: High-yield bond spreads over treasuries compressed by 157 bps to T+288 bps. While high-yield bond spreads ended the Period below the long-term average of T+530 bps (December 1996 – October 2024), a yield-to-worst of 7.33% remains compelling. High-yield bond prices increased by $9.41 to $95.72 and remain at a discount to par ($100).
Defaults: The Fund experienced zero defaults during the Period, compared to 7 defaults in the JP Morgan High-Yield Bond Universe. Since inception, the Fund experienced 10 defaults, compared to 281 defaults in the JP Morgan High-Yield Bond Universe over the same timeframe. The high-yield bond market default rate fell from 1.76% at the beginning of the Period to 0.55% at the end of the Period, remaining below the long-term average of 2.93% (March 1999 – October 2024).
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust Tactical High Yield ETF | 14.91% | 3.04% | 3.70% |
| ICE BofA US High Yield Constrained Index | 16.49% | 4.37% | 4.77% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.49% |
Visit www.ftportfolios.com/etf/HYLS for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $1,615,237,871 |
| Total number of portfolio holdings | 344 |
| Total advisory fee paid | $13,954,238 |
| Portfolio turnover rate | 47% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Software | 15.1% |
| Insurance | 12.3% |
| Containers & Packaging | 7.8% |
| Media | 6.7% |
| Hotels, Restaurants & Leisure | 6.1% |
| Health Care Providers & Services | 5.5% |
| Commercial Services & Supplies | 4.8% |
| IT Services | 4.1% |
| Food Products | 3.8% |
| All Other | 33.8% |
(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 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. “NR” indicates no rating. The credit ratings shown relate to the credit worthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/HYLS to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Enhanced Short Maturity ETF
FTSM | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Enhanced Short Maturity ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FTSM. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Enhanced Short Maturity ETF | $45 | 0.44% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 5.70% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the ICE BofA 0-1 Year U.S. Treasury Index, which returned 5.47% for the same Period.
This outperformance was driven by yield curve positioning and credit spread performance. Yields fell significantly during the Period and the Federal Reserve (the “Fed”) cut its policy rate 50 basis points during the Period. In this environment, the Fund’s overweight duration posture was accretive relative to its benchmark. Improving credit spreads also contributed to relative performance and the Fund’s allocation to corporate bonds and securitized debt was the primary driver of outperformance during the Period. Within corporate credit, industry classifications that delivered the best total returns included construction machinery, other consumer cyclical, and banking. There were no industries that detracted from relative return. The Fund’s largest weights in corporate credit were in banking, healthcare, and technology. Within securitized assets, all sectors contributed to outperformance with the largest contribution coming from automobile and equipment asset-backed securities.
Throughout the 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 duration ended the Period at 0.6 years and its weighted average maturity at 0.7 years. By maintaining a low duration and low average maturity, the strategy successfully achieved its three primary objectives: (1) optimizing income, (2) mitigating net asset value fluctuation and (3) providing a high level of liquidity. By capturing higher yields prior to the Fed cutting interest rates, the Fund achieved a 12-month distribution rate of 4.93% at the end of the Period.
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust Enhanced Short Maturity ETF | 5.70% | 2.39% | 1.92% |
| ICE BofA 0-1 Year U.S. Treasury Index | 5.47% | 2.29% | 1.72% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.49% |
Visit www.ftportfolios.com/etf/FTSM for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. The Fund’s total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor.
Performance in 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.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $6,160,767,211 |
| Total number of portfolio holdings | 400 |
| Total advisory fee paid | $29,162,388 |
| Portfolio turnover rate | 62% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| FMC Corp., 5.44%, 11/01/24 | 1.1% |
| Targa Resources Corp., 5.03%, 11/01/24 | 1.1% |
| Jabil, Inc., 5.30%, 11/01/24 | 1.0% |
| AutoNation, Inc., 5.29%, 11/01/24 | 1.0% |
| T-Mobile U.S. Trust, Series 2022-1A, Class A, 4.91%, 05/22/28 | 0.8% |
| U.S. Treasury Note, 4.63%, 02/28/25 | 0.6% |
| Verizon Master Trust, Series 2022-7, Class A1A, 5.23%, 11/22/27 | 0.6% |
| Verizon Master Trust, Series 2023-2, Class A, 4.89%, 04/13/28 | 0.6% |
| Plains All American Pipeline, L.P. / PAA Finance Corp., 3.60%, 11/01/24 | 0.6% |
| Williams Cos. (The), Inc., 4.00%, 09/15/25 | 0.6% |
(1) 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 rating is 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. U.S. Treasury, U.S. Agency and U.S. Agency mortgage-backed securities appear under “Government & Agency.” Credit ratings are subject to change.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FTSM to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust High Income
Strategic Focus ETF
HISF | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust High Income Strategic Focus ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/HISF. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust High Income Strategic Focus ETF | $20(1) | 0.19%(1) |
(1) | Excludes any Acquired Fund Fees and Expenses of underlying investment companies in which the Fund invests. |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 10.73% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, a blended benchmark consisting of a 70/30 blend of the Bloomberg US Aggregate Bond Index and the ICE BofA U.S. High Yield Constrained Index, which returned 12.31% for the same Period.
The underperformance was driven by the Fund’s lower allocation to assets sensitive to credit spread, such as high yield bonds, relative to the benchmark and a modestly shorter duration than the benchmark. The benchmark allocation to high yield bonds is 30% while the primary exposure to high yield bonds in the Fund was through the First Trust Tactical High Yield ETF (“HYLS”) and was held between 15% and 20% of the Fund.
At the start of the Period, the Fund carried a relatively conservative allocation to credit risk as the Federal Reserve (the “Fed”) had just completed 525 basis points (“bps”) of interest rate hikes over the prior 15 months. Meanwhile, high yield corporate bond spreads tightened from 445 to 288 bps and the ICE BofA U.S. High Yield Constrained Index returned 16.49% as ‘risk’ assets continued to price a ‘soft landing’ scenario benefiting from continued economic and corporate profit growth. The Fed remained on hold until the very end of the Period when they cut the Federal Funds target rate by 50 bps on September 20, 2024. Though rates were volatile, the monetary policy transition provided a tailwind to lower U.S. Treasury rates as the 10-Year U.S. Treasury yield declined 64 bps from 4.93% to 4.29% benefitting longer duration securities during the Period.
The Fund’s largest allocation during the Period, the First Trust TCW Opportunistic Fixed Income ETF (“FIXD”), was held between 32.5% and 40% of the Fund. FIXD, a Core Opportunistic Fund, returned 11.07% for the Period and outperformed the Bloomberg US Aggregate Bond Index (the “Index”) which returned 10.55%. This outperformance relative to the Index was driven by FIXD’s longer duration, 6.88 years on average versus 6.10 years for the Index, however FIXD underperformed the benchmark with less exposure to high yield.
HYLS was the largest contributor to positive performance during the Period and returned 15.17%, benefiting from tightening credit spreads, declining interest rates and elevated levels of income.
The Fund’s allocation to high quality, short duration securities detracted from relative performance during the Period. The First Trust Low Duration Opportunities ETF and First Trust Limited Duration Investment Grade Corporate ETF were held between 12% and 15% of the Fund each and returned 8.75% and 8.51%, respectively. Declining interest rates and tighter high yield spreads benefitted funds with longer duration and exposure to higher risk securities.
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust High Income Strategic Focus ETF | 10.73% | 1.50% | 2.84% |
| Blended Index(1) | 12.31% | 1.19% | 2.51% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.49% |
| Russell 3000® Index | 37.86% | 14.60% | 12.44% |
| (1) | The Blended Index is comprised of the Bloomberg US Aggregate Bond Index (70%) and the ICE BofA U.S. High Yield Constrained Index (30%). |
Visit www.ftportfolios.com/etf/HISF for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. The Fund’s total returns would have been lower if certain fees had not been waived by the investment advisor.
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.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $46,527,154 |
| Total number of portfolio holdings | 9 |
| Total advisory fee paid | $68,389 |
| Portfolio turnover rate | 36% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The table below shows the investment makeup of the Fund, representing the percentage of net assets of the Fund.
| Exchange-Traded Funds | 99.9% |
| Money Market Funds | 0.1% |
| Net Other Assets and Liabilities | 0.0% |
| Total | 100.0% |
Any amount shown as 0.0% represents less than 0.1%
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/HISF to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Low Duration Opportunities ETF
LMBS | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Low Duration Opportunities ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/LMBS. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
This report describes changes to the Fund that occurred during the Period.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Low Duration Opportunities ETF | $67 | 0.64% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 8.59% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the ICE BofA 1-5 Year US Treasury & Agency Index, which returned 6.18% for the same Period.
This 241 basis points (“bps”) of outperformance was due to several factors during the Period:
Active yield curve exposure management benefited the Fund as yields declined.
Overall, the usage of derivatives had a positive impact on the Fund’s performance. The Fund experienced significant benefit from its usage of Treasury Future options, while performance was mildly negative from Treasury futures. However, most of the negative return can be attributed to the Fund being short Treasury futures to hedge some of the yield curve risk from mortgage-backed securities (“MBS”).
The Fund’s Agency MBS allocation contributed to outperformance as spreads tightened meaningfully in the sector.
Overall, the Fund maintained a higher level of income than its benchmark, which also contributed to outperformance.
FUND PERFORMANCE (November 4, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(11/4/14) |
| First Trust Low Duration Opportunities ETF | 8.59% | 1.58% | 2.58% |
| ICE BofA 1-5 Year US Treasury & Agency Index | 6.18% | 1.00% | 1.34% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.50% |
Visit www.ftportfolios.com/etf/LMBS for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. The Fund’s total returns would have been lower if certain fees had not been waived by the investment advisor.
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.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $4,546,478,532 |
| Total number of portfolio holdings | 1,074 |
| Total advisory fee paid | $26,368,402 |
| Portfolio turnover rate | 413% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| U.S. Government Agency Mortgage-Backed Securities | 81.6% |
| Mortgage-Backed Securities | 6.5% |
| U.S. Government Bonds and Notes | 5.0% |
| Asset-Backed Securities | 3.4% |
| Exchange-Traded Funds | 0.1% |
| Money Market Funds | 13.0% |
| Purchased Options | 0.0% |
| U.S. Government Agency Mortgage-Backed Securities Sold Short | (0.4%) |
| Written Options | (0.6%) |
| Net Other Assets and Liabilities(1) | (8.6%) |
| Total | 100.0% |
Any amount shown as 0.0% represents less than 0.1%.
(1) Includes variation margin on futures contracts.
(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, DBRS, Inc., Kroll Bond Rating Agency, Inc. or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. A credit rating is an assessment provided by a NRSRO, of the creditworthiness of an issuer with respect to debt obligations. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Investment grade is defined as those issuers that have a long-term credit rating of BBB- or higher. “NR” indicates no rating. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the fund, and not to the fund or its shares. U.S. Agency, U.S. Agency mortgage-backed, and U.S. Treasury securities appear under “Government & Agency.” Credit ratings are subject to change.
HOW HAS THE FUND MATERIALLY CHANGED?
This is a summary of certain changes to the Fund since November 1, 2023. For more complete information, you may review the Fund’s prospectus and any applicable supplements at www.ftportfolios.com/fund-documents/etf/LMBS or upon request at 1-800-621-1675 or info@ftportfolios.com.
On June 2, 2024, the Board of Trustees of First Trust Exchange-Traded Fund IV, of which the Fund is a series, approved a Fee Offset Agreement on behalf of the Fund. Effective July 1, 2024, First Trust Advisors L.P., the Fund’s investment advisor (the “Advisor”) has agreed to offset the acquired fund fees that the Fund pays as an investor in other exchange-traded funds advised by the Advisor. The offset takes the form of a reduction of the management fee the Advisor charges to the Fund.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/LMBS to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust SSI
Strategic Convertible Securities ETF
FCVT | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust SSI Strategic Convertible Securities ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FCVT. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
This report describes changes to the Fund that occurred during the Period.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust SSI Strategic Convertible Securities ETF | $106 | 0.95% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 22.40% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the ICE BofA US Convertible Index (VXA0), which returned 20.97% for the same Period.
This outperformance was due to the Fund’s overweight in convertibles of growth companies, as growth outperformed value.
Declining inflation, strong economic growth, monetary easing by the Federal Reserve (the “Fed”) and accelerating earnings growth have acted as tailwinds for the economy and the convertibles market.
Convertible performance was driven by positive returns in both equities and high yield markets. The S&P 500® Index rose 38.02%, while the Russell 2000® Index rose 34.07% and the Bloomberg High Yield Index rose 16.47%.
Economic activity remains resilient with GDPNow predicting 2.7% growth in the third quarter of 2024.
Corporate earnings growth is expected to increase 9% in 2024, accelerating to 13% in 2025.
High Yield credit spreads narrowed by 155 basis points (“bps”) and are near 52-week lows.
Ten-year Treasury yields fell by 64 bps to 4.29% as the Fed began cutting interest rates as the rate of inflation has declined.
Convertible new issuance increased from $50 billion in fiscal year 2023 to $78 billion in fiscal year 2024. This has broadened the opportunity set for investors.
Key factors impacting relative performance during the Period:
The Fund’s overweight in convertibles of growth companies helped relative performance as growth outperformed value.
An overweight in securities of investment grade companies helped relative performance as investment grade outperformed speculative grade.
Security selection in Technology, particular Artificial Intelligence levered companies, made the largest contribution to relative returns.
An overweight allocation to, and security selection in, Industrials also aided relative returns.
Security selection in the Communications Services (not owning one distressed credit in particular that outperformed) and Retail sectors were the largest detractors from relative returns.
FUND PERFORMANCE (November 3, 2015 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(11/3/15) |
| First Trust SSI Strategic Convertible Securities ETF | 22.40% | 8.76% | 8.47% |
| ICE BofA US Convertible Index | 20.97% | 10.33% | 9.73% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.47% |
Visit www.ftportfolios.com/etf/FCVT for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $69,698,297 |
| Total number of portfolio holdings | 126 |
| Total advisory fee paid | $779,213 |
| Portfolio turnover rate | 100% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| NextEra Energy Capital Holdings, Inc. | 3.2% |
| Apollo Global Management, Inc. | 2.0% |
| Alibaba Group Holding Ltd. | 2.0% |
| MicroStrategy, Inc. | 1.9% |
| Wells Fargo & Co. | 1.8% |
| Uber Technologies, Inc. | 1.8% |
| Morgan Stanley Finance LLC | 1.7% |
| Seagate HDD Cayman | 1.6% |
| Palo Alto Networks, Inc. | 1.5% |
| Bank of America Corp. | 1.5% |
HOW HAS THE FUND MATERIALLY CHANGED?
This is a summary of certain changes to the Fund since November 1, 2023. For more complete information, you may review the Fund’s prospectus and any applicable supplements at www.ftportfolios.com/fund-documents/etf/FCVT or upon request at 1-800-621-1675 or info@ftportfolios.com.
During the fiscal year ended October 31, 2024, the Fund’s shareholders approved: (i) a new investment sub-advisory agreement with SSI Investment Management LLC for the Fund; and (ii) a “manager of managers” structure for the Fund.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FCVT to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Long Duration
Opportunities ETF
LGOV | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Long Duration Opportunities ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/LGOV. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Long Duration Opportunities ETF | $69 | 0.65% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 13.70% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the ICE BofA 5+ Year US Treasury Index, which returned 11.66% for the same Period.
This 204 basis points (“bps”) of outperformance was due to several factors during the Period:
The Fund generally maintained a longer duration compared to the benchmark, which contributed to outperformance as yields declined over the Period.
The Fund’s allocation to Agency Mortgage-Backed Securities contributed to outperformance as spreads tightened meaningfully over the Period.
The use of derivatives was a net benefit to the Fund’s performance.
FUND PERFORMANCE (January 22, 2019 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(1/22/19) |
| First Trust Long Duration Opportunities ETF | 13.70% | -2.22% | 0.34% |
| ICE BofA 5+ Year US Treasury Index | 11.66% | -2.76% | -0.27% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.23% |
Visit www.ftportfolios.com/etf/LGOV for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
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.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $621,249,277 |
| Total number of portfolio holdings | 128 |
| Total advisory fee paid | $2,723,982 |
| Portfolio turnover rate | 182% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| U.S. Government Agency Mortgage-Backed Securities | 78.0% |
| U.S. Government Bonds and Notes | 20.5% |
| U.S. Government Agency Securities | 4.2% |
| Exchange-Traded Funds | 0.1% |
| Money Market Funds | 1.7% |
| Purchased Options | 0.0% |
| Written Options | (0.2%) |
| Net Other Assets and Liabilities(1) | (4.3%) |
| Total | 100.0% |
Any amount shown as 0.0% represents less than 0.1%.
(1) Includes variation margin on futures contracts.
(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, DBRS, Inc., Kroll Bond Rating Agency, Inc. or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. A credit rating is an assessment provided by a NRSRO, of the creditworthiness of an issuer with respect to debt obligations. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Investment grade is defined as those issuers that have a long-term credit rating of BBB- or higher. “NR” indicates no rating. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the fund, and not to the fund or its shares. U.S. Agency, U.S. Agency mortgage-backed, and U.S. Treasury securities appear under “Government & Agency.” Credit ratings are subject to change.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/LGOV to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
FT Vest S&P 500®
Dividend Aristocrats Target Income ETF®
KNG | CBOE BZX EXCHANGE, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/KNG. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| FT Vest S&P 500® Dividend Aristocrats Target Income ETF® | $83 | 0.75% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 20.80% for the twelve months ended October 31, 2024. The Fund underperformed its benchmark, the Cboe S&P 500® Dividend Aristocrats Target Income Index Monthly Series, which returned 21.57% for the same Period.
This underperformance was due to the following:
| Fund Net Asset Value Performance Attributed to: | | |
| Equities | 21.57 | % |
| Short Call Options | -0.02 | % |
| Expenses (pro-rated annual expense ratio) | -0.75 | % |
The top five performing holdings in the Fund for the Period were Pentair PLC, Caterpillar, Inc., Cintas Corp., W.W. Grainger, Inc., and Walmart, Inc., with returns of 72.5%, 69.1%, 63.8%, 53.3%, and 52.5%, respectively.
The bottom five performing holdings in the Fund for the Period were Albemarle Corp., Archer-Daniels-Midland Co., Brown-Forman Corp., Class B, Genuine Parts Co., and Becton Dickinson & Co., with returns of -24.2%, -20.3%, -20.2%, -8.5%, and -6.1%, respectively.
The Fund holds a basket of equities as well as short call options that, in combination, are designed to meet the Fund’s objective.
FUND PERFORMANCE (March 26, 2018 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(3/26/18) |
| FT Vest S&P 500® Dividend Aristocrats Target Income ETF® | 20.80% | 8.82% | 9.49% |
| Cboe S&P 500® Dividend Aristocrats Target Income Index Monthly Series | 21.57% | 9.61% | 10.31% |
| S&P 500® Dividend Aristocrats Index | 24.17% | 10.12% | 10.84% |
| S&P 500® Index | 38.02% | 15.27% | 14.18% |
Visit www.ftportfolios.com/etf/KNG for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
The final determination of the source and tax status of all calendar year 2024 distributions, including any return of capital, will be made after the end of 2024 and will be provided on Form 1099-DIV.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $3,420,172,722 |
| Total number of portfolio holdings | 133 |
| Total advisory fee paid | $19,306,192 |
| Portfolio turnover rate | 206% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| Common Stocks | 100.2% |
| Money Market Funds | 0.1% |
| Written Options | (0.3%) |
| Net Other Assets and Liabilities | 0.0% |
| Total | 100.0% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/KNG to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Limited Duration
Investment Grade Corporate ETF
FSIG | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Limited Duration Investment Grade Corporate ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FSIG. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
This report describes changes to the Fund that occurred during the Period.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Limited Duration Investment Grade Corporate ETF | $57 | 0.55% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 8.58% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the Bloomberg US Corporate Bond 1-5 Year Index, which returned 8.83% for the same Period.
The following key factors impacted Fund performance relative to the benchmark during the Period:
Credit Quality: Performance across the credit quality spectrum was strong during the Period but lower quality assets generally outperformed. The Fund benefited from an overweight allocation to assets rated BBB- and below.
Asset Type: The Fund’s commercial paper and cash allocation detracted from performance relative to the benchmark as those assets underperformed bonds during the Period. The Fund’s average exposure to commercial paper and cash during the Period was 2.36%.
Sector/Industry: Relative to the benchmark, the primary contributors to the Fund’s performance were its security selection within the Technology, Healthcare, and Construction Machinery & Manufacturing sectors. Conversely, the Fund’s underweight allocation to, and selection in, the Banking sector was the primary detractor to Fund performance.
Duration: On average, the Fund maintained a duration that was 0.19 years longer than the benchmark during the Period, which had a modest positive contribution to the Fund’s performance as interest rates shifted lower over that time.
U.S. Treasury Rates: 10-Year U.S. Treasury yields declined by 65 basis points (“bps”) to 4.28% after entering the Period at a high of 4.93% and bouncing off a low of 3.62%. Falling Treasury rates are generally a tailwind to fixed income assets.
Bond Spreads, Yields and Prices: The benchmark’s spread over treasuries compressed by 47 bps to T+61 bps. While spreads ended the Period below the long-term average of T+109 bps (January 1990 – October 2024), a yield-to-worst of 4.82% remains above the long-term average of 4.51% (January 1990 – October 2024). The benchmark’s bond prices increased by $4.34 to $98.14 and remain at a discount to par ($100).
FUND PERFORMANCE (November 17, 2021 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(11/17/21) |
| First Trust Limited Duration Investment Grade Corporate ETF | 8.58% | 1.83% |
| Bloomberg US Corporate Bond 1-5 Year Index | 8.83% | 1.56% |
| Bloomberg US Aggregate Bond Index | 10.55% | -2.14% |
Visit www.ftportfolios.com/etf/FSIG for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. The Fund’s total returns would have been lower if certain fees had not been waived by the investment advisor.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $1,236,486,240 |
| Total number of portfolio holdings | 304 |
| Total advisory fee paid | $5,751,636 |
| Portfolio turnover rate | 22% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| MSCI, Inc., 4.00%, 11/15/29 | 1.4% |
| Open Text Corp., 6.90%, 12/01/27 | 1.3% |
| United Rentals North America, Inc., 6.00%, 12/15/29 | 1.2% |
| Crowdstrike Holdings, Inc., 3.00%, 02/15/29 | 1.2% |
| Smurfit Kappa Treasury ULC, 5.20%, 01/15/30 | 1.1% |
| Energy Transfer, L.P., 5.03%, 11/01/24 | 1.0% |
| FMC Corp., 5.44%, 11/01/24 | 1.0% |
| Jabil, Inc., 5.30%, 11/01/24 | 1.0% |
| Berry Global, Inc., 5.50%, 04/15/28 | 0.9% |
| IQVIA, Inc., 5.70%, 05/15/28 | 0.9% |
(1) 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.
HOW HAS THE FUND MATERIALLY CHANGED?
This is a summary of certain changes to the Fund since November 1, 2023. For more complete information, you may review the Fund’s prospectus and any applicable supplements at www.ftportfolios.com/fund-documents/etf/FSIG or upon request at 1-800-621-1675 or info@ftportfolios.com.
Subsequent to the fiscal year ended October 31, 2024, the Fund’s diversification status under the Investment Company Act of 1940 changed from non-diversified to diversified. The Fund’s principal investment strategies and principal risks were revised accordingly.
Effective November 12, 2023, the investment advisor’s agreement to waive management fees in the amount of 0.10% of the Fund’s average daily net assets was terminated.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FSIG to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
FT Vest Rising Dividend Achievers
Target Income ETF
RDVI | CBOE BZX EXCHANGE, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the FT Vest Rising Dividend Achievers Target Income ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/RDVI. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| FT Vest Rising Dividend Achievers Target Income ETF | $87 | 0.75% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 32.07% for the twelve months ended October 31, 2024. The Fund underperformed its benchmark, the Nasdaq US Rising Dividend AchieversTM Index, which returned 36.72% for the same Period.
This underperformance was due to the following:
| Fund Net Asset Value Performance Attributed to: | | |
| Equities | 36.72 | % |
| Short Call Options | -3.90 | % |
| Expenses (pro-rated annual expense ratio) | -0.75 | % |
The top five performing holdings in the Fund for the Period were Mueller Industries, Inc., Synchrony Financial, American Express Co., Discover Financial Services, and Equitable Holdings, Inc., with returns of 120.5%, 100.1%, 87.2%, 85.4%, and 75.1%, respectively.
The bottom five performing holdings in the Fund for the Period were Humana, Inc., NIKE, Inc., Archer-Daniels-Midland Company, PACCAR, Inc., and Elevance Health, Inc., with returns of -33.4%, -21.9%, -20.3%, -11.4%, and -8.7%, respectively.
The Fund holds a basket of equities as well as short call options that, in combination, are designed to meet the Fund’s objectives.
FUND PERFORMANCE (October 19, 2022 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(10/19/22) |
| FT Vest Rising Dividend Achievers Target Income ETF | 32.07% | 20.96% |
| Nasdaq US Rising Dividend AchieversTM Index | 36.72% | 23.38% |
| S&P 500® Index | 38.02% | 25.75% |
Visit www.ftportfolios.com/etf/RDVI for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
The final determination of the source and tax status of all calendar year 2024 distributions, including any return of capital, will be made after the end of 2024 and will be provided on Form 1099-DIV.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $1,428,215,152 |
| Total number of portfolio holdings | 52 |
| Total advisory fee paid | $7,140,277 |
| Portfolio turnover rate | 78% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| Common Stocks | 99.8% |
| Money Market Funds | 0.2% |
| Written Options | (0.0%) |
| Net Other Assets and Liabilities | (0.0%) |
| Total | 100.0% |
Any amount shown as 0.0% represents less than 0.1%
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/RDVI to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
OTHER INFORMATION
Nasdaq® and Nasdaq US Rising Dividend AchieversTM Index (the “Index”) are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
FT Vest SMID Rising Dividend Achievers
Target Income ETF
SDVD | CBOE BZX EXCHANGE, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the FT Vest SMID Rising Dividend Achievers Target Income ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/SDVD. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| FT Vest SMID Rising Dividend Achievers Target Income ETF | $100 | 0.85% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 34.82% for the twelve months ended October 31, 2024. The Fund underperformed its benchmark, the Nasdaq US Small-Mid Cap Rising Dividend AchieversTM Index, which returned 37.60% for the same Period.
This underperformance was due to the following:
| Fund Net Asset Value Performance Attributed to: | | |
| Equities | 37.60 | % |
| Short Call Options | -1.93 | % |
| Expenses (pro-rated annual expense ratio) | -0.85 | % |
The top five performing holdings in the Fund for the Period were Jackson Financial, Inc., Mueller Industries, Inc., Toll Brothers, Inc., Synchrony Financial, and Synovus Financial Corp., with returns of 184.1%, 120.5%, 108.7%, 100.1%, and 98.8%, respectively.
The bottom five performing holdings in the Fund for the Period were Carter’s, Inc., HF Sinclair Corp., Lear Corporation, Shutterstock, Inc., and Insperity, Inc., with returns of -34.9%, -33.7%, -30.8%, -26.1%, and -23.8%, respectively.
The Fund holds a basket of equities as well as short call options that, in combination, are designed to meet the Fund’s objectives.
FUND PERFORMANCE (August 9, 2023 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(8/9/23) |
| FT Vest SMID Rising Dividend Achievers Target Income ETF | 34.82% | 17.53% |
| Russell 2000® Index | 34.07% | 12.73% |
| Russell 3000® Index | 37.86% | 23.03% |
| Nasdaq US Small-Mid Cap Rising Dividend AchieversTM Index | 37.60% | 18.80% |
Visit www.ftportfolios.com/etf/SDVD for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
The final determination of the source and tax status of all calendar year 2024 distributions, including any return of capital, will be made after the end of 2024 and will be provided on Form 1099-DIV.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $153,647,230 |
| Total number of portfolio holdings | 97 |
| Total advisory fee paid | $704,364 |
| Portfolio turnover rate | 94% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| Common Stocks | 99.7% |
| Money Market Funds | 0.3% |
| Written Options | (0.1%) |
| Net Other Assets and Liabilities | 0.1% |
| Total | 100.0% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/SDVD to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
OTHER INFORMATION
Nasdaq® and Nasdaq US Small-Mid Cap Rising Dividend AchieversTM Index (the “Index”) are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
FT Vest Technology Dividend
Target Income ETF
TDVI | CBOE BZX EXCHANGE, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the FT Vest Technology Dividend Target Income ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/TDVI. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| FT Vest Technology Dividend Target Income ETF | $91 | 0.75% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 41.71% for the twelve months ended October 31, 2024. The Fund underperformed its benchmark, the Nasdaq Technology DividendTM Index, which returned 46.10% for the same Period.
This underperformance was due to the following:
| Fund Net Asset Value Performance Attributed to: | | |
| Equities | 46.10 | % |
| Short Call Options | -3.64 | % |
| Expenses (pro-rated annual expense ratio) | -0.75 | % |
The top five performing holdings in the Fund for the Period were Ubiquiti, Inc., Broadcom, Inc., InterDigital, Inc., Clear Secure, Inc., and Dell Technologies, Inc., with returns of 122.6%, 104.9%, 102.8%, 95.2%, and 87.7%, respectively.
The bottom five performing holdings in the Fund for the Period were Methode Electronics, Inc., Concentrix Corporation, STMicroelectronics N.V., Simulations Plus, Inc., and Cable One, Inc., with returns of -47.5%, -46.0%, -39.1%, -36.7%, and -36.1%, respectively.
The Fund holds a basket of equities as well as short call options that, in combination, are designed to meet the Fund’s objectives.
FUND PERFORMANCE (August 9, 2023 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(8/9/23) |
| FT Vest Technology Dividend Target Income ETF | 41.71% | 28.01% |
| Nasdaq-100 Index® | 39.19% | 26.21% |
| S&P 500® Index | 38.02% | 23.85% |
| Nasdaq Technology DividendTM Index | 46.10% | 30.62% |
Visit www.ftportfolios.com/etf/TDVI for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
The final determination of the source and tax status of all calendar year 2024 distributions, including any return of capital, will be made after the end of 2024 and will be provided on Form 1099-DIV.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $42,399,310 |
| Total number of portfolio holdings | 87 |
| Total advisory fee paid | $155,753 |
| Portfolio turnover rate | 70% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| Common Stocks | 99.6% |
| Money Market Funds | 0.3% |
| Written Options | (0.0%) |
| Net Other Assets and Liabilities | 0.1% |
| Total | 100.0% |
Any amount shown as 0.0% represents less than 0.1%
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/TDVI to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
OTHER INFORMATION
Nasdaq® and Nasdaq Technology DividendTM Index (the “Index”) are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
FT Vest Dow Jones Internet & Target Income ETF
FDND | CBOE BZX EXCHANGE, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the FT Vest Dow Jones Internet & Target Income ETF (the “Fund”) for the period of March 20, 2024 (commencement of investment operations) to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FDND. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| FT Vest Dow Jones Internet & Target Income ETF | $48(1) | 0.75%(2) |
(1) | The Fund commenced investment operations on March 20, 2024. Had the Fund been in operation for a complete fiscal year, the cost of a $10,000 investment would have been higher. |
(2) | Annualized. |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 5.33% for the period from the Fund’s inception on March 20, 2024 through October 31, 2024. The Fund underperformed its benchmark, the Dow Jones Internet Composite IndexSM, which returned 6.89% for the same Period.
This underperformance was due to the following:
| Fund Net Asset Value Performance Attributed to: | | |
| Equities | 6.89 | % |
| Short Call Options | -1.11 | % |
| Expenses (pro-rated annual expense ratio) | -0.45 | % |
The top five performing holdings in the Fund for the Period were Carvana Co., Smartsheet, Inc., Paycom Software, Inc., GoDaddy, Inc., and ROBLOX Corp., with returns of 186.2%, 45.2%, 42.1%, 40.0%, and 36.8%, respectively.
The bottom five performing holdings in the Fund for the Period were Fastly, Inc., Teladoc Health, Inc., Okta, Inc., ZoomInfo Technologies, Inc., and Snowflake, Inc., with returns of -45.2%, -43.2%, -31.9%, -30.4%, and -29.6%, respectively.
The Fund holds a basket of equities as well as short call options that, in combination, are designed to meet the Fund’s objectives.
FUND PERFORMANCE (March 20, 2024 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | Since
Inception
(3/20/24) |
| FT Vest Dow Jones Internet & Target Income ETF | 5.33% |
| Dow Jones Internet Composite IndexSM | 6.89% |
| S&P 500® Index | 10.07% |
Visit www.ftportfolios.com/etf/FDND for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
The final determination of the source and tax status of all calendar year 2024 distributions, including any return of capital, will be made after the end of 2024 and will be provided on Form 1099-DIV.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $2,044,042 |
| Total number of portfolio holdings | 43 |
| Total advisory fee paid | $6,998 |
| Portfolio turnover rate | 194% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| Common Stocks | 99.8% |
| Money Market Funds | 0.2% |
| Written Options | (0.0%) |
| Net Other Assets and Liabilities | 0.0% |
| Total | 100.0% |
Any amount shown as 0.0% represents less than 0.1%
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FDND to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
Dow Jones Internet Composite IndexSM (“Index”) is a product of S&P Dow Jones Indices, LLC or its affiliates (“SPDJI”) and has been licensed for use by First Trust. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.
FT Vest DJIA® Dogs 10 Target Income ETF
DOGG | CBOE BZX EXCHANGE, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the FT Vest DJIA® Dogs 10 Target Income ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/DOGG. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| FT Vest DJIA® Dogs 10 Target Income ETF | $81 | 0.75% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 16.42% for the twelve months ended October 31, 2024. The Fund underperformed its benchmark, the Dow Jones Industrial Average, which returned 28.85% for the same Period.
This underperformance was due to the following:
| Fund Net Asset Value Performance Attributed to: | | |
| Equities (and synthetic equities) | 23.50 | % |
| Short Call Options | -6.33 | % |
| Expenses (pro-rated annual expense ratio) | -0.75 | % |
The top five performing holdings in the Fund for the Period were 3M Co., International Business Machines Corp., Amgen, Inc., Verizon Communications, Inc., and JPMorgan Chase & Co., with returns of 76.6%, 48.6%, 29.6%, 28.0%, and 26.2%, respectively.
The bottom five performing holdings in the Fund for the Period were Walgreens Boots Alliance, Inc., Johnson & Johnson, Chevron Corp., Dow, Inc., and Cisco Systems, Inc., with returns of -51.8%, 3.0%, 6.5%, 7.5%, and 8.5%, respectively.
The Fund holds a basket of equities and synthetic equities, as well as short call options that, in combination, are designed to meet the Fund’s objectives.
FUND PERFORMANCE (April 26, 2023 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(4/26/23) |
| FT Vest DJIA® Dogs 10 Target Income ETF | 16.42% | 10.40% |
| Dow Jones Industrial Average® | 28.85% | 18.47% |
| S&P 500® Index | 38.02% | 27.13% |
Visit www.ftportfolios.com/etf/DOGG for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
The final determination of the source and tax status of all calendar year 2024 distributions, including any return of capital, will be made after the end of 2024 and will be provided on Form 1099-DIV.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $34,194,748 |
| Total number of portfolio holdings | 42 |
| Total advisory fee paid | $195,434 |
| Portfolio turnover rate | 570% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The table below shows the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| Common Stocks | 49.7% |
| U.S. Treasury Bills | 79.4% |
| Money Market Funds | 0.4% |
| Purchased Options | 0.1% |
| Written Options | (32.0%) |
| Net Other Assets and Liabilities | 2.4% |
| Total | 100.0% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/DOGG to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
OTHER INFORMATION
The “Dow Jones Industrial Average” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by First Trust. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); “Dow Jones®” and “DJIA” are trademarks of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.
First Trust Intermediate Duration
Investment Grade Corporate ETF
FIIG | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Intermediate Duration Investment Grade Corporate ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FIIG. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Intermediate Duration Investment Grade Corporate ETF | $69 | 0.65% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 13.82% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the Bloomberg US Credit Corp 5-10 Year Index, which returned 14.27% for the same Period.
The following key factors impacted Fund performance relative to the benchmark during the Period:
Credit Quality: Performance across the credit quality spectrum was strong during the Period but lower quality assets generally outperformed. The Fund benefited from an overweight allocation to assets rated BBB- and below.
Asset Type: The Fund’s commercial paper and cash allocation detracted from performance relative to the benchmark as those assets underperformed bonds during the Period. The Fund’s average exposure to commercial paper and cash during the Period was 2.78%.
Sector/Industry: Relative to the benchmark, the primary contributors to the Fund’s performance were its security selection within the Technology, Healthcare, and Food & Beverage sectors. Conversely, the Fund’s underweight allocation to and selection within the Banking sector was the primary detractor to Fund performance.
Duration: On average, the Fund maintained a duration that was 0.39 years longer than the benchmark during the Period, which had a modest positive contribution to the Fund’s performance as interest rates shifted lower over that time.
U.S. Treasury Rates: 10-Year U.S. Treasury yields declined by 65 basis points (“bps”) to 4.28% after entering the Period at a high of 4.93% and bouncing off a low of 3.62%. Falling Treasury rates are generally a tailwind to fixed income assets.
Bond Spreads, Yields and Prices: The benchmark’s spread over treasuries compressed by 56 bps to T+90 bps. While spreads ended the Period below the long-term average of T+154 bps (January 1999 – October 2024), a yield-to-worst of 5.16% remains above the long-term average of 4.71% (January 1999 – October 2024). The benchmark’s bond prices increased by $9.60 to $95.16 and remain at a discount to par ($100).
FUND PERFORMANCE (August 2, 2023 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(8/2/23) |
| First Trust Intermediate Duration Investment Grade Corporate ETF | 13.82% | 7.43% |
| Bloomberg US Credit Corp 5-10 Year Index | 14.27% | 7.76% |
| Bloomberg US Aggregate Bond Index | 10.55% | 5.01% |
Visit www.ftportfolios.com/etf/FIIG for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $376,865,511 |
| Total number of portfolio holdings | 270 |
| Total advisory fee paid | $964,414 |
| Portfolio turnover rate | 6% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Alcon Finance Corp., 5.38%, 12/06/32 | 1.5% |
| Bank of America Corp., 4.57%, 04/27/33 | 1.4% |
| MSCI, Inc., 3.88%, 02/15/31 | 1.3% |
| Brown & Brown, Inc., 5.65%, 06/11/34 | 1.2% |
| Willis North America, Inc., 5.35%, 05/15/33 | 1.1% |
| CoStar Group, Inc., 2.80%, 07/15/30 | 1.1% |
| CCL Industries, Inc., 3.05%, 06/01/30 | 1.1% |
| JPMorgan Chase & Co., 4.91%, 07/25/33 | 1.1% |
| Icon Investments Six Designated Activity Co., 6.00%, 05/08/34 | 1.1% |
| Cadence Design Systems, Inc., 4.70%, 09/10/34 | 1.0% |
(1) 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.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FIIG to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Intermediate
Government Opportunities ETF
MGOV | NYSE Arca, Inc.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Intermediate Government Opportunities ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/MGOV. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Intermediate Government Opportunities ETF | $69 | 0.65% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 11.51% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the ICE US Treasury, Agency & MBS Index, which returned 9.52% for the same Period.
This 199 basis points (“bps”) of outperformance was due to several factors during the Period:
The Fund had modestly higher average duration compared to its benchmark and outperformed as yields declined over the Period.
The Fund’s allocation to Agency Mortgage-Backed Securities aided performance as spreads tightened significantly in the sector.
Overall, the use of derivatives was a net benefit to the Fund’s performance during the Period.
FUND PERFORMANCE (August 2, 2023 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | Since
Inception
(8/2/23) |
| First Trust Intermediate Government Opportunities ETF | 11.51% | 5.03% |
| ICE US Treasury, Agency & MBS Index | 9.52% | 4.15% |
| Bloomberg US Aggregate Bond Index | 10.55% | 5.01% |
Visit www.ftportfolios.com/etf/MGOV for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
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.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $60,296,141 |
| Total number of portfolio holdings | 121 |
| Total advisory fee paid | $208,405 |
| Portfolio turnover rate | 344% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and percentage of total investments, respectively, of the Fund.
| U.S. Government Agency Mortgage-Backed Securities | 102.5% |
| U.S. Government Bonds and Notes | 6.2% |
| Exchange-Traded Funds | 0.2% |
| Money Market Funds | 2.3% |
| U.S. Government Agency Mortgage-Backed Securities Sold Short | (0.7%) |
| Written Options | (0.7%) |
| Net Other Assets and Liabilities(1) | (9.8%) |
| Total | 100.0% |
(1) Includes variation margin on futures contracts.
(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, DBRS, Inc., Kroll Bond Rating Agency, Inc. or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. A credit rating is an assessment provided by a NRSRO, of the creditworthiness of an issuer with respect to debt obligations. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Investment grade is defined as those issuers that have a long-term credit rating of BBB- or higher. “NR” indicates no rating. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the fund, and not to the fund or its shares. U.S. Agency, U.S. Agency mortgage-backed, and U.S. Treasury securities appear under “Government & Agency.” Credit ratings are subject to change.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/MGOV to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
| (b) | Not applicable to the Registrant. |
Item 2. Code of Ethics.
| (a) | The First Trust Exchange-Traded Fund IV (“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 $478,975 for the fiscal year ended 2023 and $521,188 for the fiscal year ended 2024. |
| (b) | Audit-Related Fees (Registrant) -- The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024. |
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
Audit-Related Fees (Distributor) -- The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
| (c) | Tax Fees (Registrant) -- The aggregate fees billed for professional services rendered by the principal accountant were $376,254 for the fiscal year ended 2023, for tax return review and debt instrument tax analysis and reporting; and were $332,312 for the fiscal year ended 2024, for tax consultation and/or tax return preparation and professional services render for Passive Foreign Investment Company identification services. |
Tax Fees (Investment Advisor) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant’s advisor and distributor were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
Tax Fees (Distributor) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant’s distributor were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
These fees were for tax consultation and/or tax return preparation and professional services rendered for PFIC (Passive Foreign Investment Company) Identification Services.
| (d) | All Other Fees (Registrant) -- The aggregate fees billed for products and services provided by the principal accountant to the Registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024. |
All Other Fees (Investment Advisor) -- The aggregate fees billed for products and services provided by the principal accountant to the Registrant’s investment advisor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
All Other Fees (Distributor) -- The aggregate fees billed for products and services provided by the principal accountant to the Registrant’s distributor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
(e)(1) Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the Registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the Registrant’s advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the Registrant’s advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the Registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor’s independence.
(e)(2) The percentage of services described in each of paragraphs (b) through (d) for the Registrant and the Registrant’s investment advisor and distributor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(C) or paragraph(C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
| Registrant: | | Advisor and Distributor: |
| (b) 0% | | (b) 0% |
| (c) 0% | | (c) 0% |
| (d) 0% | | (d) 0% |
| (f) | The percentage of hours expended on the principal accountant’s engagement to audit the Registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
| (g) | The aggregate non-audit fees billed by the Registrant’s accountant for services rendered to the Registrant, and rendered to the Registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the Registrant for the fiscal year ended 2023 were $376,254 for the Registrant, $44,000 for the Registrant’s investment advisor and $60,500 for the Registrant’s distributor; and for the fiscal year ended 2024 were $332,312 for the Registrant, $28,080 for the Registrant’s investment advisor and $32,400 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 to the Registrant. |
| (j) | Not applicable to the Registrant. |
Item 5. Audit Committee of Listed Registrants.
| (a) | The Registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the Registrant. The audit committee of the Registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith, Niel B. Nielson and Bronwyn Wright. |
| (b) | Not applicable to the Registrant. |
Item 6. Investments.
| (a) | The Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR. |
| (b) | Not applicable to the Registrant. |
Item 7. Financial Statements and Financial Highlights for Open-End Management Investment Companies.
(a) Following is a copy of the annual financial statements required, and for the periods specified, by Regulation S-X.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG) |
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that FT Vest DJIA® Dogs 10 Target Income ETF (the “Fund”) will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)Portfolio of InvestmentsOctober 31, 2024
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| Communications Equipment — 4.9% | |
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| Consumer Staples Distribution & Retail — 5.0% | |
| Walgreens Boots Alliance, Inc. (a) | |
| Diversified Telecommunication Services — 4.9% | |
| Verizon Communications, Inc. (a) | |
| Industrial Conglomerates — 5.0% | |
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| International Business Machines Corp. (a) | |
| Oil, Gas & Consumable Fuels — 5.0% | |
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U.S. TREASURY BILLS — 79.4% |
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MONEY MARKET FUNDS — 0.4% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (c) | |
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| Total Investments — 129.5% | |
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| Call Options Purchased — 0.1% | |
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| International Business Machines Corp. | | | | |
See Notes to Financial Statements
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
PURCHASED OPTIONS (Continued) |
| Call Options Purchased (Continued) | |
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| Verizon Communications, Inc. | | | | |
| Walgreens Boots Alliance, Inc. | | | | |
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WRITTEN OPTIONS — (32.0)% |
| Call Options Written — (0.1)% | |
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| International Business Machines Corp. | | | | |
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| Verizon Communications, Inc. | | | | |
| Walgreens Boots Alliance, Inc. | | | | |
| Total Call Options Written | |
| (Premiums received $34,146) | |
| Put Options Written — (31.9)% | |
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| International Business Machines Corp. | | | | |
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| Verizon Communications, Inc. | | | | |
| Walgreens Boots Alliance, Inc. | | | | |
| Total Put Options Written | |
| (Premiums received $10,386,346) | |
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| (Premiums received $10,420,492) | |
| Net Other Assets and Liabilities — 2.4% | |
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| All or a portion of this security is pledged as collateral for the options written. At October 31, 2024, the value of these securities amounts to $29,769,666. |
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| Rate shown reflects yield as of October 31, 2024. |
See Notes to Financial Statements
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
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| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
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|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
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| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)Statement of Assets and Liabilities
October 31, 2024
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Options contracts purchased, at value | |
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Cash segregated as collateral | |
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Investment securities sold | |
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Options contracts written, at value | |
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Investment securities purchased | |
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Accumulated distributable earnings (loss) | |
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NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
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Premiums paid on options contracts purchased | |
Premiums received on options contracts written | |
See Notes to Financial Statements
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)Statement of Operations
For the Year Ended October 31, 2024
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NET INVESTMENT INCOME (LOSS) | |
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NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
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Purchased options contracts | |
Written options contracts | |
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Net change in unrealized appreciation (depreciation) on: | |
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Purchased options contracts | |
Written options contracts | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)Statements of Changes in Net Assets
| | Period
Ended
10/31/2023 (a) |
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Net investment income (loss) | | |
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Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
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DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
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SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
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CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
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Shares outstanding, end of period | | |
| Inception date is April 26, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
See Notes to Financial Statements
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)Financial Highlights
For a share outstanding throughout each period
| | Period
Ended
10/31/2023 (a) |
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Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) (b) | | |
Net realized and unrealized gain (loss) | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
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Net asset value, end of period | | |
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Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets | | |
Ratio of net investment income (loss) to average net assets | | |
Portfolio turnover rate (e) | | |
| Inception date is April 26, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the FT Vest DJIA® Dogs 10 Target Income ETF (the “Fund”), a non-diversified series of the Trust, which trades under the ticker “DOGG” on 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 current income with a secondary objective of providing capital appreciation. Under normal market conditions, the Fund will pursue its investment objectives by investing primarily in common stocks, exchange-traded options (including FLexible EXchange options (“FLEX Options”)) and short-term U.S. Treasury securities. The Fund seeks to provide exposure to the “Dogs of the Dow,” the ten highest dividend-yielding stocks in the Dow Jones Industrial Average (“DJIA”) on an annual basis. The Fund will purchase securities comprising the Dogs of the Dow and gain synthetic exposure to the price movements of the securities comprising the Dogs of the Dow through the use of a combination of puts, calls and U.S. Treasury securities (the “Synthetic Replication”). The Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in securities comprising the Dogs of the Dow or in options contracts that utilize Dogs of the Dow constituents as the reference asset.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. 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 Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Exchange-traded options contracts (other than FLEX Option 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 ask price, if both are available. Over-the-counter options contracts are valued as follows, depending on the market in which the instrument trades: (1) the mean of their most recent bid and ask price, if available; or (2) a price based on
Notes to Financial Statements (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 the equivalent exchange-traded option. FLEX Option contracts are normally valued using a model-based price provided by a third-party pricing vendor. On days when a trade in a FLEX Option contract occurs, the trade price will be used to value such FLEX Option contracts in lieu of the model price.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
U.S. Treasuries are valued on the basis of valuations provided by a third-party pricing service approved by the Trust’s Board of Trustees.
Shares of open-end funds are valued based on NAV per share.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the 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;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
Notes to Financial Statements (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date.
C. Options Contracts and FLEX Options
When the Fund sells call options as a means to generate income to achieve the Target Income Level, the Fund will employ a covered call strategy that seeks to sell call options having a strike price roughly equal to the value of each equity security held by the Fund (such options are said to be “at-the-money”) on some or all of the equity securities purchased by the Fund.
When utilizing Synthetic Replication, the Fund may utilize FLEX Options. FLEX Options are customized equity or index option contracts that trade on an exchange but provide investors with the ability to customize key contract terms like exercise prices, styles and expiration dates that are otherwise standardized in typical listed options contract. The Synthetic Replication is achieved through the combination of a purchasing a call and selling a put generally at the same strike price which synthetically creates the upside and downside participation in the price returns of the Dogs of the Dow.
When the Fund purchases a call or put option, the premium paid represents the cost of the call or put option, which is included in “Options contracts purchased, at value” on the Statement of Assets and Liabilities. 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. Gain or loss on purchased options, if any, is included in “Net realized gain (loss) on purchased options contracts” on the Statement of Operations. Gain or loss on written options, if any, is presented separately as “Net realized gain (loss) on written options contracts” on the Statement of Operations.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on 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 year ended October 31, 2024 and period ended October 31, 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
Notes to Financial Statements (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 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 2023 and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had no non-expiring 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, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Notes to Financial Statements (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 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 annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Vest Financial LLC (“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 Vest, First Trust will supervise Vest and its management of the investment of the Fund’s assets and will pay Vest for its services as the Fund’s sub-advisor. Vest receives a sub-advisory fee equal to 0.20% of the average daily net assets of the Fund. 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 (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $77,499,779 and $88,703,238, respectively.
For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales were $43,211,493 and $16,261,596, respectively.
Notes to Financial Statements (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 5. Derivative Transactions
The following table presents the types of derivatives held by the Fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
| |
Net realized gain (loss) on: | |
Purchased options contracts | |
Written options contracts | |
Net change in unrealized appreciation
(depreciation) on: | |
Purchased options contracts | |
Written options contracts | |
During the fiscal year ended October 31, 2024, the premiums for purchased options contracts opened were $128,843 and the premiums for purchased options contracts closed, exercised and expired were $50,261.
During the fiscal year ended October 31, 2024, the premiums for written options contracts opened were $13,224,831 and the premiums for written options contracts closed, exercised and expired were $4,847,856.
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 Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Notes to Financial Statements (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of FT Vest DJIA® Dogs 10 Target Income ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights for the year then ended, and for the period from April 26, 2023 (commencement of investment operations) through October 31, 2023, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the year then ended and for the period from April 26, 2023 (commencement of investment operations) through October 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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 Vest DJIA® Dogs 10 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 Vest Financial LLC (the “Sub-Advisor”). The Board approved the continuation of the Agreements for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund; 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 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the 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
Other Information (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 (Unaudited) portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board noted that the Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. 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 objectives, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was below the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. Because the Fund commenced operations on April 26, 2023 and therefore has a limited performance history, comparative performance information for the Fund was not reviewed.
On the basis of all the information provided on the unitary fee for the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board
Other Information (Continued)
FT Vest DJIA® Dogs 10 Target Income ETF (DOGG)October 31, 2024 (Unaudited) considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the period from inception through December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the twelve months ended December 31, 2023. 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 noted that the Advisor pays the Sub-Advisor from the unitary fee and its understanding that the Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Fund, 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.
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Fund qualify for the dividends received deduction available to corporations and are hereby designated as qualified dividend income:
Dividends Received Deduction | Qualified Dividend Income |
| |
The “Dow Jones Industrial Average” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by First Trust. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); “Dow Jones®” and “DJIA” are trademarks of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.
First Trust Exchange-Traded Fund IV
| First Trust North American Energy Infrastructure Fund (EMLP)
|
First Trust EIP Carbon Impact ETF (ECLN)
|
FT Energy Income Partners Strategy ETF (EIPX)
|
Annual Financial Statements and Other Information
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that any series of First Trust Exchange-Traded Fund IV (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Funds’ advisor, may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data that provides insight into each Fund’s performance and investment approach.
The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust North American Energy Infrastructure Fund (EMLP)Portfolio of InvestmentsOctober 31, 2024
| | |
COMMON STOCKS (a) — 68.3% |
| Construction & Engineering | |
| | |
| | |
| | |
| Electric Utilities — 13.8% | |
| | |
| American Electric Power Co., Inc. | |
| Constellation Energy Corp. | |
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| Energy Equipment & Services | |
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| Chesapeake Utilities Corp. | |
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| New Jersey Resources Corp. | |
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| Independent Power and Renewable Electricity | |
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| Clearway Energy, Inc., Class A | |
| Northland Power, Inc. (CAD) | |
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| Canadian Utilities Ltd., Class A (CAD) | |
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| Multi-Utilities (Continued) | |
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| Public Service Enterprise Group, Inc. | |
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| Oil, Gas & Consumable Fuels | |
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| Williams (The) Cos., Inc. | |
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| American Water Works Co., Inc. | |
| Essential Utilities, Inc. | |
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MASTER LIMITED PARTNERSHIPS — 27.8% |
| | |
| Westlake Chemical Partners, L.P. | |
| Energy Equipment & Services | |
| USA Compression Partners, L.P. | |
| Independent Power and Renewable Electricity | |
| NextEra Energy Partners, L.P. (c) | |
| Oil, Gas & Consumable Fuels | |
| Cheniere Energy Partners, L.P. | |
| | |
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| Enterprise Products Partners, L.P. | |
See Notes to Financial Statements
First Trust North American Energy Infrastructure Fund (EMLP)Portfolio of Investments (Continued)October 31, 2024 | | |
MASTER LIMITED PARTNERSHIPS (Continued) |
| Oil, Gas & Consumable Fuels (Continued) | |
| Hess Midstream, L.P., Class A (c) | |
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| Plains GP Holdings, L.P., Class A (c) | |
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| Total Master Limited Partnerships | |
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MONEY MARKET FUNDS — 4.0% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (d) | |
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|
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| Total Investments — 100.1% | |
| | |
| Net Other Assets and Liabilities — (0.1)% | |
| | |
| Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| Non-income producing security. |
| This security is taxed as a “C” corporation for federal income tax purposes. |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
Master Limited Partnerships* | | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust EIP Carbon Impact ETF (ECLN)Portfolio of InvestmentsOctober 31, 2024
| | |
COMMON STOCKS (a) — 87.7% |
| Construction & Engineering | |
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| Electric Utilities — 29.2% | |
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| American Electric Power Co., Inc. | |
| Constellation Energy Corp. | |
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| Hydro One Ltd. (CAD) (c) (d) | |
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| Electrical Equipment — 0.5% | |
| Generac Holdings, Inc. (b) | |
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| Chesapeake Utilities Corp. | |
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| New Jersey Resources Corp. | |
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| Independent Power and Renewable Electricity | |
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| Clearway Energy, Inc., Class A | |
| EDP Renovaveis S.A. (EUR) (e) | |
| Northland Power, Inc. (CAD) | |
| Orsted A/S (DKK) (b) (c) (d) (e) | |
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| Multi-Utilities (Continued) | |
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| Public Service Enterprise Group, Inc. | |
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| Oil, Gas & Consumable Fuels | |
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| Williams (The) Cos., Inc. | |
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| Professional Services — 0.3% | |
| Amentum Holdings, Inc. (b) | |
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| American Water Works Co., Inc. | |
| Essential Utilities, Inc. | |
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MASTER LIMITED PARTNERSHIPS (a) — 5.3% |
| Independent Power and Renewable Electricity | |
| Brookfield Renewable Partners, L.P. (CAD) | |
| NextEra Energy Partners, L.P. (f) | |
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| Oil, Gas & Consumable Fuels | |
| Cheniere Energy Partners, L.P. | |
| Total Master Limited Partnerships | |
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See Notes to Financial Statements
First Trust EIP Carbon Impact ETF (ECLN)Portfolio of Investments (Continued)October 31, 2024 | | |
MONEY MARKET FUNDS — 7.0% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (g) | |
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| Total Investments — 100.0% | |
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| Net Other Assets and Liabilities — (0.0)% | |
| | |
| Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| Non-income producing security. |
| This security is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”) and may be resold in transactions exempt from registration, normally to qualified institutional buyers. This security is not restricted on the foreign exchange where it trades freely without any additional registration. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $144,931 or 1.0% of net assets. Certain of these securities are fair valued using a factor provided by a third-party pricing service due to the change in value between the foreign markets’ close and the New York Stock Exchange close exceeding a certain threshold. On days when this threshold is not exceeded, these securities are typically valued at the last sale price on the exchange on which they are principally traded. |
| This security is taxed as a “C” corporation for federal income tax purposes. |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
| |
| |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
Independent Power and Renewable Electricity Producers | | | | |
Other Industry Categories* | | | | |
Master Limited Partnerships* | | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
FT Energy Income Partners Strategy ETF (EIPX)Portfolio of InvestmentsOctober 31, 2024
| | |
COMMON STOCKS (a) — 73.9% |
| Construction & Engineering | |
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| Electric Utilities — 6.9% | |
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| American Electric Power Co., Inc. | |
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| Energy Equipment & Services | |
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| | |
| Patterson-UTI Energy, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Independent Power and Renewable Electricity | |
| | |
| Clearway Energy, Inc., Class A | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Public Service Enterprise Group, Inc. | |
| | |
|
| Multi-Utilities (Continued) | |
| | |
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| Canadian Natural Resources Ltd. (CAD) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| International Seaways, Inc. | |
| | |
| | |
| | |
| Okeanis Eco Tankers Corp. (c) (d) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Tourmaline Oil Corp. (CAD) | |
| | |
| Williams (The) Cos., Inc. | |
| | |
| | |
| Essential Utilities, Inc. | |
| | |
| | |
| | |
MASTER LIMITED PARTNERSHIPS — 25.1% |
| Energy Equipment & Services | |
| USA Compression Partners, L.P. | |
See Notes to Financial Statements
FT Energy Income Partners Strategy ETF (EIPX)Portfolio of Investments (Continued)October 31, 2024 | | |
MASTER LIMITED PARTNERSHIPS (Continued) |
| Independent Power and Renewable Electricity | |
| NextEra Energy Partners, L.P. (e) | |
| Oil, Gas & Consumable Fuels | |
| Alliance Resource Partners, L.P. | |
| Cheniere Energy Partners, L.P. | |
| | |
| Enterprise Products Partners, L.P. | |
| Kimbell Royalty Partners, L.P. (e) | |
| | |
| Natural Resource Partners, L.P. | |
| Plains GP Holdings, L.P., Class A (e) | |
| | |
| | |
| | |
| Total Master Limited Partnerships | |
| | |
| | |
MONEY MARKET FUNDS — 0.8% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (f) | |
| | |
|
|
| Total Investments — 99.8% | |
| | |
| Net Other Assets and Liabilities — 0.2% | |
| | |
| Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| Non-income producing security. |
| This security is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”) and may be resold in transactions exempt from registration, normally to qualified institutional buyers. This security is not restricted on the foreign exchange where it trades freely without any additional registration. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| This security is taxed as a “C” corporation for federal income tax purposes. |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
Master Limited Partnerships* | | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
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First Trust Exchange-Traded Fund IVStatements of Assets and Liabilities
October 31, 2024
| First Trust North American Energy Infrastructure Fund
(EMLP) | First Trust EIP Carbon Impact ETF
(ECLN) | FT Energy Income Partners Strategy ETF
(EIPX) |
| | | |
| | | |
Foreign currency, at value | | | |
| | | |
| | | |
Investment securities sold | | | |
| | | |
| | | |
|
| | | |
Due to custodian foreign currency | | | |
| | | |
Investment securities purchased | | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Accumulated distributable earnings (loss) | | | |
| | | |
NET ASSET VALUE, per share | | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | | |
| | | |
Foreign currency, at cost (proceeds) | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVStatements of Operations
For the Year Ended October 31, 2024
| First Trust North American Energy Infrastructure Fund
(EMLP) | First Trust EIP Carbon Impact ETF
(ECLN) | FT Energy Income Partners Strategy ETF
(EIPX) |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
NET INVESTMENT INCOME (LOSS) | | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | | |
Net realized gain (loss) on: | | | |
| | | |
| | | |
Foreign currency transactions | | | |
| | | |
Net change in unrealized appreciation (depreciation) on: | | | |
| | | |
Foreign currency translation | | | |
Net change in unrealized appreciation (depreciation) | | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVStatements of Changes in Net Assets
| First Trust North American Energy Infrastructure Fund (EMLP) | First Trust EIP Carbon Impact ETF (ECLN) |
| | | | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
| Inception date is November 2, 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
FT Energy Income Partners Strategy ETF (EIPX) |
| Period
Ended
10/31/2023 (a) |
| |
| |
| |
| |
| |
|
| |
| |
|
| |
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| |
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|
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|
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| |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVFinancial Highlights
For a share outstanding throughout each period First Trust North American Energy Infrastructure Fund (EMLP)
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets (c) | | | | | |
Ratio of net investment income (loss) to average net assets (c) | | | | | |
Portfolio turnover rate (d) | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Ratio of total expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust EIP Carbon Impact ETF (ECLN)
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets (c) | | | | | |
Ratio of net investment income (loss) to average net assets (c) | | | | | |
Portfolio turnover rate (d) | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Ratio of total expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVFinancial Highlights (Continued)
For a share outstanding throughout each period FT Energy Income Partners Strategy ETF (EIPX)
| | Period
Ended
10/31/2023 (a) |
|
Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) (b) | | |
Net realized and unrealized gain (loss) | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
| | |
| | |
| | |
Net asset value, end of period | | |
| | |
|
Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets | | |
Ratio of net investment income (loss) to average net assets | | |
Portfolio turnover rate (e) | | |
| Inception date is November 2, 2022, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund IVOctober 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the three funds (each a “Fund” and collectively, the “Funds”) listed below, each a non-diversified series of the Trust. The shares of each Fund are listed and traded on the NYSE Arca, Inc.
First Trust North American Energy Infrastructure Fund – (ticker “EMLP”) |
First Trust EIP Carbon Impact ETF – (ticker “ECLN”) |
FT Energy Income Partners Strategy ETF – (ticker “EIPX”) |
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 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 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 the equity securities of companies identified by EIP as having or seeking to have a positive carbon impact. The Sub-Advisor 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 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. EIPX’s investment objective is to seek risk-adjusted total return. EIPX will invest, under normal market conditions, at least 80% of its net assets (plus any borrowing for investment purposes) in a portfolio of equity securities in the broader energy market (“Energy Companies”), which include companies in the Global Industry Classification Standard (“GICS”) energy sector, companies in the GICS utility sector (excluding water utilities), or companies in any other GICS sectors that derive at least 50% of their revenues or profits from exploration, development, production, gathering, transportation, processing, storing, refining, distribution, mining or marketing, of natural gas, natural gas liquids (including propane), crude oil, refined petroleum products, petrochemicals, electricity, coal, uranium, hydrogen or other energy sources, renewable energy production, renewable energy equipment, energy storage, carbon, carbon dioxide, carbon dioxide and fugitive methane mitigation and management, as well as electric transmission, distribution, storage and system reliability support. Energy Companies also include companies providing engineering, consulting and construction services that derive at least 50% of their revenues or profits from the above, all of which are selected by EIP. These companies may include MLPs and MLP affiliates.
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.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 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 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:
Common stocks, MLPs and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
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.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 If the securities in question are foreign securities, the following additional information may be considered:
1)
the last sale price on the exchange on which they are principally traded;
2)
the value of similar foreign securities traded on other foreign markets;
3)
ADR trading of similar securities;
4)
closed-end fund or exchange-traded fund trading of similar securities;
5)
foreign currency exchange activity;
6)
the trading prices of financial products that are tied to baskets of foreign securities;
7)
factors relating to the event that precipitated the pricing problem;
8)
whether the event is likely to recur;
9)
whether the effects of the event are isolated or whether they affect entire markets, countries or regions; and
10)
other relevant factors.
Because foreign markets may be open on different days than the days during which investors may transact in the shares of a Fund, the value of the Fund’s securities may change on the days when investors are not able to transact in the shares of the Fund. The value of the securities denominated in foreign currencies is converted into U.S. dollars using exchange rates determined daily as of the close of regular trading on the NYSE.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of October 31, 2024, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. 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.
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
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 in market price and are shown in “Net change in unrealized appreciation (depreciation) on investments” on the Statements of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are included in “Net realized gain (loss) on foreign currency transactions” on the Statements of Operations. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in “Net realized gain (loss) on investments” on the Statements of Operations.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually. Each Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on 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, 2024 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust North American Energy Infrastructure Fund | | | |
First Trust EIP Carbon Impact ETF | | | |
FT Energy Income Partners Strategy ETF | | | |
The tax character of distributions paid by each Fund during the fiscal period ended October 31, 2023 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust North American Energy Infrastructure Fund | | | |
First Trust EIP Carbon Impact ETF | | | |
FT Energy Income Partners Strategy ETF | | | |
As of October 31, 2024, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust North American Energy Infrastructure Fund | | | |
First Trust EIP Carbon Impact ETF | | | |
FT Energy Income Partners Strategy ETF | | | |
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. For EMLP and ECLN, the taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. For EIPX, the taxable years ended 2023 and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the following table, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforwards |
First Trust North American Energy Infrastructure Fund | |
First Trust EIP Carbon Impact ETF | |
During the taxable year ended October 31, 2024, the following Funds utilized capital loss carryforwards in the following amounts:
| |
First Trust North American Energy Infrastructure Fund | |
FT Energy Income Partners Strategy ETF | |
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Funds had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for each Fund were as follows:
| Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
First Trust North American Energy Infrastructure Fund | | | |
First Trust EIP Carbon Impact ETF | | | |
FT Energy Income Partners Strategy ETF | | | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust North American Energy Infrastructure Fund | | | | |
First Trust EIP Carbon Impact ETF | | | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 | | Gross Unrealized Appreciation | Gross Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) |
FT Energy Income Partners Strategy ETF | | | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
The Trust, on behalf of the Funds, and First Trust have retained EIP, an affiliate of First Trust, to serve as the Funds’ investment sub-advisor. In this capacity, EIP is responsible for the selection and ongoing monitoring of the securities in each Fund’s investment portfolio. Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust will supervise EIP and its management of the investment of each Fund’s assets and will pay EIP for its services as the Funds’ sub-advisor. First Trust will also be responsible for each Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
In addition, the Funds incur acquired fund fees and expenses. The total of the unitary management fee and acquired fund fees and expenses represents a Fund’s total annual operating expenses.
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 and EIPX from First Trust equal to 50% of the monthly investment management fee paid to First Trust less one-half of the Fund’s expenses, for which EIP is responsible. 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.
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 (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNY is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for each Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust North American Energy Infrastructure Fund | | |
First Trust EIP Carbon Impact ETF | | |
FT Energy Income Partners Strategy ETF | | |
For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
First Trust North American Energy Infrastructure Fund | | |
First Trust EIP Carbon Impact ETF | | |
FT Energy Income Partners Strategy ETF | | |
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 Creation Units. Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund 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, First Trust EIP Carbon Impact ETF, and FT Energy Income Partners Strategy ETF (the “Funds”), each a series of the First Trust Exchange-Traded Fund IV, including the portfolios of investments, as of October 31, 2024, the related statements of operations, the statements of changes in net assets, and the financial highlights for the periods indicated in the table below; and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of October 31, 2024, and the results of their operations, the changes in their net assets, and the financial highlights for the periods listed in the table below in conformity with accounting principles generally accepted in the United States of America.
Individual Funds Included
in the Trust | | Statements of Changes
in Net Assets | |
First Trust North American Energy Infrastructure Fund | For the year ended October 31, 2024 | For the years ended October 31, 2024, and 2023 | For the years ended October 31, 2024, 2023, 2022, 2021, and 2020 |
First Trust EIP Carbon Impact ETF | For the year ended October 31, 2024 | For the years ended October 31, 2024, and 2023 | For the years ended October 31, 2024, 2023, 2022, 2021, and 2020 |
FT Energy Income Partners Strategy ETF | For the year ended October 31, 2024 | For the year ended October 31, 2024, and for the period from November 2, 2022 (commencement of investment operations) through October 31, 2023 |
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 19, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Funds’ accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of any Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of each Fund are compensated through the unitary management fee paid by each Fund to the advisor and not directly by each Fund. The investment advisory fee paid is included in the Statements of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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 series of the Trust (each a “Fund” and collectively, the “Funds”):
FT Energy Income Partners Strategy ETF (EIPX)
First Trust EIP Carbon Impact ETF (ECLN)
First Trust North American Energy Infrastructure Fund (EMLP)
The Board approved the continuation of the applicable Agreements for each Fund for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined for each Fund that the continuation of the applicable Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by each Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of each Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for each Fund, including comparisons of each Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to each Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliates, First Trust Portfolios L.P. (“FTP”) and First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and
Other Information (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited) 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 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreements, the Board noted that each Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. In addition to the written materials provided by the Sub-Advisor, at the June 2–3, 2024 Board meeting, the Board also received a presentation from representatives of the Sub-Advisor, who discussed the services that the Sub-Advisor provides to each Fund, including the Sub-Advisor’s day-to-day management of the Funds’ investments. In considering the Sub-Advisor’s management of the Funds, the Board noted the background and experience of the Sub-Advisor’s portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed each Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by each Fund under the applicable Advisory Agreement for the services provided. The Board noted that the sub-advisory fee for each Fund is paid by the Advisor from the Fund’s unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for each Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the applicable Advisory Agreement and interest, taxes, 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 Groups, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for each of EIPX and EMLP was below the median total (net) expense ratio of the peer funds in its respective Expense Group and that the total (net) expense ratio for ECLN was above the median total (net) expense ratio of the peer funds in its respective Expense Group. With respect to the Expense Groups, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, including that the Expense Groups for EIPX and EMLP 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 each Fund, not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Funds and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedules overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to each Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Funds. The Board determined that this process continues to be effective for reviewing each Fund’s performance. The Board received and reviewed information comparing the performance of each of EIPX and ECLN for one or more periods ended December 31, 2023 to the performance of the funds in its Performance Universe and to that of a benchmark index and information comparing EMLP’s performance for periods ended December 31, 2023 to the performance of the funds in its Performance Universe
Other Information (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited) and to that of a blended benchmark index. Based on the information provided, the Board noted that EIPX underperformed its Performance Universe median and outperformed its benchmark index for the one-year period ended December 31, 2023. The Board noted that ECLN outperformed its Performance Universe median and benchmark index for the one- and three-year periods ended December 31, 2023. The Board noted that EMLP underperformed its Performance Universe median for the one-, three- and five-year periods ended December 31, 2023, outperformed its Performance Universe median for the ten-year period ended December 31, 2023, outperformed its blended benchmark index for the one-year period ended December 31, 2023 and underperformed its blended benchmark index for the three-, five- and ten-year periods ended December 31, 2023. The Board noted the Advisor’s discussion of EMLP’s performance at the April 25, 2024 meeting.
On the basis of all the information provided on the unitary fee and performance of each Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for each Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to each Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds at current asset levels and whether the Funds may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for each Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Funds will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Funds would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Funds. The Board concluded that the unitary fee rate schedule for each Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2023 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for each Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Funds. The Board 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 noted that the Advisor pays the Sub-Advisor for each Fund from the unitary fee, that the sub-advisory fee will be reduced consistent with the breakpoints in the unitary fee rate schedule and its understanding that each Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to each Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered indirect benefits that may be realized by the Sub-Advisor from its relationship with the Funds, including 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.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain First Trust Exchange-Traded Fund 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.
Other Information (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited) During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Funds is $1,242,818. This figure is comprised of $54,673 paid (or to be paid) in fixed compensation and $1,188,145 paid (or to be paid) in variable compensation. There were a total of 26 beneficiaries of the remuneration described above. Those amounts include $620,846 paid (or to be paid) to senior management of First Trust Advisors L.P. and $621,972 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Funds (collectively, “Code Staff”).
Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust’s remuneration policy (the “Remuneration Policy”) which is determined and implemented by First Trust’s senior management. The Remuneration Policy reflects First Trust’s ethos of good governance and encapsulates the following principal objectives:
i.
to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure;
ii.
to promote sound and effective risk management consistent with the risk profiles of the funds managed by First Trust; and
iii.
to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the funds managed by First Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Funds.
The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
| Dividends Received
Deduction |
First Trust North American Energy Infrastructure Fund | |
First Trust EIP Carbon Impact ETF | |
FT Energy Income Partners Strategy ETF | |
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Funds are hereby designated as qualified dividend income:
| |
First Trust North American Energy Infrastructure Fund | |
First Trust EIP Carbon Impact ETF | |
FT Energy Income Partners Strategy ETF | |
A portion of each of the Funds’ 2024 ordinary dividends (including short-term capital gains) paid to shareholders during the taxable year ended October 31, 2024, may be eligible for the Qualified Business Income (QBI) Deduction under the Internal Revenue Code of 1986, as amended, Section 199A for the aggregate dividends each Fund received from the underlying Real Estate Investment Trusts (REITs) these Funds invest in.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
First Trust SSI Strategic Convertible Securities ETF (FCVT) |
First Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust SSI Strategic Convertible Securities ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust SSI Strategic Convertible Securities ETF (FCVT)Portfolio of InvestmentsOctober 31, 2024
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CONVERTIBLE CORPORATE BONDS AND NOTES — 89.4% |
| Aerospace & Defense — 1.3% | |
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| Automobile Components — 0.4% | |
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| Morgan Stanley Finance LLC | | | |
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| Alnylam Pharmaceuticals, Inc. | | | |
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| Halozyme Therapeutics, Inc. | | | |
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| Mirum Pharmaceuticals, Inc. | | | |
| Sarepta Therapeutics, Inc. | | | |
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| Alibaba Group Holding Ltd. (b) | | | |
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| Coinbase Global, Inc. (b) | | | |
| Commercial Services & Supplies — 1.1% | |
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| Communications Equipment — 1.0% | |
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| Construction & Engineering — 2.2% | |
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| Granite Construction, Inc. (b) | | | |
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| SoFi Technologies, Inc. (b) | | | |
| Consumer Staples Distribution & Retail — 0.4% | |
| Chefs’ (The) Warehouse, Inc. | | | |
| Diversified Consumer Services — 0.3% | |
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| Electric Utilities — 6.9% | |
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| NextEra Energy Capital Holdings, Inc. (b) | | | |
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See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CONVERTIBLE CORPORATE BONDS AND NOTES (Continued) |
| Electric Utilities (Continued) | |
| PPL Capital Funding, Inc. | | | |
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| Electrical Equipment — 0.4% | |
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| Electronic Equipment, Instruments & Components — 1.8% | |
| Advanced Energy Industries, Inc. | | | |
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| Live Nation Entertainment, Inc. | | | |
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| Financial Services — 3.1% | |
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| Global Payments, Inc. (b) | | | |
| HAT Holdings I LLC / HAT Holdings II LLC (b) | | | |
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| Ground Transportation — 2.2% | |
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| Uber Technologies, Inc. (b) | | | |
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| Health Care Equipment & Supplies — 3.5% | |
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| Merit Medical Systems, Inc. (b) | | | |
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| Health Care Providers & Services — 0.6% | |
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| Hotel & Resort REITs — 0.6% | |
| Summit Hotel Properties, Inc. | | | |
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CONVERTIBLE CORPORATE BONDS AND NOTES (Continued) |
| Hotels, Restaurants & Leisure — 5.4% | |
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| DraftKings Holdings, Inc. | | | |
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| Royal Caribbean Cruises Ltd. | | | |
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| Household Durables — 1.2% | |
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| Interactive Media & Services — 3.1% | |
| Liberty TripAdvisor Holdings, Inc. (b) | | | |
| Morgan Stanley Finance LLC | | | |
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| Akamai Technologies, Inc. | | | |
| Core Scientific, Inc. (b) | | | |
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| Life Sciences Tools & Services — 0.5% | |
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| Liberty Broadband Corp. (b) | | | |
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| Two Harbors Investment Corp. | | | |
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| COPT Defense Properties, L.P. (b) | | | |
| Oil, Gas & Consumable Fuels — 0.6% | |
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| Amphastar Pharmaceuticals, Inc. | | | |
| Jazz Investments I Ltd. (b) | | | |
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See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CONVERTIBLE CORPORATE BONDS AND NOTES (Continued) |
| Professional Services — 1.2% | |
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| Real Estate Management & Development — 1.0% | |
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| Semiconductors & Semiconductor Equipment — 6.2% | |
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| MACOM Technology Solutions Holdings, Inc. | | | |
| Microchip Technology, Inc. (b) | | | |
| MKS Instruments, Inc. (b) | | | |
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| Guidewire Software, Inc. (b) | | | |
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| Varonis Systems, Inc. (b) | | | |
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| Technology Hardware, Storage & Peripherals — 2.4% | |
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| Western Digital Corp. (b) | | | |
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| Total Convertible Corporate Bonds and Notes | |
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See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
CONVERTIBLE PREFERRED SECURITIES — 9.1% |
| Aerospace & Defense — 1.0% | |
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| Bank of America Corp., Series L | | | |
| Wells Fargo & Co., Series L | | | |
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| Ares Management Corp., Series B | | | |
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| Financial Services — 2.0% | |
| Apollo Global Management, Inc. | | | |
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| Chart Industries, Inc., Series B | | | |
| Technology Hardware, Storage & Peripherals — 1.1% | |
| Hewlett Packard Enterprise Co. | | | |
| Total Convertible Preferred Securities | |
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MONEY MARKET FUNDS — 0.6% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (e) | |
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| Total Investments — 99.1% | |
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| Net Other Assets and Liabilities — 0.9% | |
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| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $24,987,123 or 35.9% of net assets. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
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| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – Real Estate Investment Trusts |
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Convertible Corporate Bonds and Notes* | | | | |
Convertible Preferred Securities* | | | | |
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| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Statement of Assets and Liabilities
October 31, 2024
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Investment securities sold | |
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Investment advisory fees payable | |
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Accumulated distributable earnings (loss) | |
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NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
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See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Statement of Operations
For the Year Ended October 31, 2024
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NET INVESTMENT INCOME (LOSS) | |
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NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
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Net change in unrealized appreciation (depreciation) on investments | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Statements of Changes in Net Assets
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Net investment income (loss) | | |
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Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
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DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
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SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
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CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
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Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)Financial Highlights
For a share outstanding throughout each period
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Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
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Net asset value, end of period | | | | | |
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Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (c) | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
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 Nasdaq, Inc. (“Nasdaq”). The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund. The investment objective of the Fund is to seek 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.
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 dealers who make markets in such securities or a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 7)
reference data including market research publications.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) 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)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of the security;
6)
the financial statements of the issuer;
7)
the credit quality and cash flow of the issuer, based on the sub-advisor’s or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
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;
13)
the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; 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;
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income 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.
The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than investments in securities, which result from changes in foreign currency exchange rates have been included in “Net change in unrealized appreciation (depreciation) on foreign currency translation” on the Statement of Operations. Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price and are shown in “Net change in unrealized appreciation (depreciation) on investments” on the Statement of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are included in “Net realized gain (loss) on foreign currency transactions” on the Statement of Operations. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in “Net realized gain (loss) on investments” on the Statement of Operations.
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 D. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal years ended October 31, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $26,292,938 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
During the fiscal year ended October 31, 2024, the Fund utilized $2,044,046 of non-expiring capital loss carryforwards.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 Fund and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for 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. 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. During any period in which the Advisor’s management fee is reduced in accordance with the breakpoints described below, the investment sub-advisory fee (which is based on the Advisor’s management fee) paid to SSI will be reduced to reflect the reduction in the Advisor’s management fee.
The shareholders of the Fund voted at the special meeting of shareholders on April 15, 2024 to approve for the Fund (1) a new investment sub-advisory agreement (the “New Sub-Advisory Agreement”) among the Trust, on behalf of the Fund, the Advisor, as investment advisor, and SSI, as investment sub-advisor, and (2) a “manager of managers” structure (the “Manager of Managers Structure”). SSI (or its predecessor entity, SSI Investment Management Inc.) has served as the investment sub-advisor to the Fund since the Fund’s inception and continues to sub-advise the Fund. Resolute Investment Managers, Inc. (“RIM”), an indirect wholly-owned subsidiary of Resolute Topco, Inc. (“Topco”), has held a majority ownership interest in SSI since 2019. On December 29, 2023, RIM and certain of its affiliates (collectively, “Resolute”) and their equity owners completed a transaction (the “Transaction”) with certain creditors of RIM to strengthen Resolute’s capital structure (the “Closing”). In connection with the Closing, (i) RIM, Resolute Investment Holdings, LLC (“RIH”), Topco (which was a wholly-owned subsidiary of RIH) and certain of their affiliates and (ii) the prior owners of approximately 93% of RIH entered into an exchange agreement with certain creditors of RIM (the “New Ownership Group”) pursuant to which, among other things, new equity interests in Topco were issued to members of the New Ownership Group and the then-existing equity interests in RIH were retired and canceled. Since the Closing, SSI has been majority owned indirectly by the New Ownership Group. The Closing operated as an “assignment” (as defined in the 1940 Act), resulting in the automatic termination of the Fund’s then-existing investment sub-advisory agreement with SSI as of December 29, 2023. Since then, prior to the receipt of shareholder approval of the New Sub-Advisory Agreement, SSI had been providing investment sub-advisory services to the Fund on an interim basis, as permitted under the 1940 Act. The New Sub-Advisory Agreement became effective upon shareholder approval. In general terms, under the Fund’s Manager of Managers Structure, the Advisor, subject to approval by the
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 Board of Trustees of the Trust, may appoint and replace affiliated and unaffiliated investment sub-advisors and enter into and materially amend investment sub-advisory agreements for the Fund without shareholder approval. In addition, under the Manager of Managers Structure, the Fund is permitted to disclose, as applicable, certain information regarding investment advisory and
sub-advisory fees on an aggregate, rather than an individual, basis in various disclosure documents.
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 annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
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Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Prior to November 6, 2023, First Trust also provided fund reporting services to the Fund for a flat annual fee in the amount of $9,250, which was covered under the annual unitary management fee.
Effective November 6, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to November 6, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH was responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $79,206,691 and $106,759,166, respectively.
For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales were $10,279,116 and $9,815,448, respectively.
Notes to Financial Statements (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 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 Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust SSI Strategic Convertible Securities ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
A Special Meeting of Shareholders of First Trust SSI Strategic Convertible Securities ETF (the “Fund”) was held on April 15, 2024. At the Special Meeting, shareholders approved a new investment sub-advisory agreement among the Trust (on behalf of the Fund), First Trust Advisors L.P. (as investment advisor), and SSI Investment Management LLC (as investment sub-advisor). Shareholders also approved a “manager of managers” structure for the Fund. With respect to each proposal, 1,667,735 shares of the 3,100,002 outstanding shares were present at the meeting. The following percentage votes were recorded regarding the new investment sub-advisory agreement: For - 82.89%; Against - 1.24%; Abstain - 15.88%. The following percentage votes were recorded regarding the “manager of managers” structure: For - 82.00%; Against - 2.26%; Abstain - 15.75%.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund IV (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Advisory Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the First Trust SSI Strategic Convertible Securities ETF (the “Fund”). The Board approved the continuation of the Advisory Agreement for a one-year period ending June 30, 2025 at a meeting held on June 2-3, 2024. The Board determined that the continuation of the Advisory Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2-3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2-3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Advisory Agreement, the Board had received sufficient information to renew the Advisory Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
The Board noted that it had approved a new Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”) among the Trust, the Advisor and SSI Investment Management LLC (the “Sub-Advisor”) at a meeting held on September 10–11, 2023, subject to
Other Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 (Unaudited) shareholder approval, and that shareholders had approved the Sub-Advisory Agreement at a meeting held on April 15, 2024. Accordingly, the Board did not consider the renewal of the Sub-Advisory Agreement at the June 2-3, 2024 meeting and will first consider its renewal at its June 2025 meeting.
In reviewing the Advisory Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Advisory Agreement. 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 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Advisory Agreement have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, including that the Expense Group contained both actively-managed ETFs and open-end mutual funds, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund underperformed the Performance Universe median and the benchmark index for the one-, three- and five-year periods ended December 31, 2023. The Board noted the Advisor’s discussion of the Fund’s performance at the April 25, 2024 meeting.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Advisory Agreement.
Other Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 (Unaudited) The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. 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 Advisory Agreement continue to be fair and reasonable and that the continuation of the Advisory Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust 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 Investment Fund Managers Directive (the “Directive”). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust’s interpretation of currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $50,269. This figure is comprised of $2,211 paid (or to be paid) in fixed compensation and $48,058 paid (or to be paid) in variable compensation. There were a total of 26 beneficiaries of the remuneration described above. Those amounts include $25,112 paid (or to be paid) to senior management of First Trust Advisors L.P. and $25,157 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.
Other Information (Continued)
First Trust SSI Strategic Convertible Securities ETF (FCVT)October 31, 2024 (Unaudited) The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Fund qualify for the dividends received deduction available to corporations and are hereby designated as qualified dividend income:
Dividends Received Deduction | Qualified Dividend Income |
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Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG) |
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Intermediate Duration Investment Grade Corporate ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of InvestmentsOctober 31, 2024
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CORPORATE BONDS AND NOTES — 86.0% |
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| Bank of America Corp. (a) | | | |
| Bank of America Corp. (a) | | | |
| Bank of New York Mellon (The) Corp. (a) | | | |
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| Goldman Sachs Group (The), Inc. | | | |
| Goldman Sachs Group (The), Inc. (a) | | | |
| Goldman Sachs Group (The), Inc. (a) | | | |
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| PNC Financial Services Group (The), Inc. | | | |
| PNC Financial Services Group (The), Inc. (a) | | | |
| PNC Financial Services Group (The), Inc. (a) | | | |
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| Truist Financial Corp. (a) | | | |
| Truist Financial Corp., Medium-Term Note (a) | | | |
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| Brokerage/Asset Managers/Exchanges — 2.2% | | | | |
| Intercontinental Exchange, Inc. | | | |
| Intercontinental Exchange, Inc. | | | |
| Intercontinental Exchange, Inc. | | | |
| Intercontinental Exchange, Inc. | | | |
| Intercontinental Exchange, Inc. | | | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Brokerage/Asset Managers/Exchanges (Continued) | | | | |
| | | | |
| | | | |
| | |
| Building Materials — 1.7% | | | | |
| American Builders & Contractors Supply Co., Inc. (b) | | | |
| Builders FirstSource, Inc. (b) | | | |
| CRH America Finance, Inc. | | | |
| | | | |
| Martin Marietta Materials, Inc. (c) | | | |
| | | | |
| | |
| | | | | |
| CCO Holdings LLC / CCO Holdings Capital Corp. (b) | | | |
| | | | |
| | | | |
| | | | |
| | |
| | | | | |
| Sherwin-Williams (The) Co. | | | |
| Construction Machinery — 2.2% | | | | |
| Ashtead Capital, Inc. (b) | | | |
| Ashtead Capital, Inc. (b) | | | |
| Ritchie Bros Holdings, Inc. (b) | | | |
| United Rentals North America, Inc. (b) | | | |
| | |
| Consumer Cyclical Services — 0.7% | | | | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (b) | | | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (b) | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | |
| Diversified Manufacturing — 1.0% | | | | |
| | | | |
| | | | | |
| Duke Energy Carolinas LLC | | | |
| Duke Energy Carolinas LLC | | | |
| | | | |
| FirstEnergy Transmission LLC (b) | | | |
| Florida Power & Light Co. | | | |
| Florida Power & Light Co. | | | |
| Florida Power & Light Co. | | | |
| | | | |
| Public Service Electric & Gas Co. | | | |
| | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| | | | | |
| | | | |
| | | | |
| Waste Management, Inc. (c) | | | |
| | | | |
| | | | |
| | |
| | | | | |
| Anheuser-Busch InBev Worldwide, Inc. | | | |
| Anheuser-Busch InBev Worldwide, Inc. | | | |
| | | | |
| | | | |
| | | | |
| Constellation Brands, Inc. | | | |
| Constellation Brands, Inc. | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Keurig Dr Pepper, Inc., Series 10 | | | |
| | | | |
| | | | |
| | | | |
| Lamb Weston Holdings, Inc. (b) | | | |
| | | | |
| Molson Coors Beverage Co. | | | |
| Mondelez International, Inc. | | | |
| Mondelez International, Inc. | | | |
| Nestle Holdings, Inc. (b) | | | |
| | | | |
| | | | |
| | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Molina Healthcare, Inc. (b) | | | |
| Molina Healthcare, Inc. (b) | | | |
| | | | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Health Insurance (Continued) | | | | |
| | | | |
| | | | |
| | |
| | | | | |
| | | | |
| Agilent Technologies, Inc. | | | |
| | | | |
| Avantor Funding, Inc. (b) | | | |
| | | | |
| | | | |
| | | | |
| Charles River Laboratories International, Inc. (b) | | | |
| Charles River Laboratories International, Inc. (b) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| GE HealthCare Technologies, Inc. | | | |
| GE HealthCare Technologies, Inc. | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Thermo Fisher Scientific, Inc. | | | |
| Thermo Fisher Scientific, Inc. | | | |
| Universal Health Services, Inc. | | | |
| Universal Health Services, Inc. | | | |
| Zimmer Biomet Holdings, Inc. | | | |
| | |
| | | | | |
| | | | |
| | | | | |
| Hilton Domestic Operating Co., Inc. (b) | | | |
| Marriott International, Inc., Series FF | | | |
| | |
| | | | | |
| | | | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| | | | | |
| American Water Capital Corp. | | | |
| American Water Capital Corp. | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| | | | | |
| Graphic Packaging International LLC (b) | | | |
| Graphic Packaging International LLC (b) | | | |
| Packaging Corp. of America | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| Property & Casualty Insurance — 6.9% | | | | |
| | | | |
| Arthur J. Gallagher & Co. | | | |
| Arthur J. Gallagher & Co. | | | |
| Arthur J. Gallagher & Co. | | | |
| | | | |
| | | | |
| Marsh & McLennan Cos., Inc. (c) | | | |
| Marsh & McLennan Cos., Inc. | | | |
| Marsh & McLennan Cos., Inc. | | | |
| Marsh & McLennan Cos., Inc. | | | |
| Marsh & McLennan Cos., Inc. (c) | | | |
| | | | |
| | | | |
| Willis North America, Inc. | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | |
| | | | | |
| | | | |
| O’Reilly Automotive, Inc. | | | |
| | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Cadence Design Systems, Inc. | | | |
| | | | |
| | | | |
| | | | |
| Crowdstrike Holdings, Inc. | | | |
| FactSet Research Systems, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Open Text Holdings, Inc. (b) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| SS&C Technologies, Inc. (b) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| | | | | |
| | | | |
| Verizon Communications, Inc. | | | |
| | |
| Total Corporate Bonds and Notes | |
| | |
FOREIGN CORPORATE BONDS AND NOTES — 9.9% |
| | |
| | | | |
| | | | |
| | | | |
| Toronto-Dominion Bank (The) | | | |
| Toronto-Dominion Bank (The) | | | |
| | | | |
| | | | |
| | | | |
| | |
| Building Materials — 0.6% | |
| | | | |
| | |
| | | | |
| | |
| Bacardi Ltd. / Bacardi-Martini B.V. (b) | | | |
| | |
| Flutter Treasury Designated Activity Co. (b) | | | |
| | |
| Icon Investments Six Designated Activity Co. | | | |
| Medtronic Global Holdings S.C.A. | | | |
| | | | |
| | |
| | |
| | | | |
| | |
| Smurfit Kappa Treasury ULC (b) | | | |
| | |
| Pfizer Investment Enterprises Pte Ltd. | | | |
| Pfizer Investment Enterprises Pte Ltd. | | | |
| | |
| Property & Casualty Insurance — 0.2% | |
| Aon Corp. / Aon Global Holdings PLC | | | |
| | |
| 1011778 BC ULC / New Red Finance, Inc. (b) | | | |
| | |
| Alimentation Couche-Tard, Inc. (b) | | | |
| Alimentation Couche-Tard, Inc. (b) | | | |
| Alimentation Couche-Tard, Inc. (b) | | | |
| | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
FOREIGN CORPORATE BONDS AND NOTES (Continued) |
| | |
| Constellation Software, Inc. (b) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| Total Foreign Corporate Bonds and Notes | |
| | |
| | Annualized
Yield on Date of
Purchase | | |
|
| | | | | |
| | | | |
| | | | | |
| | | | |
| | | | | |
| | | | |
| | | | |
| | |
| | |
| | |
|
|
| Total Investments — 99.3% | |
| | |
| Net Other Assets and Liabilities — 0.7% | |
| | |
| Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2024. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $85,789,038 or 22.8% of net assets. |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Corporate Bonds and Notes* | | | | |
Foreign Corporate Bonds and Notes* | | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Statement of Assets and Liabilities
October 31, 2024
| |
| |
| |
| |
| |
| |
| |
|
| |
| |
Investment securities purchased | |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on investments | |
Net change in unrealized appreciation (depreciation) on investments | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Statements of Changes in Net Assets
| | Period
Ended
10/31/2023 (a) |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
| Inception date is August 2, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
See Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)Financial Highlights
For a share outstanding throughout each period
| | Period
Ended
10/31/2023 (a) |
|
Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) (b) | | |
Net realized and unrealized gain (loss) | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
| | |
Net asset value, end of period | | |
| | |
|
Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets | | |
Ratio of net investment income (loss) to average net assets | | |
Portfolio turnover rate (f) | | |
| Inception date is August 2, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| The per share amount does not correlate with the aggregate realized and unrealized gain (loss) due to the timing of the Fund share sales and repurchases in relation to market value fluctuation of the underlying investments. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Intermediate Duration Investment Grade Corporate ETF (the “Fund”), a non-diversified series of the Trust, which trades under the ticker “FIIG” on NYSE Arca, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The investment objective of the Fund is to deliver current income and long-term capital appreciation. 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 also include senior loans and covenant-lite loans, substantially all of which are expected to be covenant-lite loans.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Corporate bonds, corporate notes and other debt securities are fair valued on the basis of valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
7)
reference data including market research publications.
Notes to Financial Statements (Continued)
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024 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)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the 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);
14)
the borrower’s/issuer’s competitive position within the industry;
15)
the borrower’s/issuer’s ability to access additional liquidity through public and/or private markets; and
16)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
Notes to Financial Statements (Continued)
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024 • Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. The Fund maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At October 31, 2024, the Fund held $3,987,209 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund had no forward purchase commitments.
C. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions 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 year ended October 31, 2024 and period ended October 31, 2023 was as follows:
Notes to Financial Statements (Continued)
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024 As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2023 and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $39,698 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
For the fiscal year ended October 31, 2024, there were no tax adjustments made to paid-in capital and accumulated distributable earnings (loss) accounts due to differences between book and tax treatments.
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit, and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution
Notes to Financial Statements (Continued)
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024 and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion up to and including $15 billion | |
Fund net assets greater than $15 billion | |
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $360,206,358 and $8,510,934, respectively.
For the fiscal year ended October 31, 2024, 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 or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of
Notes to Financial Statements (Continued)
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024 shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Intermediate Duration Investment Grade Corporate ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights for the year then ended and for the period from August 2, 2023 (commencement of investment operations) through October 31, 2023, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period from August 2, 2023 (commencement of investment operations) through October 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust Intermediate Duration Investment Grade Corporate ETF (the “Fund”), in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the “Directive”). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust’s interpretation of currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $35,214. This figure is comprised of $3,883 paid (or to be paid) in fixed compensation and $31,331 paid (or to be paid) in variable compensation. There were a total of 30 beneficiaries of the remuneration described above. Those amounts include $2,981 paid (or to be paid) to senior management of First Trust Advisors L.P. and $32,233 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.
Other Information (Continued)
First Trust Intermediate Duration Investment Grade Corporate ETF (FIIG)October 31, 2024 (Unaudited) Federal Tax Information
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
First Trust Limited Duration Investment Grade Corporate ETF (FSIG) |
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Limited Duration Investment Grade Corporate ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of InvestmentsOctober 31, 2024
| | | | |
CORPORATE BONDS AND NOTES — 82.4% |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Bank of America Corp. (a) | | | |
| Bank of America Corp. (a) | | | |
| Bank of America Corp. (a) | | | |
| Bank of New York Mellon (The) Corp. (a) | | | |
| Bank of New York Mellon (The) Corp. (a) | | | |
| Bank of New York Mellon (The) Corp. (a) | | | |
| Bank of New York Mellon (The) Corp. (a) | | | |
| Bank of New York Mellon (The) Corp. (a) | | | |
| Bank of New York Mellon (The) Corp. (a) | | | |
| | | | |
| | | | |
| Goldman Sachs Bank USA (a) | | | |
| Goldman Sachs Group (The), Inc. (a) | | | |
| Goldman Sachs Group (The), Inc. (a) | | | |
| Goldman Sachs Group (The), Inc. (a) | | | |
| | | | |
| | | | |
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| Morgan Stanley Bank N.A. (a) | | | |
| PNC Financial Services Group (The), Inc. (a) | | | |
| PNC Financial Services Group (The), Inc. | | | |
| PNC Financial Services Group (The), Inc. (a) | | | |
| PNC Financial Services Group (The), Inc. (a) | | | |
| PNC Financial Services Group (The), Inc. (a) | | | |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Truist Financial Corp. (a) | | | |
| Truist Financial Corp. (a) | | | |
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| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| Brokerage/Asset Managers/Exchanges — 2.4% | | | | |
| Intercontinental Exchange, Inc. | | | |
| Intercontinental Exchange, Inc. | | | |
| | | | |
| | | | |
| | |
| Building Materials — 1.5% | | | | |
| American Builders & Contractors Supply Co., Inc. (b) | | | |
| CRH America Finance, Inc. (b) | | | |
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| | |
| | | | | |
| Charter Communications Operating LLC / Charter Communications Operating Capital | | | |
| Charter Communications Operating LLC / Charter Communications Operating Capital | | | |
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| | |
| Construction Machinery — 1.7% | | | | |
| Ashtead Capital, Inc. (b) | | | |
| Ashtead Capital, Inc. (b) | | | |
| | | | |
| United Rentals North America, Inc. (b) | | | |
| | |
| Consumer Cyclical Services — 0.8% | | | | |
| | | | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (b) | | | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (b) | | | |
| | |
| | | | | |
| Mead Johnson Nutrition Co. | | | |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Diversified Manufacturing — 0.8% | | | | |
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| CenterPoint Energy Houston Electric LLC | | | |
| | | | |
| FirstEnergy Transmission LLC (b) | | | |
| Florida Power & Light Co. | | | |
| Florida Power & Light Co. | | | |
| Florida Power & Light Co. | | | |
| Trans-Allegheny Interstate Line Co. (b) | | | |
| Virginia Electric and Power Co., Series A | | | |
| Virginia Electric and Power Co., Series B | | | |
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| Constellation Brands, Inc. | | | |
| Constellation Brands, Inc. | | | |
| Constellation Brands, Inc. | | | |
| Constellation Brands, Inc. | | | |
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| Lamb Weston Holdings, Inc. (b) | | | |
| Lamb Weston Holdings, Inc. (b) | | | |
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| Molson Coors Beverage Co. | | | |
| Mondelez International, Inc. | | | |
| Nestle Holdings, Inc. (b) | | | |
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See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Food and Beverage (Continued) | | | | |
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| VICI Properties, L.P. / VICI Note Co., Inc. (b) | | | |
| VICI Properties, L.P. / VICI Note Co., Inc. (b) | | | |
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| Molina Healthcare, Inc. (b) | | | |
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| Avantor Funding, Inc. (b) | | | |
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| Charles River Laboratories International, Inc. (b) | | | |
| Charles River Laboratories International, Inc. (b) | | | |
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| GE HealthCare Technologies, Inc. | | | |
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| PRA Health Sciences, Inc. (b) | | | |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
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| Thermo Fisher Scientific, Inc. | | | |
| Zimmer Biomet Holdings, Inc. | | | |
| Zimmer Biomet Holdings, Inc. | | | |
| Zimmer Biomet Holdings, Inc. | | | |
| | |
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| | | | | |
| American Water Capital Corp. | | | |
| American Water Capital Corp. | | | |
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| Packaging Corp. of America | | | |
| Packaging Corp. of America | | | |
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| Property & Casualty Insurance — 3.3% | | | | |
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| Arthur J. Gallagher & Co. | | | |
| Arthur J. Gallagher & Co. | | | |
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See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Property & Casualty Insurance (Continued) | | | | |
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| Marsh & McLennan Cos., Inc. | | | |
| Marsh & McLennan Cos., Inc. | | | |
| Marsh & McLennan Cos., Inc. (c) | | | |
| Marsh & McLennan Cos., Inc. (c) | | | |
| Willis North America, Inc. | | | |
| Willis North America, Inc. | | | |
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| O’Reilly Automotive, Inc. | | | |
| O’Reilly Automotive, Inc. | | | |
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| Cadence Design Systems, Inc. | | | |
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| Crowdstrike Holdings, Inc. | | | |
| FactSet Research Systems, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
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See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| | | | | |
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| SS&C Technologies, Inc. (b) | | | |
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| Verizon Communications, Inc. | | | |
| Verizon Communications, Inc. | | | |
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| Total Corporate Bonds and Notes | |
| | |
FOREIGN CORPORATE BONDS AND NOTES — 13.1% |
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| | | | |
| Toronto-Dominion Bank (The) | | | |
| Toronto-Dominion Bank (The) | | | |
| | | | |
| | | | |
| | |
| Building Materials — 0.4% | |
| | | | |
| | |
| GFL Environmental, Inc. (b) | | | |
| | | | |
| | |
| | |
| | | | |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | | | |
FOREIGN CORPORATE BONDS AND NOTES (Continued) |
| Food and Beverage (Continued) | |
| Bacardi Ltd. / Bacardi-Martini B.V. (b) | | | |
| Mondelez International Holdings Netherlands B.V. (b) | | | |
| | |
| | |
| Flutter Treasury Designated Activity Co. (b) | | | |
| | |
| Icon Investments Six Designated Activity Co. | | | |
| Icon Investments Six Designated Activity Co. | | | |
| Medtronic Global Holdings S.C.A | | | |
| | |
| | |
| | | | |
| | |
| | | | |
| | | | |
| | |
| | |
| Smurfit Kappa Treasury ULC (b) | | | |
| | |
| | | | |
| Property & Casualty Insurance — 0.6% | |
| Aon Corp. / Aon Global Holdings PLC | | | |
| | |
| 1011778 BC ULC / New Red Finance, Inc. (b) | | | |
| | |
| Alimentation Couche-Tard, Inc. (b) | | | |
| | |
| Constellation Software, Inc. (b) | | | |
| Constellation Software, Inc. (b) | | | |
| | | | |
| | | | |
| | | | |
| | |
| Total Foreign Corporate Bonds and Notes | |
| | |
| | Annualized
Yield on Date of
Purchase | | |
|
| | | | | |
| | | | |
| | | | | |
| | | | |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Portfolio of Investments (Continued)October 31, 2024 | | Annualized Yield on Date of Purchase | | |
COMMERCIAL PAPER (Continued) |
| | | | | |
| | | | |
| | | | |
| | |
| | |
| | |
|
|
| Total Investments — 99.1% | |
| | |
| Net Other Assets and Liabilities — 0.9% | |
| | |
| Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2024. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $288,327,263 or 23.3% of net assets. |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Corporate Bonds and Notes* | | | | |
Foreign Corporate Bonds and Notes* | | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Statement of Assets and Liabilities
October 31, 2024
| |
| |
| |
| |
| |
|
| |
| |
Investment securities purchased | |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
|
| |
| |
| |
Less fees waived by the investment advisor | |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on investments | |
Net change in unrealized appreciation (depreciation) on investments | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Statements of Changes in Net Assets
| | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)Financial Highlights
For a share outstanding throughout each period
| | Period
Ended
10/31/2022 (a) |
| | |
Net asset value, beginning of period | | | |
Income from investment operations: | | | |
Net investment income (loss) | | | |
Net realized and unrealized gain (loss) | | | |
Total from investment operations | | | |
Distributions paid to shareholders from: | | | |
| | | |
| | | |
| | | |
Net asset value, end of period | | | |
| | | |
|
Ratios to average net assets/supplemental data: | | | |
Net assets, end of period (in 000’s) | | | |
Ratio of total expenses to average net assets | | | |
Ratio of net expenses to average net assets | | | |
Ratio of net investment income (loss) to average net assets | | | |
Portfolio turnover rate (e) | | | |
| 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. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Limited Duration Investment Grade Corporate ETF (the “Fund”), a diversified series of the Trust, which trades under the ticker “FSIG” on NYSE Arca, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The 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 (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. 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.
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:
Notes to Financial Statements (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 7)
reference data including market research publications.
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 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.
Commercial paper 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)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
(1)
The terms “security” and “securities” used throughout the Notes to Financial Statements include Senior Loans.
Notes to Financial Statements (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 13)
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);
14)
the borrower’s/issuer’s competitive position within the industry;
15)
the borrower’s/issuer’s ability to access additional liquidity through public and/or private markets; and
16)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. 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 until payment is made. At October 31, 2024, the Fund held $2,494,044 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund had no forward purchase commitments.
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, 2024, the Fund had no unfunded loan commitments.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Notes to Financial Statements (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 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, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $781,365 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
During the fiscal year ended October 31, 2024, the Fund utilized $852,143 of non-expiring capital loss carryforwards.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the
Notes to Financial Statements (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
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 annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule, provided that the Fund was not eligible for any breakpoints until the termination of the fee waiver described below:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Pursuant to a contractual agreement, First Trust agreed to waive management fees of 0.10% of average daily net assets until November 12, 2023. As of November 12, 2023, the waiver agreement terminated. First Trust does not have the right to recover the fees waived. During the fiscal year ended October 31, 2024, the Advisor waived fees of $25,869.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Notes to Financial Statements (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $596,573,709 and $220,092,415, respectively.
For the fiscal year ended October 31, 2024, 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 or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale
Notes to Financial Statements (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 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, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there was the following subsequent event:
Subsequent to the fiscal year ended October 31, 2024, the Fund’s diversification status under the Investment Company Act of 1940 changed from non-diversified to diversified. The Fund’s principal investment strategies and principal risks were revised accordingly.
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, including the portfolio of investments, of First Trust Limited Duration Investment Grade Corporate ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the two years in the period then ended and for the period from November 17, 2021 (commencement of investment 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, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the each of the two years in the period then ended and for the period from November 17, 2021 (commencement of investment operations) through October 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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 Limited Duration Investment Grade Corporate ETF (the “Fund”). The Board approved the continuation of the Agreement for a one-year period ending June 30, 2025 at a meeting held on June 2-3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2-3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2-3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s Investment Grade Fixed Income Team and Leveraged Finance Investment Team are 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 Grade Fixed Income Team and the Leveraged Finance Investment Team and noted the Board’s prior meetings with members of the Teams. 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
Other Information (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 (Unaudited) program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, 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 total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for the one-year period ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund outperformed the Performance Universe median and underperformed the benchmark index for the one-year period ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP, and
Other Information (Continued)
First Trust Limited Duration Investment Grade Corporate ETF (FSIG)October 31, 2024 (Unaudited) noted that the Advisor does not utilize soft dollars in connection with the Fund. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
First Trust Exchange-Traded Fund IV
| First Trust Senior Loan Fund (FTSL)
|
Annual Financial Statements and Other Information
For the Year Ended
October 31, 2024 |
First Trust Senior Loan Fund (FTSL)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Senior Loan Fund (the “Fund”) will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Senior Loan Fund (FTSL)Portfolio of InvestmentsOctober 31, 2024
| | | | |
SENIOR FLOATING-RATE LOAN INTERESTS — 84.7% |
| Aerospace & Defense — 0.6% | |
| Standard Aero Ltd. (Dynasty Acq. Co.), Term Loan B1, 1 Mo. CME Term SOFR + 2.25%, 0.00% Floor | | | |
| Standard Aero Ltd. (Dynasty Acq. Co.), Term Loan B2, 1 Mo. CME Term SOFR + 2.25%, 0.00% Floor | | | |
| TransDigm, Inc., Term Loan J, 3 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| TransDigm, Inc., Term Loan K, 3 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| TransDigm, Inc., Term Loan L, 3 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| | |
| Alternative Carriers — 1.0% | |
| Level 3 Financing, Inc., Term Loan B1, 1 Mo. CME Term SOFR + 6.56%, 2.00% Floor | | | |
| Application Software — 13.5% | |
| Applied Systems, Inc., Term Loan B, 3 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| CCC Intelligent Solutions, Inc., Term Loan B, 1 Mo. CME Term SOFR + CSA + 2.25%, 0.50% Floor | | | |
| CDK Global, Inc. (Central Parent, Inc.), Term Loan B, 3 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| ConnectWise LLC, Term Loan B, 3 Mo. CME Term SOFR + CSA + 3.50%, 0.50% Floor | | | |
| Darktrace PLC (Leia Finco US LLC), Term Loan B, 3 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Envestnet, Inc. (BCPE Pequod Buyer, Inc.), Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.00% Floor | | | |
| Epicor Software Corp., Term Loan E, 1 Mo. CME Term SOFR + 3.25%, 0.75% Floor | | | |
| Genesys Cloud Services Holding II LLC, Combined Term Loan B, 1 Mo. CME Term SOFR + 3.00%, 0.75% Floor | | | |
| Inmar, Inc., Term Loan B, 1 Mo. CME Term SOFR + 5.00%, 0.50% Floor | | | |
| Inmar, Inc., Term Loan B, 3 Mo. CME Term SOFR + 5.00%, 0.50% Floor | | | |
| Instructure Holdings, Inc., Term Loan B, 3 Mo. CME Term SOFR + CSA + 2.75%, 0.50% Floor | | | |
| Internet Brands, Inc. (WebMD/MH Sub I LLC), 2023 New Term Loan B, 1 Mo. CME Term SOFR + 4.25%, 0.50% Floor | | | |
| Internet Brands, Inc. (WebMD/MH Sub I LLC), Term Loan (Second Lien), 1 Mo. CME Term SOFR + 6.25%, 0.00% Floor | | | |
| Ivanti Software, Inc., Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.25%, 0.75% Floor | | | |
| LogMeIn, Inc. (GoTo Group, Inc.), First Out Term Loan (First Lien), 1 Mo. CME Term SOFR + CSA + 4.75%, 0.00% Floor | | | |
| LogMeIn, Inc. (GoTo Group, Inc.), Second Out Term Loan (First Lien), 1 Mo. CME Term SOFR + CSA + 4.75%, 0.00% Floor | | | |
| McAfee Corp. (Condor Merger Sub, Inc.), Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.50% Floor | | | |
| NCR Digital Banking (Dragon Buyer, Inc.), Term Loan B, 3 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Application Software (Continued) | |
| Open Text Corp. (GXS), 2024 Term Loan B, 1 Mo. CME Term SOFR + 2.25%, 0.50% Floor | | | |
| Qlik Technologies (Project Alpha Intermediate Holding, Inc.), 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 3.75%, 0.50% Floor | | | |
| RealPage, Inc., Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.00%, 0.50% Floor | | | |
| SolarWinds Holdings, Inc., Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| Solera Holdings, Inc. (Polaris Newco), Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.00%, 0.50% Floor | | | |
| Tenable, Inc., Term Loan B, 1 Mo. CME Term SOFR + CSA + 2.75%, 0.50% Floor | | | |
| Ultimate Software Group (UKG, Inc.), Term Loan B, 3 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| Veeam Software Holdings Ltd. (VS Buyer LLC), 2024 Initial Term Loan, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| | |
| Asset Management & Custody Banks — 2.4% | |
| Alter Domus (Chrysaor Bidco S.A.R.L.), Term Loan B, 3 Mo. CME Term SOFR + 3.50%, 0.50% Floor | | | |
| Ascensus Holdings, Inc. (Mercury), Term Loan (First Lien), 1 Mo. CME Term SOFR + CSA + 3.50%, 0.50% Floor | | | |
| Assetmark Financial Holdings (GTCR Everest Borrower LLC), Initial Term Loan B, 3 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| Edelman Financial Engines Center LLC, Term Loan (Second Lien), 1 Mo. CME Term SOFR + 5.25%, 0.00% Floor | | | |
| Edelman Financial Engines Center LLC, Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| | |
| Automotive Parts & Equipment — 0.1% | |
| Clarios Global, L.P. (Power Solutions), Term Loan B, 1 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| | |
| Highline Aftermarket Acquisition LLC, Term Loan B, 1 Mo. CME Term SOFR + 4.00%, 0.75% Floor | | | |
| Les Schwab Tire Centers (LS Group OpCo Acq. LLC), Term B Loan, 1 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| Mavis Tire Express Services Topco Corp., Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.75% Floor | | | |
| | |
| | |
| Peer Holding III B.V. (Action Holding), USD Term Loan B5, 3 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| | |
| Miter Brands Acq. Holdco, Inc. (MIWD), Term Loan B, 1 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| | |
| Charter Communications Operating LLC, Term Loan B2, 3 Mo. CME Term SOFR + 1.75%, 0.00% Floor | | | |
| Charter Communications Operating LLC, Term Loan B4, 3 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| | |
| | |
| Caesars Entertainment, Inc. (f/k/a Eldorado Resorts), 2024 Term Loan B-1, 1 Mo. CME Term SOFR + 2.75%, 0.50% Floor | | | |
| Flutter Entertainment PLC (Flutter Treasury DAC), Term Loan B, 3 Mo. CME Term SOFR + 2.00%, 0.50% Floor | | | |
| Golden Nugget, Inc. (Fertitta Entertainment LLC), Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.50%, 0.50% Floor | | | |
| Light & Wonder International, Inc. (FKA Scientific Games International, Inc.), 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 2.25%, 0.50% Floor | | | |
| Scientific Games Holdings, L.P. (Scientific Games Lottery), 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 3.00%, 0.50% Floor | | | |
| | |
| Commercial Printing — 0.9% | |
| Multi-Color Corp. (LABL, Inc.), Initial Dollar Term Loan, 1 Mo. CME Term SOFR + CSA + 5.00%, 0.50% Floor | | | |
| Commodity Chemicals — 0.1% | |
| Charter Next Generation, Inc., Term Loan B, 1 Mo. CME Term SOFR + 3.00%, 0.75% Floor | | | |
| Construction & Engineering — 0.3% | |
| APi Group DE, Inc., Term Loan B, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Construction Partners, Inc., Term Loan B, 1 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| | |
| Construction Materials — 0.1% | |
| Quikrete Holdings, Inc., Term Loan B2 2029, 1 Mo. CME Term SOFR + 2.25%, 0.00% Floor | | | |
| Summit Materials LLC, 2024 Refi Term Loan, 3 Mo. CME Term SOFR + 1.75%, 0.00% Floor | | | |
| | |
| | |
| Creative Planning Group (CPI Holdco), Initial Term Loan, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Consumer Staples Merchandise Retail — 0.1% | |
| BJ’s Wholesale Club, Inc., Term Loan B, 1 Mo. CME Term SOFR + CSA + 1.75%, 0.00% Floor | | | |
| Data Processing & Outsourced Services — 0.6% | |
| Consilio (Skopima Consilio Parent LLC), Initial Term Loan, 1 Mo. CME Term SOFR + CSA + 4.00%, 0.50% Floor | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Diversified Support Services — 0.4% | |
| First Advantage Corp., Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Vestis Corp., Term Loan B-1, 3 Mo. CME Term SOFR + 2.25%, 0.00% Floor | | | |
| | |
| Electric Utilities — 0.2% | |
| Vistra Operations Company LLC (TEX/TXU), Term Loan B, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Electronic Equipment & Instruments — 0.6% | |
| Chamberlain Group, Inc. (Chariot), Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.50% Floor | | | |
| Verifone Systems, Inc., Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.00%, 0.00% Floor | | | |
| | |
| Environmental & Facilities Services — 0.6% | |
| Allied Universal Holdco LLC, Initial Term Loan, 1 Mo. CME Term SOFR + CSA + 3.75%, 0.50% Floor | | | |
| GFL Environmental, Inc. (Wrangler Holdco Corp.), 2024 Refi Term Loan, 3 Mo. CME Term SOFR + 2.00%, 0.50% Floor | | | |
| | |
| Health Care Facilities — 2.6% | |
| Ardent Health Services, Inc. (AHP Health Partners, Inc.), 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 2.75%, 0.50% Floor | | | |
| Concentra Health Services, Inc., Term Loan B, 1 Mo. CME Term SOFR + 2.25%, 0.00% Floor | | | |
| Hanger, Inc., Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.00% Floor | | | |
| IVC Evidensia (VetStrategy Canada/IVC Acquisition Midco Ltd.), Facility B10, 3 Mo. CME Term SOFR + 4.75%, 0.50% Floor | | | |
| Select Medical Corp., Tranche B-1, 1 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| Southern Veterinary Partners LLC, Term Loan B, 3 Mo. CME Term SOFR + CSA + 3.25%, 0.00% Floor | | | |
| | |
| Health Care Services — 1.4% | |
| Agiliti Health, Inc. (Universal Hospital Services), Term Loan B, 3 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| Agiliti Health, Inc. (Universal Hospital Services), Term Loan B, 6 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| Ensemble RCM LLC (Ensemble Health), 2024 Refi Loan, 3 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| ExamWorks Group, Inc. (Electron Bidco), Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.00%, 0.50% Floor | | | |
| R1 RCM, Inc. (Raven Acq. Holdings LLC), Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Radnet Management, Inc., Initial Term Loan B, 3 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| Surgery Centers Holdings, Inc., 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Health Care Supplies — 1.7% | |
| Medline Borrower, L.P. (Mozart), 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.50% Floor | | | |
| Health Care Technology — 6.8% | |
| athenahealth Group, Inc., Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.50% Floor | | | |
| Clario (fka eResearch Technology, Inc.), Term Loan B, 1 Mo. CME Term SOFR + 4.00%, 1.00% Floor | | | |
| Cotiviti, Inc. (Verscend), Fixed Rate Term Loan, Fixed Rate at 7.63% | | | |
| Cotiviti, Inc. (Verscend), Floating Rate Loan, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Mediware (Wellsky/Project Ruby Ultimate Parent Corp.), 2024 Incremental Term Loan, 1 Mo. CME Term SOFR + CSA + 3.50%, 0.00% Floor | | | |
| Mediware (Wellsky/Project Ruby Ultimate Parent Corp.), Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.25%, 0.75% Floor | | | |
| PointClickCare Technologies, Inc., Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Waystar Technologies, Inc., Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| WS Audiology (Auris Lux III S.A.R.L.), USD Term Loan B6, 6 Mo. CME Term SOFR + CSA + 3.75%, 0.00% Floor | | | |
| Zelis Payments Buyer, Inc., Term Loan B-2, 1 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| | |
| | |
| Hunter Douglas, Inc. (Solis), Term Loan B, 3 Mo. CME Term SOFR + 3.50%, 0.50% Floor | | | |
| Hotels, Resorts & Cruise Lines — 0.1% | |
| Alterra Mountain Co., Term Loan B-4, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Household Products — 0.0% | |
| Energizer Holdings, Inc., 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Human Resource & Employment Services — 0.1% | |
| Alight, Inc. (fka Tempo Acq.), Term Loan B, 1 Mo. CME Term SOFR + 2.25%, 0.50% Floor | | | |
| Independent Power Producers & Energy Traders — 0.6% | |
| Calpine Construction Finance Co., L.P., Term Loan B, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Calpine Corp., 2024 Refi Term Loan B5, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Cornerstone Generation LLC, Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| | |
| Industrial Machinery & Supplies & Components — 2.0% | |
| Filtration Group Corp., 2021 Incremental Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.50%, 0.50% Floor | | | |
| Gates Global LLC, Term Loan B-5, 1 Mo. CME Term SOFR + 2.25%, 0.50% Floor | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Industrial Machinery & Supplies & Components (Continued) | |
| Madison IAQ LLC, Term Loan B, 6 Mo. CME Term SOFR + 2.75%, 0.50% Floor | | | |
| nVent Thermal Management (Thermal Borrower), Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.00% Floor | | | |
| Pro Mach, Inc., Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 1.00% Floor | | | |
| Service Logic Acq, Inc. (MSHC), Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.75% Floor | | | |
| Service Logic Acq, Inc. (MSHC), Term Loan B, 3 Mo. CME Term SOFR + 3.50%, 0.75% Floor | | | |
| TK Elevator Newco GMBH (Vertical U.S. Newco, Inc.), 2024 USD Refi Loan, 6 Mo. CME Term SOFR + 3.50%, 0.50% Floor | | | |
| | |
| Insurance Brokers — 12.5% | |
| Alliant Holdings I LLC, Term Loan B, 1 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| AmWINS Group, Inc., Term Loan B, 1 Mo. CME Term SOFR + CSA + 2.25%, 0.75% Floor | | | |
| Ardonagh Midco 3 Ltd., Facility B USD, 3 Mo. CME Term SOFR + 3.75%, 0.00% Floor | | | |
| Ardonagh Midco 3 Ltd., Facility B USD, 6 Mo. CME Term SOFR + 3.75%, 0.00% Floor | | | |
| AssuredPartners, Inc., 2024 Term Loan B5, 1 Mo. CME Term SOFR + 3.50%, 0.50% Floor | | | |
| Baldwin Insurance Group Holdings LLC, Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| BroadStreet Partners, Inc., Term Loan B-4, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| HUB International Ltd., Term Loan B, 3 Mo. CME Term SOFR + 2.75%, 0.75% Floor | | | |
| Hyperion Insurance Group Ltd. (aka - Howden Group), Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.50% Floor | | | |
| IMA Financial Group, Inc., 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.50% Floor | | | |
| OneDigital Borrower LLC, Term Loan (Second Lien), 1 Mo. CME Term SOFR + 5.25%, 0.50% Floor | | | |
| OneDigital Borrower LLC, Term Loan B (First Lien), 1 Mo. CME Term SOFR + 3.25%, 0.50% Floor | | | |
| Ryan Specialty Group LLC, Term Loan B, 1 Mo. CME Term SOFR + 2.25%, 0.00% Floor | | | |
| Truist Insurance Holdings LLC (McGriff/Panther Escrow), Term Loan (Second Lien), 3 Mo. CME Term SOFR + 4.75%, 0.00% Floor | | | |
| Truist Insurance Holdings LLC (McGriff/Panther Escrow), Term Loan B, 3 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| USI, Inc., 2029 Term Loan B, 3 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| USI, Inc., 2030 Term Loan B, 3 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Integrated Telecommunication Services — 1.1% | |
| Numericable (Altice France S.A. or SFR), Term Loan B-11, 6 Mo. Synthetic USD LIBOR + 2.75%, 0.00% Floor | | | |
| Numericable (Altice France S.A. or SFR), Term Loan B-12, 6 Mo. Synthetic USD LIBOR + 3.69%, 0.00% Floor | | | |
| Numericable (Altice France S.A. or SFR), Term Loan B-13, 6 Mo. Synthetic USD LIBOR + 4.00%, 0.00% Floor | | | |
| Radiate Holdco LLC (Astound), Amendment No. 6 Term Loan, 1 Mo. CME Term SOFR + CSA + 3.25%, 0.75% Floor | | | |
| Zayo Group Holdings, Inc., Incremental Term Loan B-2, 1 Mo. CME Term SOFR + 4.25%, 0.50% Floor | | | |
| | |
| Internet Services & Infrastructure — 2.2% | |
| Go Daddy Operating Co. LLC, Term Loan B6, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Go Daddy Operating Co. LLC, Term Loan B7, 1 Mo. CME Term SOFR + CSA + 1.75%, 0.00% Floor | | | |
| Sedgwick Claims Management Services, Inc., 2024 Term Loan B, 3 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| | |
| Investment Banking & Brokerage — 0.0% | |
| LPL Holdings, Inc., Term Loan B, 1 Mo. CME Term SOFR + CSA + 1.75%, 0.00% Floor | | | |
| IT Consulting & Other Services — 2.3% | |
| CACI International, Inc., Term Loan B, 1 Mo. CME Term SOFR + 1.75%, 0.00% Floor | | | |
| Gainwell Acquisition Corp. (fka Milano), Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.00%, 0.75% Floor | | | |
| Informatica Corp., 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 2.25%, 0.00% Floor | | | |
| | |
| Leisure Facilities — 0.1% | |
| Life Time Fitness, Inc., Term Loan B, 1 Mo. CME Term SOFR + CSA + 2.50%, 0.00% Floor | | | |
| Life Sciences Tools & Services — 1.7% | |
| ICON Clinical Investments LLC (PRA Health Sciences, Inc.), Lux Term Loan B, 3 Mo. CME Term SOFR + 2.00%, 0.50% Floor | | | |
| ICON Clinical Investments LLC (PRA Health Sciences, Inc.), US Term Loan B, 3 Mo. CME Term SOFR + 2.00%, 0.50% Floor | | | |
| IQVIA, Inc., Incremental Term Loan B-4, 3 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Parexel International Corp. (Phoenix Newco), 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 3.00%, 0.50% Floor | | | |
| Syneos Health, Inc. (Star Parent), Term Loan B, 3 Mo. CME Term SOFR + 3.75%, 0.00% Floor | | | |
| | |
| Metal, Glass & Plastic Containers — 2.4% | |
| Berlin Packaging LLC, Term Loan B-7, 1 Mo. CME Term SOFR + 3.75%, 0.00% Floor | | | |
| Berlin Packaging LLC, Term Loan B-7, 3 Mo. CME Term SOFR + 3.75%, 0.00% Floor | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Metal, Glass & Plastic Containers (Continued) | |
| Intertape Polymer Group, Inc. (Iris Holding, Inc.), Initial Term Loan, 3 Mo. CME Term SOFR + CSA + 4.75%, 0.50% Floor | | | |
| Magnera Corp. (Treasure Escrow/Glatfelter), Term Loan B, SOFR + 4.25%, 0.00% Floor | | | |
| ProAmpac PG Borrower LLC, 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 4.00%, 0.75% Floor | | | |
| Tekni-Plex (Trident TPI Holdings, Inc.), Term Loan B7, 6 Mo. CME Term SOFR + 3.75%, 0.50% Floor | | | |
| TricorBraun, Inc., Initial Term Loan, 1 Mo. CME Term SOFR + CSA + 3.25%, 0.50% Floor | | | |
| | |
| Other Specialty Retail — 0.2% | |
| Petco Health and Wellness Co., Inc., Initial Term Loan B, 3 Mo. CME Term SOFR + CSA + 3.25%, 0.75% Floor | | | |
| Packaged Foods & Meats — 1.8% | |
| Froneri International Ltd., USD Term Loan B4, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Nomad Foods Ltd., Term Loan B-5, 6 Mo. CME Term SOFR + 2.50%, 0.50% Floor | | | |
| Shearer’s Foods LLC (Fiesta Purchaser, Inc.), Initial Term Loan B, 1 Mo. CME Term SOFR + 4.00%, 0.00% Floor | | | |
| Simply Good Foods (Atkins Nutritionals, Inc.), Term Loan B, 1 Mo. CME Term SOFR + CSA + 2.50%, 0.50% Floor | | | |
| Utz Quality Foods LLC, 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| | |
| Paper & Plastic Packaging Products & Materials — 1.6% | |
| Graham Packaging Co., L.P., 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| Pactiv LLC/Evergreen Packaging LLC (fka Reynolds Group Holdings), 2024 Refi Term Loan B-4, 1 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| | |
| Research & Consulting Services — 5.0% | |
| AlixPartners, LLP, Term Loan B, 1 Mo. CME Term SOFR + CSA + 2.50%, 0.50% Floor | | | |
| ASP Acuren Holdings, Inc. (AAL Delaware), Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.00% Floor | | | |
| Clarivate Analytics PLC (Camelot), 2024 Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| Dun & Bradstreet Corp., 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| Eisner Advisory Group LLC, Term Loan B, 1 Mo. CME Term SOFR + 4.00%, 0.50% Floor | | | |
| Grant Thornton Advisors LLC, Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| J.D. Power (Project Boost Purchaser LLC), Term Loan B, 3 Mo. CME Term SOFR + 3.50%, 0.00% Floor | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Research & Consulting Services (Continued) | |
| Ryan LLC, Incremental Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.50% Floor | | | |
| Veritext Corp. (VT TopCo, Inc.), Initial Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.50%, 0.50% Floor | | | |
| | |
| | |
| 1011778 B.C. Unlimited Liability Co. (Restaurant Brands) (aka Burger King/Tim Horton’s), 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 1.75%, 0.00% Floor | | | |
| IRB Holding Corp. (Arby’s/Inspire Brands), 2024 Replacement Term Loan B, 1 Mo. CME Term SOFR + CSA + 2.75%, 0.75% Floor | | | |
| Raising Cane’s Restaurants LLC, Term Loan B, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| Whatabrands LLC, 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.50% Floor | | | |
| | |
| Security & Alarm Services — 1.0% | |
| Garda World Security Corp., Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.00% Floor | | | |
| Specialized Consumer Services — 1.8% | |
| Belron Finance US LLC, 2031 USD Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.50% Floor | | | |
| Caliber Collision (Wand NewCo 3, Inc.), 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Caliber Collision (Wand NewCo 3, Inc.), 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 3.25%, 0.00% Floor | | | |
| Mister Car Wash Holdings, Inc., 2024 Refinancing Term Loans, 1 Mo. CME Term SOFR + 3.00%, 0.00% Floor | | | |
| | |
| | |
| BMC Software Finance, Inc. (Boxer Parent), 2031 Term Loan (First Lien), 3 Mo. CME Term SOFR + 3.75%, 0.00% Floor | | | |
| Gen Digital, Inc. (fka NortonLifeLock, Inc.), 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 1.75%, 0.50% Floor | | | |
| Idera, Inc. (Flash Charm), 2024 Refi Term Loan, 3 Mo. CME Term SOFR + 3.50%, 0.75% Floor | | | |
| Idera, Inc. (Flash Charm), Term Loan (Second Lien), 3 Mo. CME Term SOFR + CSA + 6.75%, 0.75% Floor | | | |
| Proofpoint, Inc., 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 3.00%, 0.50% Floor | | | |
| Sophos Group PLC (Surf), Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.50%, 0.00% Floor | | | |
| SS&C Technologies Holdings, Inc., Term Loan B8, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| SUSE (Marcel Bidco LLC), Term Loan B, Daily SOFR + CSA + 3.50%, 0.50% Floor | | | |
| | |
| Trading Companies & Distributors — 0.9% | |
| American Builders & Contractors Supply Co., Inc., 2024 Refi Term Loan, 1 Mo. CME Term SOFR + 1.75%, 0.00% Floor | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Trading Companies & Distributors (Continued) | |
| Core & Main, L.P. (fka - HD Supply Waterworks), Term Loan B, 1 Mo. CME Term SOFR + 2.00%, 0.00% Floor | | | |
| United Rentals, Inc., Term Loan, 1 Mo. CME Term SOFR + 1.75%, 0.00% Floor | | | |
| Veritiv Corp. (Verde Purchaser LLC), 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 4.50%, 0.00% Floor | | | |
| | |
| Transaction & Payment Processing Services — 0.4% | |
| Worldpay (GTCR W Merger Sub LLC/Boost Newco LLC), Term Loan B, 3 Mo. CME Term SOFR + 2.50%, 0.00% Floor | | | |
| Total Senior Floating-Rate Loan Interests | |
| | |
| | | | |
CORPORATE BONDS AND NOTES — 9.7% |
| Aerospace & Defense — 0.5% | |
| | | | |
| | | | |
| | |
| Application Software — 0.1% | |
| | | | |
| | | | |
| | |
| | |
| iHeartCommunications, Inc. (c) | | | |
| Sirius XM Radio, Inc. (c) | | | |
| | |
| | |
| Builders FirstSource, Inc. (c) | | | |
| | |
| | | | |
| | | | |
| | | | |
| | |
| | |
| | | | |
| VICI Properties, L.P. / VICI Note Co., Inc. (c) | | | |
| | |
| | |
| | | | |
| Health Care Facilities — 0.2% | |
| | | | |
| Health Care Supplies — 0.1% | |
| Medline Borrower, L.P. / Medline Co-Issuer, Inc. (c) | | | |
| Independent Power Producers & Energy Traders — 0.0% | |
| | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| | |
| | | | |
| | | | |
| Arthur J. Gallagher & Co. | | | |
| HUB International Ltd. (c) | | | |
| Panther Escrow Issuer LLC (c) | | | |
| | |
| Integrated Telecommunication Services — 0.1% | |
| Radiate Holdco LLC / Radiate Finance, Inc. (c) | | | |
| Internet Services & Infrastructure — 0.2% | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (c) | | | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (c) | | | |
| | |
| Life Sciences Tools & Services — 0.1% | |
| | | | |
| Managed Health Care — 0.1% | |
| | | | |
| Molina Healthcare, Inc. (c) | | | |
| | |
| Metal, Glass & Plastic Containers — 0.3% | |
| | | | |
| | | | |
| | |
| Packaged Foods & Meats — 1.1% | |
| Performance Food Group, Inc. (c) | | | |
| | | | |
| | |
| Paper & Plastic Packaging Products & Materials — 0.4% | |
| Pactiv Evergreen Group Issuer, Inc. / Pactiv Evergreen Group Issuer LLC (c) | | | |
| | |
| Crowdstrike Holdings, Inc. | | | |
| | | | |
| SS&C Technologies, Inc. (c) | | | |
| | |
| Trading Companies & Distributors — 0.9% | |
| American Builders & Contractors Supply Co., Inc. (c) | | | |
| United Rentals North America, Inc. (c) | | | |
| | |
| Total Corporate Bonds and Notes | |
| | |
FOREIGN CORPORATE BONDS AND NOTES — 2.1% |
| Application Software — 0.7% | |
| | | | |
| | | | |
| | |
| | |
| Flutter Treasury Designated Activity Co. (c) | | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | | | | |
FOREIGN CORPORATE BONDS AND NOTES (Continued) |
| Data Processing & Outsourced Services — 0.2% | |
| Paysafe Finance PLC / Paysafe Holdings US Corp. (c) | | | |
| Environmental & Facilities Services — 0.4% | |
| GFL Environmental, Inc. (c) | | | |
| GFL Environmental, Inc. (c) | | | |
| | |
| | |
| 1011778 BC ULC / New Red Finance, Inc. (c) | | | |
| Total Foreign Corporate Bonds and Notes | |
| | |
| | |
|
| | |
| | |
| | |
|
| Life Sciences Tools & Services — 0.0% | |
| New Millennium Holdco, Inc., Corporate Claim Trust, no expiration date (e) (g) (h) (i) | |
| New Millennium Holdco, Inc., Lender Claim Trust, no expiration date (e) (g) (h) (i) | |
| | |
| | |
MONEY MARKET FUNDS — 5.5% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (j) | |
| | |
|
|
| Total Investments — 102.0% | |
| | |
| Net Other Assets and Liabilities — (2.0)% | |
| | |
| Senior Floating-Rate Loan Interests (“Senior Loans”) in which the Fund invests 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 SOFR obtained from the U.S. Department of the Treasury’s Office of Financial Research or another major financial institution, (ii) the lending rate offered by one or more major European banks, such as the synthetic LIBOR, (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 SOFR or synthetic LIBOR floor that establishes a minimum SOFR or synthetic LIBOR rate. When a range of rates is disclosed, the Fund holds more than one contract within the same tranche with identical SOFR or synthetic LIBOR period, spread and floor, but different SOFR or synthetic LIBOR reset dates. |
| 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. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $244,426,986 or 11.3% of net assets. |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Portfolio of Investments (Continued)October 31, 2024 | This issuer has filed for protection in bankruptcy court. |
| Non-income producing security. |
| 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). |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by the Advisor. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $0 or 0.0% of net assets. |
| This security’s value was determined using significant unobservable inputs (see Note 2A - Portfolio Valuation in the Notes to Financial Statements). |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – Chicago Mercantile Exchange |
| – Credit Spread Adjustment |
| – London Interbank Offered Rate |
| – Secured Overnight Financing Rate |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Senior Floating-Rate Loan Interests* | | | | |
Corporate Bonds and Notes* | | | | |
Foreign Corporate Bonds and Notes* | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
| Investments are valued at $0. |
Level 3 investments are fair valued by the Advisor’s Pricing Committee and are footnoted in the Portfolio of Investments. All Level 3 values are based on unobservable inputs.
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Statement of Assets and Liabilities
October 31, 2024
| |
| |
| |
| |
Investment securities sold | |
| |
| |
Unrealized appreciation on unfunded loan commitments | |
| |
|
| |
| |
Investment securities purchased | |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on investments | |
Net change in unrealized appreciation (depreciation) on: | |
| |
Unfunded loan commitments | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Statements of Changes in Net Assets
| | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets (c) | | | | | |
Ratio of net investment income (loss) to average net assets (c) | | | | | |
Portfolio turnover rate (d) | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Ratio of total expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Senior Loan Fund (FTSL)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Senior Loan Fund (the “Fund”), a diversified series of the Trust, which trades under the ticker “FTSL” on Nasdaq, Inc. (“Nasdaq”). The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund’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 invests at least 80% of its net assets (including investment borrowings) in first lien senior floating rate bank loans (“Senior Loans”)(1).
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. When identifying prospective investment opportunities in Senior Loans, First Trust Advisors L.P. (“First Trust” or the “Advisor”), the Fund’s investment advisor, currently intends to invest 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.
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:
Senior Loans 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
(1)
The terms “security” and “securities” used throughout the Notes to Financial Statements include Senior Loans.
Notes to Financial Statements (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 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:
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.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
Notes to Financial Statements (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the 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);
14)
the borrower’s/issuer’s competitive position within the industry;
15)
the borrower’s/issuer’s ability to access additional liquidity through public and/or private markets; and
16)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
As of October 1, 2024, the United Kingdom’s Financial Conduct Authority ceased all LIBOR publications. Transitioning to the SOFR, or any alternative reference rate, may affect the value, liquidity or return on certain investments previously based on LIBOR.
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 until payment is made. At October 31, 2024, the Fund had no when-issued, delayed-delivery or forward purchase commitments (other than the unfunded commitments discussed below).
Notes to Financial Statements (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 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. Unfunded loan commitments are categorized as Level 2 within the fair value hierarchy. 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, 2024, the Fund had the following unfunded loan commitments:
| | | | Unrealized
Appreciation
(Depreciation) |
Alter Domus (Chrysaor Bidco S.A.R.L.), Term Loan | | | | |
| | | | |
R1 RCM, Inc. (Raven Acq. Holdings LLC), Term Loan | | | | |
| | | | |
The Fund invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of October 31, 2024, the Fund held a restricted security 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.
| Amount is less than 0.01%. |
E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions 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, 2024 and 2023 was as follows:
Notes to Financial Statements (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $242,393,104 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
Notes to Financial Statements (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 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 annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
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 (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $2,646,708,909 and $2,678,063,881, respectively.
For the fiscal year ended October 31, 2024, the Fund had no in-kind transactions.
Effective February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund III, First Trust Series Fund and First Trust Variable Insurance Trust, entered into a new Credit Agreement with BNY as administrative agent for a group of lenders. The borrowing rate is the higher of the federal funds effective rate and the adjusted daily simple SOFR rate plus 1.00%. The commitment amount under the credit agreement is $620 million and such commitment amount may be increased up to $700 million with the consent of one or more lenders. BNY charges on behalf of the lenders a commitment fee of 0.20% of the daily
Notes to Financial Statements (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. Prior to February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund III and First Trust Series Fund, had a $550 million Credit Agreement with The Bank of Nova Scotia (“Scotia”) as administrative agent for a group of lenders. Scotia charged a commitment fee of 0.25% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. First Trust allocates the commitment fee and agency fee amongst the funds that have access to the credit line. To the extent that the Fund accesses the credit line, there would also be an interest fee charged. The Fund did not have any borrowings outstanding during the fiscal year ended October 31, 2024.
6. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Notes to Financial Statements (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 9. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
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, including the portfolio of investments, of First Trust Senior Loan Fund (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian, agent banks and brokers; when replies were not received from agent banks and brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 23, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Senior Loan Fund (FTSL)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s 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
Other Information (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 (Unaudited) Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objectives, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, 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 total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund underperformed the Performance Universe median for the one- and three-year periods ended December 31, 2023, outperformed the Performance Universe median for the five- and ten-year periods ended December 31, 2023 and underperformed the benchmark index for the one-, three-, five- and ten-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP, and 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.
Other Information (Continued)
First Trust Senior Loan Fund (FTSL)October 31, 2024 (Unaudited) Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust 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, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $5,794,454. This figure is comprised of $630,439 paid (or to be paid) in fixed compensation and $5,164,015 paid (or to be paid) in variable compensation. There were a total of 33 beneficiaries of the remuneration described above. Those amounts include $552,344 paid (or to be paid) to senior management of First Trust Advisors L.P. and $5,242,110 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.
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
First Trust Exchange-Traded Fund IV
| First Trust Enhanced Short Maturity ETF (FTSM)
|
Annual Financial Statements and Other Information
For the Year Ended
October 31, 2024 |
First Trust Enhanced Short Maturity ETF (FTSM)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Enhanced Short Maturity ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of InvestmentsOctober 31, 2024
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CORPORATE BONDS AND NOTES — 48.3% |
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| Auto Manufacturers — 0.9% | |
| American Honda Finance Corp., SOFR Compounded Index + 0.70% (a) | | | |
| American Honda Finance Corp., SOFR + 0.71% (a) | | | |
| Toyota Motor Credit Corp., Medium-Term Note, SOFR Compounded Index + 0.45% (a) | | | |
| Volkswagen Group of America Finance LLC (b) | | | |
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| Bank of America Corp. (c) | | | |
| Bank of America Corp. (c) | | | |
| Bank of America Corp. (c) | | | |
| Bank of America Corp. (c) | | | |
| Bank of America Corp. (c) | | | |
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| Bank of New York Mellon (The), SOFR + 0.45% (a) | | | |
| Bank of New York Mellon (The) Corp. (c) | | | |
| Bank of New York Mellon (The) Corp. (c) | | | |
| Bank of New York Mellon (The) Corp. (c) | | | |
| Bank of New York Mellon (The) Corp. (c) | | | |
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| Goldman Sachs Bank USA (c) | | | |
| Goldman Sachs Bank USA, SOFR + 0.75% (a) | | | |
| Goldman Sachs Group (The), Inc. | | | |
| Goldman Sachs Group (The), Inc. (c) | | | |
| Huntington National Bank (The) (c) | | | |
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| Morgan Stanley, SOFR + 0.51% (a) | | | |
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| Morgan Stanley Bank N.A. (c) | | | |
| Morgan Stanley Bank N.A. (c) | | | |
| PNC Financial Services Group (The), Inc. (c) | | | |
| PNC Financial Services Group (The), Inc. (c) | | | |
| PNC Financial Services Group (The), Inc. (c) | | | |
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| State Street Corp., SOFR + 0.64% (a) | | | |
| Truist Financial Corp. (c) | | | |
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See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
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| Constellation Brands, Inc. | | | |
| Constellation Brands, Inc. | | | |
| Constellation Brands, Inc. | | | |
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| Molson Coors Beverage Co. | | | |
| PepsiCo, Inc., SOFR Compounded Index + 0.40% (a) | | | |
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| Building Materials — 1.3% | |
| CRH America Finance, Inc. (b) | | | |
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| Commercial Services — 1.7% | |
| Ashtead Capital, Inc. (b) | | | |
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| Diversified Financial Services — 2.2% | |
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| Intercontinental Exchange, Inc. | | | |
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| FirstEnergy Transmission LLC (b) | | | |
| Northern States Power Co. | | | |
| Trans-Allegheny Interstate Line Co. (b) | | | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
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| Virginia Electric and Power Co., Series A | | | |
| Virginia Power Fuel Securitization LLC, Series A-1 | | | |
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| Environmental Control — 0.9% | |
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| Kraft Heinz Foods Company | | | |
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| Mondelez International, Inc. | | | |
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| Healthcare-Products — 3.2% | |
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| Baxter International, Inc. | | | |
| Baxter International, Inc., SOFR Compounded Index + 0.44% (a) | | | |
| GE HealthCare Technologies, Inc. | | | |
| GE HealthCare Technologies, Inc. | | | |
| GE HealthCare Technologies, Inc. | | | |
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| Zimmer Biomet Holdings, Inc. | | | |
| Zimmer Biomet Holdings, Inc. | | | |
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| Healthcare-Services — 4.0% | |
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See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Healthcare-Services (Continued) | |
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| Marsh & McLennan Cos., Inc. | | | |
| Marsh & McLennan Cos., Inc. (d) | | | |
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| Charter Communications Operating LLC / Charter Communications Operating Capital | | | |
| FactSet Research Systems, Inc. | | | |
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| Miscellaneous Manufacturing — 0.1% | |
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| Packaging & Containers — 1.2% | |
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| Packaging Corp. of America | | | |
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| PRA Health Sciences, Inc. (b) | | | |
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| Enbridge Energy Partners, L.P. | | | |
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| Enterprise Products Operating LLC | | | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
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| Plains All American Pipeline, L.P. / PAA Finance Corp. | | | |
| Sabine Pass Liquefaction LLC | | | |
| Spectra Energy Partners, L.P. | | | |
| Williams Cos. (The), Inc. | | | |
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| Real Estate Investment Trusts — 0.9% | |
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| Fidelity National Information Services, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
| Fidelity National Information Services, Inc. | | | |
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| Telecommunications — 1.5% | |
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| Verizon Communications, Inc. | | | |
| Verizon Communications, Inc. | | | |
| Verizon Communications, Inc. | | | |
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| American Water Capital Corp. | | | |
| Total Corporate Bonds and Notes | |
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See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | Annualized
Yield on Date of
Purchase | | |
|
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| L3Harris Technologies, Inc. | | | |
| L3Harris Technologies, Inc. | | | |
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| Auto Manufacturers — 1.6% | |
| American Honda Finance Corp. | | | |
| General Motors Financial Co., Inc. | | | |
| Volkswagen Financial Services | | | |
| Volkswagen Financial Services | | | |
| Volkswagen Financial Services | | | |
| Volkswagen Financial Services | | | |
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| Australia & New Zealand Banking Group Ltd. | | | |
| Australia & New Zealand Banking Group Ltd. | | | |
| Australia & New Zealand Banking Group Ltd. | | | |
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| Canadian Imperial Bank of Commerce | | | |
| Commonwealth Bank of Australia | | | |
| Commonwealth Bank of Australia | | | |
| Commonwealth Bank of Australia | | | |
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| National Australia Bank Ltd. | | | |
| National Australia Bank Ltd. | | | |
| National Australia Bank Ltd. | | | |
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| Skandinaviska Enskilda Banken AB | | | |
| Skandinaviska Enskilda Banken AB | | | |
| Skandinaviska Enskilda Banken AB | | | |
| Skandinaviska Enskilda Banken AB | | | |
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| Toronto-Dominion Bank (The) | | | |
| Toronto-Dominion Bank (The) | | | |
| Toronto-Dominion Bank (The) | | | |
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| Constellation Brands, Inc. | | | |
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See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | Annualized Yield on Date of Purchase | | |
COMMERCIAL PAPER (Continued) |
| Biotechnology (Continued) | |
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| Building Materials — 0.9% | |
| CRH America Finance, Inc. | | | |
| CRH America Finance, Inc. | | | |
| CRH America Finance, Inc. | | | |
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| Commercial Services — 0.5% | |
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| Consolidated Edison Co. of New York, Inc. | | | |
| Consolidated Edison Co. of New York, Inc. | | | |
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| Environmental Control — 0.8% | |
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| Mondelez International, Inc. | | | |
| Mondelez International, Inc. | | | |
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| Marriott International, Inc. | | | |
| Marriott International, Inc. | | | |
| Marriott International, Inc. | | | |
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See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | Annualized Yield on Date of Purchase | | |
COMMERCIAL PAPER (Continued) |
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| Miscellaneous Manufacturing — 0.5% | |
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| Packaging & Containers — 0.2% | |
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| TransCanada PipeLines Ltd. | | | |
| TransCanada PipeLines Ltd. | | | |
| TransCanada PipeLines Ltd. | | | |
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| Real Estate Investment Trusts — 0.7% | |
| Alexandria Real Estate Equities, Inc. | | | |
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| | |
| | | | |
| | | | |
| | |
| Telecommunications — 1.1% | |
| | | | |
| Bell Telephone Co. of Canada or Bell Canada (The) | | | |
| Bell Telephone Co. of Canada or Bell Canada (The) | | | |
| Bell Telephone Co. of Canada or Bell Canada (The) | | | |
| | |
| | |
| Canadian National Railway Co. | | | |
| Canadian National Railway Co. | | | |
| Canadian National Railway Co. | | | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
ASSET-BACKED SECURITIES — 12.4% |
| |
| Series 2020-SFR2, Class A (b) | | | |
| Series 2020-SFR1, Class A (b) | | | |
| Bank of America Auto Trust |
| Series 2023-2A, Class A2 (b) | | | |
| Series 2024-1A, Class A3 (b) | | | |
| |
| | | | |
| | | | |
| | | | |
| |
| | | | |
| | | | |
| |
| Series 2024-3A, Class A2 (b) | | | |
| Citizens Auto Receivables Trust |
| Series 2024-1, Class A2A (b) | | | |
| Series 2024-2, Class A3 (b) | | | |
| CoreVest American Finance Trust |
| Series 2020-2, Class A (b) | | | |
| Dell Equipment Finance Trust |
| Series 2023-1, Class A2 (b) | | | |
| Series 2023-2, Class A2 (b) | | | |
| Series 2023-3, Class A2 (b) | | | |
| Series 2024-1, Class A3 (b) | | | |
| Series 2024-2, Class A2 (b) | | | |
| Ford Credit Auto Owner Trust |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| GM Financial Automobile Leasing Trust |
| | | | |
| GM Financial Consumer Automobile Receivables Trust |
| | | | |
| Series 2024-4, Class A2B, 30 Day Average SOFR + 0.40% (a) | | | |
| Honda Auto Receivables Owner Trust |
| | | | |
| | | | |
| |
| Series 2024-1A, Class A2 (b) | | | |
| |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2024-C, Class A2B, 30 Day Average SOFR + 0.43% (a) | | | |
| Kubota Credit Owner Trust |
| Series 2024-1A, Class A2 (b) | | | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
ASSET-BACKED SECURITIES (Continued) |
| Mercedes-Benz Auto Lease Trust |
| | | | |
| | | | |
| Mercedes-Benz Auto Receivables Trust |
| | | | |
| | | | |
| | | | |
| | | | |
| Porsche Financial Auto Securitization Trust |
| Series 2023-2A, Class A2A (b) | | | |
| |
| Series 2022-1A, Class A (b) | | | |
| Series 2024-1A, Class A (b) | | | |
| Series 2024-2A, Class A (b) | | | |
| Toyota Auto Receivables Owner Trust |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| |
| Series 2024-A, Class A4 (b) | | | |
| Series 2024-B, Class A2B, 30 Day Average SOFR + 0.44% (a) (b) | | | |
| |
| | | | |
| | | | |
| | | | |
| Series 2022-7, Class A1A, steps up to 5.98% on 11/20/24 (e) | | | |
| Volkswagen Auto Lease Trust |
| | | | |
| Total Asset-Backed Securities | |
| | |
FOREIGN CORPORATE BONDS AND NOTES — 8.3% |
| | |
| Banque Federative du Credit Mutuel S.A., SOFR Compounded Index + 0.41% (a) (b) | | | |
| | | | |
| BNP Paribas S.A., SOFR + 0.25% (a) | | | |
| Canadian Imperial Bank of Commerce, SOFR Compounded Index + 0.93% (a) | | | |
| Cooperatieve Rabobank U.A. | | | |
| Cooperatieve Rabobank U.A., SOFR Compounded Index + 0.62% (a) | | | |
| Cooperatieve Rabobank U.A. | | | |
| | | | |
| | | | |
| Svenska Handelsbanken NY, SOFR + 0.23% (a) | | | |
| Svenska Handelsbanken NY, SOFR + 0.20% (a) | | | |
| UBS AG/London, SOFR + 0.47% (a) (b) | | | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
FOREIGN CORPORATE BONDS AND NOTES (Continued) |
| | |
| | | | |
| UBS Group AG, 1 yr. US Treasury Yield Curve Rate T Note Constant Maturity + 1.08% (b) (c) | | | |
| Westpac Banking Corp., SOFR + 0.30% (a) | | | |
| | |
| | |
| | | | |
| | |
| | | | |
| Cosmetics/Personal Care — 0.3% | |
| | | | |
| | |
| Mondelez International Holdings Netherlands B.V. (b) | | | |
| Mondelez International Holdings Netherlands B.V. (b) | | | |
| | |
| Healthcare-Products — 0.3% | |
| DH Europe Finance II Sarl | | | |
| Healthcare-Services — 0.2% | |
| | | | |
| | |
| | | | |
| | |
| Canadian Natural Resources Ltd. | | | |
| Canadian Natural Resources Ltd. | | | |
| | |
| Packaging & Containers — 0.5% | |
| | | | |
| | |
| Pfizer Investment Enterprises Pte. Ltd. | | | |
| | |
| | | | |
| | |
| Broadcom Corp. / Broadcom Cayman Finance Ltd. | | | |
| | |
| Canadian Pacific Railway Co. | | | |
| Total Foreign Corporate Bonds and Notes | |
| | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 1.5% |
| Collateralized Mortgage Obligations — 0.0% | |
| Federal Home Loan Mortgage Corporation | | | |
| | | | |
| Federal National Mortgage Association | | | |
| | | | |
| | | | |
| | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Commercial Mortgage-Backed Securities — 1.5% | |
| Federal Home Loan Mortgage Corporation Multifamily Structured Pass Through Certificates | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Federal Home Loan Mortgage Corporation Multifamily Structured Pass-Through Certificates | | | |
| Series KI07, Class A, 30 Day Average SOFR + 0.17% (a) | | | |
| | |
| Pass-Through Securities — 0.0% | |
| Federal Home Loan Mortgage Corporation |
| | | | |
| | | | |
| Federal National Mortgage Association |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| Total U.S. Government Agency Mortgage-Backed Securities | |
| | |
U.S. GOVERNMENT BONDS AND NOTES — 0.6% |
| | | | |
| | | | |
MORTGAGE-BACKED SECURITIES — 0.5% |
| Collateralized Mortgage Obligations — 0.5% | |
| BRAVO Residential Funding Trust |
| Series 2021-NQM1, Class A1 (b) | | | |
| |
| Series 2019-INV1, Class A2, 30 Day Average SOFR + CSA + 1.00% (a) (b) | | | |
| Series 2019-INV2, Class A11, 30 Day Average SOFR + CSA + 0.95% (a) (b) | | | |
| Series 2019-INV3, Class A11, 30 Day Average SOFR + CSA + 0.95%, 5.50% Cap (a) (b) | | | |
| |
| Series 2020-2R, Class A1 (b) | | | |
| Credit Suisse Mortgage Trust |
| Series 2019-AFC1, Class A1 (b) | | | |
| Series 2020-NQM1, Class A1 (b) | | | |
| |
| Series 2020-NQM1, Class A1 (b) | | | |
| |
| Series 2019-7, Class A11, 1 Mo. CME Term SOFR + CSA + 0.90% (a) (b) | | | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| JP Morgan Mortgage Trust (Continued) |
| Series 2019-8, Class A11, 1 Mo. CME Term SOFR + CSA + 0.85% (a) (b) | | | |
| Series 2019-INV1, Class A11, 1 Mo. CME Term SOFR + CSA + 0.95% (a) (b) | | | |
| Series 2019-LTV3, Class A11, 1 Mo. CME Term SOFR + CSA + 0.85% (a) (b) | | | |
| Series 2020-2, Class A11, 1 Mo. CME Term SOFR + CSA + 0.80% (a) (b) | | | |
| Series 2020-LTV1, Class A11, 1 Mo. CME Term SOFR + CSA + 1.00%, 6.00% Cap (a) (b) | | | |
| |
| Series 2020-INV1, Class A11, 1 Mo. CME Term SOFR + CSA + 0.90% (a) (b) | | | |
| Residential Mortgage Loan Trust |
| Series 2019-3, Class A2 (b) | | | |
| Starwood Mortgage Residential Trust |
| Series 2020-1, Class A1 (b) | | | |
| Verus Securitization Trust |
| Series 2020-4, Class A2 (b) | | | |
| Total Mortgage-Backed Securities | |
| | |
|
|
| Total Investments — 100.3% | |
| | |
| Net Other Assets and Liabilities — (0.3)% | |
| | |
| Floating or variable rate security. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $609,301,561 or 9.9% of net assets. |
| Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2024. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
| Step-up security. A security where the coupon increases or steps up at a predetermined date. |
Abbreviations throughout the Portfolio of Investments: |
| – Chicago Mercantile Exchange |
| – Credit Spread Adjustment |
| – Secured Overnight Financing Rate |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Corporate Bonds and Notes* | | | | |
| | | | |
| | | | |
Foreign Corporate Bonds and Notes* | | | | |
U.S. Government Agency Mortgage-Backed Securities | | | | |
U.S. Government Bonds and Notes | | | | |
Mortgage-Backed Securities | | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Statement of Assets and Liabilities
October 31, 2024
| |
| |
| |
| |
| |
|
| |
| |
Investment securities purchased | |
Distributions to shareholders | |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on investments | |
Net change in unrealized appreciation (depreciation) on investments | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Statements of Changes in Net Assets
| | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (c) | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
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 Nasdaq, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The 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 portfolio is expected to have an average duration of less than one year and an average maturity of 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.
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:
Notes to Financial Statements (Continued)
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 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.
Commercial paper is fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the 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);
14)
the borrower’s/issuer’s ability to access additional liquidity through public and/or private markets; and
15)
other relevant factors.
Notes to Financial Statements (Continued)
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. The Fund maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At October 31, 2024, the Fund held $7,485,839 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund had no forward purchase commitments.
C. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions 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, 2024 and 2023 was as follows:
Notes to Financial Statements (Continued)
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $12,963,664 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
During the fiscal year ended October 31, 2024, the Fund utilized $1,491,937 of non-expiring capital loss carryforwards.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
For the fiscal year ended October 31, 2024, there were no tax adjustments made to paid-in capital and accumulated distributable earnings (loss) accounts due to differences between book and tax treatments.
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal,
Notes to Financial Statements (Continued)
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 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 payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Pursuant to a separate 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, 2025. 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, 2024, there were no fees waived by the Advisor.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
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, 2024, were $6,969,375 and $2,346,020,426, 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, 2024 were $477,429,374 and $2,118,461,954, respectively.
For the fiscal year ended October 31, 2024, 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 or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After
Notes to Financial Statements (Continued)
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Enhanced Short Maturity ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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, 2025 at a meeting held on June 2-3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2-3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2-3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and 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 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund
Other Information (Continued)
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 (Unaudited) Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, 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 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 total expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund underperformed the Performance Universe median and outperformed the benchmark index for the one-year period ended December 31, 2023 and outperformed the Performance Universe median and the benchmark index for the three- and five-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP, and 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.
Other Information (Continued)
First Trust Enhanced Short Maturity ETF (FTSM)October 31, 2024 (Unaudited) Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust Enhanced Short Maturity ETF (the “Fund”), in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the “Directive”). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust’s interpretation of currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $9,465,819. This figure is comprised of $701,458 paid (or to be paid) in fixed compensation and $8,764,361 paid (or to be paid) in variable compensation. There were a total of 30 beneficiaries of the remuneration described above. Those amounts include $1,847,899 paid (or to be paid) to senior management of First Trust Advisors L.P. and $7,617,920 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.
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
First Trust Exchange-Traded Fund IV
| First Trust High Income Strategic Focus ETF (HISF)
|
Annual Financial Statements and Other Information
For the Year Ended
October 31, 2024 |
First Trust High Income Strategic Focus ETF (HISF)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust High Income Strategic Focus ETF (the “Fund”) will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust High Income Strategic Focus ETF (HISF)Portfolio of InvestmentsOctober 31, 2024
| | |
EXCHANGE-TRADED FUNDS — 99.9% |
| Capital Markets (a) — 99.9% | |
| First Trust Emerging Markets Local Currency Bond ETF | |
| First Trust Intermediate Duration Investment Grade Corporate ETF | |
| First Trust Limited Duration Investment Grade Corporate ETF | |
| First Trust Long Duration Opportunities ETF | |
| First Trust Low Duration Opportunities ETF | |
| First Trust Preferred Securities and Income ETF | |
| First Trust Tactical High Yield ETF | |
| First Trust TCW Opportunistic Fixed Income ETF | |
| Total Exchange-Traded Funds | |
| | |
MONEY MARKET FUNDS — 0.1% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (b) | |
| | |
|
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| Total Investments — 100.0% | |
| | |
| Net Other Assets and Liabilities — 0.0% | |
| | |
| Represents investments in affiliated funds. |
| Rate shown reflects yield as of October 31, 2024. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
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| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust High Income Strategic Focus ETF (HISF)Statement of Assets and Liabilities
October 31, 2024
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Investments, at value - Affiliated | |
Investments, at value - Unaffiliated | |
Total investments, at value | |
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Investment advisory fees payable | |
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Accumulated distributable earnings (loss) | |
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NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
Investments, at cost - Affiliated | |
Investments, at cost - Unaffiliated | |
Total investments, at cost | |
See Notes to Financial Statements
First Trust High Income Strategic Focus ETF (HISF)Statement of Operations
For the Year Ended October 31, 2024
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Less fees waived by the investment advisor | |
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NET INVESTMENT INCOME (LOSS) | |
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NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
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Investments - Unaffiliated | |
In-kind redemptions - Affiliated | |
| |
Net change in unrealized appreciation (depreciation) on: | |
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Investments - Unaffiliated | |
Foreign currency translation | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust High Income Strategic Focus ETF (HISF)Statements of Changes in Net Assets
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Net investment income (loss) | | |
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Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust High Income Strategic Focus ETF (HISF)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets (d) | | | | | |
Ratio of net expenses to average net assets (d) | | | | | |
Ratio of net investment income (loss) to average net assets (d) | | | | | |
Portfolio turnover rate (e) | | | | | |
| Based on average shares outstanding. |
| The Fund received a payment 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. |
| 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. |
| Ratios of expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
| The variation in the portfolio turnover rate is due to the change in the Fund’s investment strategy effective February 28, 2022, which resulted in a rebalance of the Fund’s portfolio. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust High Income Strategic Focus ETF (the “Fund”), a diversified series of the Trust, which trades under the ticker “HISF” on Nasdaq, Inc. (“Nasdaq”). The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund (“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.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. 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 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:
Exchange-traded funds and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is
Notes to Financial Statements (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date.
The books and records of the Fund are maintained in U.S. dollars. Foreign currencies and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. 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.
Notes to Financial Statements (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 D. Affiliated Transactions
The Fund invests in securities of affiliated funds. The Fund’s investment performance and risks are directly related to the investment performance and risks of the affiliated funds. The affiliated funds’ financial statements may be found at SEC.gov. Dividend income, if any, realized gains and losses, and change in appreciation (depreciation) from affiliated funds are presented on the Statement of Operations.
Amounts relating to investments in affiliated funds at October 31, 2024, and for the fiscal year then ended are as follows:
| | | | | Change in
Unrealized
Appreciation
(Depreciation) | | | |
First Trust Emerging Markets Local Currency Bond ETF | | | | | | | | |
First Trust Enhanced Short Maturity ETF | | | | | | | | |
First Trust Institutional Preferred Securities and Income ETF | | | | | | | | |
First Trust Intermediate Duration Investment Grade Corporate ETF | | | | | | | | |
First Trust Limited Duration Investment Grade Corporate ETF | | | | | | | | |
First Trust Long Duration Opportunities ETF | | | | | | | | |
First Trust Low Duration Opportunities ETF | | | | | | | | |
First Trust Preferred Securities and Income ETF | | | | | | | | |
First Trust Senior Loan Fund | | | | | | | | |
First Trust Tactical High Yield ETF | | | | | | | | |
First Trust TCW Opportunistic Fixed Income ETF | | | | | | | | |
| | | | | | | | |
E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
Notes to Financial Statements (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 The tax character of distributions paid during the fiscal years ended October 31, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $9,134,001 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
Notes to Financial Statements (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit, and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion up to and including $15 billion | |
Fund net assets greater than $15 billion | |
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, 2026. Expenses reimbursed and fees waived under such agreement are not subject to recovery by First Trust.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such
Notes to Financial Statements (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $13,072,210 and $13,069,646, respectively.
For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales were $15,490,985 and $0, 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 Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
Notes to Financial Statements (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 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.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust High Income Strategic Focus ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 19, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s 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. 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
Other Information (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 (Unaudited) also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In addition to the written materials provided by the Advisor, at the April 25, 2024 meeting, the Board also received a presentation from representatives of the Advisor’s Investment Committee, who discussed the services that the Investment Committee provides to the Fund, including the Investment Committee’s day-to-day management of the Fund’s investments. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objectives, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, 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, 2025. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio (excluding acquired fund fees and expenses) for the Fund 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 total (net) expense ratio (including acquired fund fees and expenses) for the Fund 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 discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. The Board noted the 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 that was approved by shareholders effective February 28, 2022. Based on the information provided, the Board noted that the Fund underperformed the Performance Universe median and outperformed the benchmark index for the one-year period ended December 31, 2023 and outperformed the Performance Universe median and the benchmark index for the three- and five-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure
Other Information (Continued)
First Trust High Income Strategic Focus ETF (HISF)October 31, 2024 (Unaudited) and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP, and 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.
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
First Trust Exchange-Traded Fund IV
| First Trust Tactical High Yield ETF (HYLS) |
Annual Financial Statements and Other Information
For the Year Ended
October 31, 2024 |
First Trust Tactical High Yield ETF (HYLS)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Tactical High Yield ETF (the “Fund”) will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Tactical High Yield ETF (HYLS)Portfolio of InvestmentsOctober 31, 2024
| | | | |
CORPORATE BONDS AND NOTES — 74.8% |
| Aerospace & Defense — 1.5% | |
| Amentum Holdings, Inc. (a) | | | |
| Booz Allen Hamilton, Inc. (a) | | | |
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| Alternative Carriers — 1.0% | |
| Level 3 Financing, Inc. (a) | | | |
| Level 3 Financing, Inc. (a) | | | |
| Level 3 Financing, Inc. (a) | | | |
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| Application Software — 3.2% | |
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| Central Parent, Inc. / CDK Global, Inc. (a) | | | |
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| Open Text Holdings, Inc. (a) | | | |
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| Automobile Manufacturers — 0.5% | |
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| Mavis Tire Express Services Topco Corp. (a) | | | |
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| iHeartCommunications, Inc. | | | |
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| Sinclair Television Group, Inc. (a) | | | |
| Sirius XM Radio, Inc. (a) | | | |
| Sirius XM Radio, Inc. (a) | | | |
| Sirius XM Radio, Inc. (a) | | | |
| Sirius XM Radio, Inc. (a) | | | |
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| Advanced Drainage Systems, Inc. (a) | | | |
| Beacon Roofing Supply, Inc. (a) | | | |
| Beacon Roofing Supply, Inc. (a) | | | |
| Builders FirstSource, Inc. (a) | | | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Building Products (Continued) | |
| Builders FirstSource, Inc. (a) | | | |
| Miter Brands Acquisition Holdco, Inc. / MIWD Borrower LLC (a) | | | |
| Standard Industries, Inc. (a) | | | |
| Standard Industries, Inc. (a) | | | |
| Standard Industries, Inc. (a) | | | |
| Standard Industries, Inc. (a) | | | |
| Standard Industries, Inc. (a) | | | |
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| CCO Holdings LLC / CCO Holdings Capital Corp. (a) | | | |
| CCO Holdings LLC / CCO Holdings Capital Corp. (a) | | | |
| CCO Holdings LLC / CCO Holdings Capital Corp. (a) | | | |
| CCO Holdings LLC / CCO Holdings Capital Corp. (a) | | | |
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| Caesars Entertainment, Inc. (a) | | | |
| Caesars Entertainment, Inc. (a) | | | |
| Caesars Entertainment, Inc. (a) | | | |
| Churchill Downs, Inc. (a) | | | |
| Fertitta Entertainment LLC / Fertitta Entertainment Finance Co., Inc. (a) | | | |
| Light & Wonder International, Inc. (a) | | | |
| MGM Resorts International | | | |
| MGM Resorts International | | | |
| Scientific Games Holdings, L.P. / Scientific Games US FinCo, Inc. (a) | | | |
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| VICI Properties, L.P. / VICI Note Co., Inc. (a) | | | |
| VICI Properties, L.P. / VICI Note Co., Inc. (a) | | | |
| VICI Properties, L.P. / VICI Note Co., Inc. (a) | | | |
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| Commercial Printing — 0.9% | |
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| Communications Equipment — 0.0% | |
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See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Construction & Engineering — 0.5% | |
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| Construction Materials — 0.2% | |
| Summit Materials LLC / Summit Materials Finance Corp. (a) | | | |
| Summit Materials LLC / Summit Materials Finance Corp. (a) | | | |
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| Bank of America Corp. (b) | | | |
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| Bank of America Corp. (b) | | | |
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| Diversified Support Services — 0.4% | |
| Ritchie Bros Holdings, Inc. (a) | | | |
| Ritchie Bros Holdings, Inc. (a) | | | |
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| Electric Utilities — 0.6% | |
| Vistra Operations Co. LLC (a) | | | |
| Vistra Operations Co. LLC (a) | | | |
| Vistra Operations Co. LLC (a) | | | |
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| Electrical Components & Equipment — 0.0% | |
| Sensata Technologies, Inc. (a) | | | |
| Environmental & Facilities Services — 0.7% | |
| Allied Universal Holdco LLC (a) | | | |
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| Wrangler Holdco Corp. (a) | | | |
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| Fertilizers & Agricultural Chemicals — 0.1% | |
| Scotts Miracle-Gro (The) Co. | | | |
| Scotts Miracle-Gro (The) Co. | | | |
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| Financial Exchanges & Data — 0.8% | |
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See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
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| Health Care Equipment — 0.0% | |
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| Health Care Facilities — 2.7% | |
| Acadia Healthcare Co., Inc. (a) | | | |
| Acadia Healthcare Co., Inc. (a) | | | |
| AHP Health Partners, Inc. (a) | | | |
| Concentra Escrow Issuer Corp. (a) | | | |
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| Health Care Services — 0.9% | |
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| Raven Acquisition Holdings LLC (a) (c) | | | |
| Service Corp. International | | | |
| Service Corp. International | | | |
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| Health Care Supplies — 1.8% | |
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| Medline Borrower, L.P. (a) | | | |
| Medline Borrower, L.P. (a) | | | |
| Medline Borrower, L.P. / Medline Co-Issuer, Inc. (a) | | | |
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| Health Care Technology — 0.9% | |
| AthenaHealth Group, Inc. (a) | | | |
| Hotels, Resorts & Cruise Lines — 0.4% | |
| Hilton Domestic Operating Co., Inc. (a) | | | |
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| Wyndham Hotels & Resorts, Inc. (a) | | | |
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| Household Products — 0.9% | |
| Energizer Holdings, Inc. (a) | | | |
| Energizer Holdings, Inc. (a) | | | |
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| Human Resource & Employment Services — 0.5% | |
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| Independent Power Producers & Energy Traders — 0.6% | |
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See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Industrial Conglomerates — 0.2% | |
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| Industrial Machinery & Supplies & Components — 0.1% | |
| EMRLD Borrower, L.P. / Emerald Co-Issuer, Inc. (a) | | | |
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| Insurance Brokers — 11.4% | |
| Alliant Holdings Intermediate LLC / Alliant Holdings Co-Issuer (a) | | | |
| Alliant Holdings Intermediate LLC / Alliant Holdings Co-Issuer (a) | | | |
| Alliant Holdings Intermediate LLC / Alliant Holdings Co-Issuer (a) | | | |
| Alliant Holdings Intermediate LLC / Alliant Holdings Co-Issuer (a) | | | |
| Alliant Holdings Intermediate LLC / Alliant Holdings Co-Issuer (a) | | | |
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| Arthur J. Gallagher & Co. | | | |
| Arthur J. Gallagher & Co. | | | |
| Arthur J. Gallagher & Co. | | | |
| Arthur J. Gallagher & Co. | | | |
| Arthur J. Gallagher & Co. | | | |
| AssuredPartners, Inc. (a) | | | |
| AssuredPartners, Inc. (a) | | | |
| Baldwin Insurance Group Holdings LLC / Baldwin Insurance Group Holdings Finance (a) | | | |
| BroadStreet Partners, Inc. (a) | | | |
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| HUB International Ltd. (a) | | | |
| HUB International Ltd. (a) | | | |
| HUB International Ltd. (a) | | | |
| Panther Escrow Issuer LLC (a) | | | |
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| Integrated Telecommunication Services — 0.4% | |
| Radiate Holdco LLC / Radiate Finance, Inc. (a) | | | |
| Zayo Group Holdings, Inc. (a) | | | |
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| Interactive Media & Services — 0.4% | |
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| Internet Services & Infrastructure — 1.6% | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (a) | | | |
| Go Daddy Operating Co. LLC / GD Finance Co., Inc. (a) | | | |
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| Investment Banking & Brokerage — 0.5% | |
| Goldman Sachs Group (The), Inc. | | | |
| Goldman Sachs Group (The), Inc. | | | |
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See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| IT Consulting & Other Services — 0.0% | |
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| Leisure Facilities — 0.3% | |
| Cedar Fair, L.P. / Canada’s Wonderland Co. / Magnum Management Corp. / Millennium Op | | | |
| Cedar Fair, L.P. / Canada’s Wonderland Co. / Magnum Management Corp. / Millennium Op | | | |
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| SeaWorld Parks & Entertainment, Inc. (a) | | | |
| Six Flags Entertainment Corp. / Six Flags Theme Parks, Inc. (a) | | | |
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| Life Sciences Tools & Services — 1.1% | |
| Avantor Funding, Inc. (a) | | | |
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| Managed Health Care — 1.4% | |
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| Molina Healthcare, Inc. (a) | | | |
| Molina Healthcare, Inc. (a) | | | |
| Molina Healthcare, Inc. (a) | | | |
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| Metal, Glass & Plastic Containers — 2.9% | |
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| Owens-Brockway Glass Container, Inc. (a) | | | |
| Owens-Brockway Glass Container, Inc. (a) | | | |
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See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Movies & Entertainment — 0.2% | |
| Live Nation Entertainment, Inc. (a) | | | |
| WMG Acquisition Corp. (a) | | | |
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| Office Services & Supplies — 0.5% | |
| Shift4 Payments LLC / Shift4 Payments Finance Sub, Inc. (a) | | | |
| Packaged Foods & Meats — 3.8% | |
| BellRing Brands, Inc. (a) | | | |
| Fiesta Purchaser, Inc. (a) | | | |
| Fiesta Purchaser, Inc. (a) | | | |
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| Kraft Heinz Foods Co. (a) | | | |
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| Lamb Weston Holdings, Inc. (a) | | | |
| Lamb Weston Holdings, Inc. (a) | | | |
| Performance Food Group, Inc. (a) | | | |
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| Paper & Plastic Packaging Products & Materials — 3.7% | |
| Graham Packaging Co., Inc. (a) | | | |
| Graphic Packaging International LLC (a) | | | |
| Graphic Packaging International LLC (a) | | | |
| Graphic Packaging International LLC (a) | | | |
| Graphic Packaging International LLC (a) | | | |
| Pactiv Evergreen Group Issuer, Inc. / Pactiv Evergreen Group Issuer LLC (a) | | | |
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| Sealed Air Corp. / Sealed Air Corp. U.S. (a) | | | |
| Sealed Air Corp. / Sealed Air Corp. U.S. (a) | | | |
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| Personal Care Products — 0.1% | |
| Prestige Brands, Inc. (a) | | | |
| Prestige Brands, Inc. (a) | | | |
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| Charles River Laboratories International, Inc. (a) | | | |
| Charles River Laboratories International, Inc. (a) | | | |
| Charles River Laboratories International, Inc. (a) | | | |
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| Rail Transportation — 0.3% | |
| Genesee & Wyoming, Inc. (a) | | | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Real Estate Services — 0.3% | |
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| Research & Consulting Services — 0.7% | |
| Clarivate Science Holdings Corp. (a) | | | |
| Clarivate Science Holdings Corp. (a) | | | |
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| Dun & Bradstreet (The) Corp. (a) | | | |
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| Raising Cane’s Restaurants LLC (a) | | | |
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| Security & Alarm Services — 0.3% | |
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| Specialized Consumer Services — 0.4% | |
| Aramark Services, Inc. (a) | | | |
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| Specialty Chemicals — 0.0% | |
| Axalta Coating Systems LLC (a) | | | |
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| Crowdstrike Holdings, Inc. | | | |
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| SS&C Technologies, Inc. (a) | | | |
| SS&C Technologies, Inc. (a) | | | |
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| Technology Distributors — 0.0% | |
| CDW LLC / CDW Finance Corp. | | | |
| Trading Companies & Distributors — 3.4% | |
| American Builders & Contractors Supply Co., Inc. (a) | | | |
| American Builders & Contractors Supply Co., Inc. (a) | | | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CORPORATE BONDS AND NOTES (Continued) |
| Trading Companies & Distributors (Continued) | |
| | | | |
| | | | |
| United Rentals North America, Inc. | | | |
| United Rentals North America, Inc. (a) | | | |
| | | | |
| | |
| Transaction & Payment Processing Services — 0.1% | |
| Boost Newco Borrower LLC (a) | | | |
| Wireless Telecommunication Services — 0.3% | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| Total Corporate Bonds and Notes | |
| | |
FOREIGN CORPORATE BONDS AND NOTES — 11.4% |
| Application Software — 3.0% | |
| ION Trading Technologies S.A.R.L. (a) | | | |
| | | | |
| | | | |
| | | | |
| | |
| Automotive Parts & Equipment — 1.2% | |
| Clarios Global, L.P. / Clarios US Finance Co. (a) | | | |
| | |
| | | | |
| | | | |
| | |
| | |
| Virgin Media Finance PLC (a) | | | |
| | |
| Flutter Treasury Designated Activity Co. (a) | | | |
| Data Processing & Outsourced Services — 0.3% | |
| Paysafe Finance PLC / Paysafe Holdings US Corp. (a) | | | |
| Electrical Components & Equipment — 0.0% | |
| Sensata Technologies B.V. (a) | | | |
| Environmental & Facilities Services — 1.4% | |
| GFL Environmental, Inc. (a) | | | |
| GFL Environmental, Inc. (a) | | | |
| GFL Environmental, Inc. (a) | | | |
| GFL Environmental, Inc. (a) | | | |
| GFL Environmental, Inc. (a) | | | |
| | |
| Integrated Telecommunication Services — 0.6% | |
| Altice France Holding S.A. (a) | | | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
FOREIGN CORPORATE BONDS AND NOTES (Continued) |
| Integrated Telecommunication Services (Continued) | |
| | | | |
| | | | |
| | | | |
| | |
| IT Consulting & Other Services — 0.8% | |
| | | | |
| Metal, Glass & Plastic Containers — 0.9% | |
| Trivium Packaging Finance B.V. (a) | | | |
| Research & Consulting Services — 0.1% | |
| | | | |
| | |
| 1011778 BC ULC / New Red Finance, Inc. (a) | | | |
| 1011778 BC ULC / New Red Finance, Inc. (a) | | | |
| | |
| Security & Alarm Services — 0.5% | |
| Garda World Security Corp. (a) | | | |
| Garda World Security Corp. (a) | | | |
| Garda World Security Corp. (a) | | | |
| Garda World Security Corp. (a) | | | |
| | |
| Specialized Consumer Services — 0.3% | |
| Belron UK Finance PLC (a) | | | |
| Specialty Chemicals — 0.1% | |
| Axalta Coating Systems LLC / Axalta Coating Systems Dutch Holding B B.V. (a) | | | |
| Total Foreign Corporate Bonds and Notes | |
| | |
| | | | |
SENIOR FLOATING-RATE LOAN INTERESTS — 10.5% |
| Application Software — 3.9% | |
| Darktrace PLC (Leia Finco US LLC), Term Loan (Second Lien), 3 Mo. CME Term SOFR + 5.25%, 0.00% Floor | | | |
| Genesys Cloud Services Holding II LLC, Combined Term Loan B, 1 Mo. CME Term SOFR + 3.00%, 0.75% Floor | | | |
| Inmar, Inc., Term Loan B, 1 Mo. CME Term SOFR + 5.00%, 0.50% Floor | | | |
| Inmar, Inc., Term Loan B, 3 Mo. CME Term SOFR + 5.00%, 0.50% Floor | | | |
| Internet Brands, Inc. (WebMD/MH Sub I LLC), Term Loan (Second Lien), 1 Mo. CME Term SOFR + 6.25%, 0.00% Floor | | | |
| Ivanti Software, Inc., Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.25%, 0.75% Floor | | | |
| LogMeIn, Inc. (GoTo Group, Inc.), First Out Term Loan (First Lien), 1 Mo. CME Term SOFR + CSA + 4.75%, 0.00% Floor | | | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Application Software (Continued) | |
| LogMeIn, Inc. (GoTo Group, Inc.), Second Out Term Loan (First Lien), 1 Mo. CME Term SOFR + CSA + 4.75%, 0.00% Floor | | | |
| Solera Holdings, Inc. (Polaris Newco), Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.00%, 0.50% Floor | | | |
| | |
| Asset Management & Custody Banks — 0.4% | |
| Edelman Financial Engines Center LLC, Term Loan (Second Lien), 1 Mo. CME Term SOFR + 5.25%, 0.00% Floor | | | |
| Data Processing & Outsourced Services — 0.2% | |
| Consilio (Skopima Consilio Parent LLC), Initial Term Loan, 1 Mo. CME Term SOFR + CSA + 4.00%, 0.50% Floor | | | |
| Electronic Equipment & Instruments — 0.4% | |
| Verifone Systems, Inc., Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.00%, 0.00% Floor | | | |
| Health Care Facilities — 0.5% | |
| IVC Evidensia (VetStrategy Canada/IVC Acquisition Midco Ltd.), Facility B10, 3 Mo. CME Term SOFR + 4.75%, 0.50% Floor | | | |
| Health Care Technology — 1.2% | |
| Cotiviti, Inc. (Verscend), Fixed Rate Term Loan, Fixed Rate at 7.63% | | | |
| Mediware (Wellsky/Project Ruby Ultimate Parent Corp.), Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.25%, 0.75% Floor | | | |
| Waystar Technologies, Inc., Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.00% Floor | | | |
| WS Audiology (Auris Lux III S.A.R.L.), USD Term Loan B6, 6 Mo. CME Term SOFR + CSA + 3.75%, 0.00% Floor | | | |
| | |
| Industrial Machinery & Supplies & Components — 0.1% | |
| Filtration Group Corp., 2021 Incremental Term Loan B, 1 Mo. CME Term SOFR + CSA + 3.50%, 0.50% Floor | | | |
| | |
| OneDigital Borrower LLC, Term Loan (Second Lien), 1 Mo. CME Term SOFR + 5.25%, 0.50% Floor | | | |
| Truist Insurance Holdings LLC (McGriff/Panther Escrow), Term Loan (Second Lien), 3 Mo. CME Term SOFR + 4.75%, 0.00% Floor | | | |
| | |
| Integrated Telecommunication Services — 0.2% | |
| Numericable (Altice France S.A. or SFR), Term Loan B-13, 6 Mo. Synthetic USD LIBOR + 4.00%, 0.00% Floor | | | |
| Radiate Holdco LLC (Astound), Amendment No. 6 Term Loan, 1 Mo. CME Term SOFR + CSA + 3.25%, 0.75% Floor | | | |
| | |
| IT Consulting & Other Services — 1.3% | |
| Gainwell Acquisition Corp. (fka Milano), Term Loan B, 3 Mo. CME Term SOFR + CSA + 4.00%, 0.75% Floor | | | |
| Life Sciences Tools & Services — 0.4% | |
| Syneos Health, Inc. (Star Parent), Term Loan B, 3 Mo. CME Term SOFR + 3.75%, 0.00% Floor | | | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| Metal, Glass & Plastic Containers — 0.3% | |
| Intertape Polymer Group, Inc. (Iris Holding, Inc.), Initial Term Loan, 3 Mo. CME Term SOFR + CSA + 4.75%, 0.50% Floor | | | |
| ProAmpac PG Borrower LLC, 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 4.00%, 0.75% Floor | | | |
| TricorBraun, Inc., Initial Term Loan, 1 Mo. CME Term SOFR + CSA + 3.25%, 0.50% Floor | | | |
| | |
| | |
| Whatabrands LLC, 2024 Refi Term Loan B, 1 Mo. CME Term SOFR + 2.75%, 0.50% Floor | | | |
| Security & Alarm Services — 0.1% | |
| Garda World Security Corp., Term Loan B, 1 Mo. CME Term SOFR + 3.50%, 0.00% Floor | | | |
| | |
| Idera, Inc. (Flash Charm), Term Loan (Second Lien), 3 Mo. CME Term SOFR + CSA + 6.75%, 0.75% Floor | | | |
| Trading Companies & Distributors — 0.2% | |
| Veritiv Corp. (Verde Purchaser LLC), 2024 Refi Term Loan B, 3 Mo. CME Term SOFR + 4.50%, 0.00% Floor | | | |
| Total Senior Floating-Rate Loan Interests | |
| | |
| | |
|
| | |
| | |
| | |
MONEY MARKET FUNDS — 3.5% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (h) | |
| | |
|
|
| Total Investments — 100.2% | |
| | |
| Net Other Assets and Liabilities — (0.2)% | |
| | |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $1,179,600,076 or 73.0% of net assets. |
| Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2024. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Portfolio of Investments (Continued)October 31, 2024 | Senior Floating-Rate Loan Interests (“Senior Loans”) in which the Fund invests 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 SOFR obtained from the U.S. Department of the Treasury’s Office of Financial Research or another major financial institution, (ii) the lending rate offered by one or more major European banks, such as the synthetic LIBOR, (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 SOFR or synthetic LIBOR floor that establishes a minimum SOFR or synthetic LIBOR rate. When a range of rates is disclosed, the Fund holds more than one contract within the same tranche with identical SOFR or synthetic LIBOR period, spread and floor, but different SOFR or synthetic LIBOR reset dates. |
| 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. |
| Non-income producing security. |
| 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). |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – Chicago Mercantile Exchange |
| – Credit Spread Adjustment |
| – London Interbank Offered Rate |
| – Secured Overnight Financing Rate |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Corporate Bonds and Notes* | | | | |
Foreign Corporate Bonds and Notes* | | | | |
Senior Floating-Rate Loan Interests* | | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Statement of Assets and Liabilities
October 31, 2024
| |
| |
| |
| |
| |
Investment securities sold | |
| |
| |
|
| |
| |
Investment securities purchased | |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
| |
|
| |
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on investments | |
Net change in unrealized appreciation (depreciation) on investments | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Statements of Changes in Net Assets
| | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net expenses to average net assets excluding interest expense | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (c) | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Tactical High Yield ETF (HYLS)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
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 Nasdaq, Inc. (“Nasdaq”). The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The 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 Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Corporate bonds, corporate notes, 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:
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 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.
Equity securities traded in an over-the-counter market are valued at the close price or the 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 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)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
(1)
The terms “security” and “securities” used throughout the Notes to Financial Statements include Senior Loans.
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the 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);
14)
the borrower’s/issuer’s competitive position within the industry;
15)
the borrower’s/issuer’s ability to access additional liquidity through public and/or private markets; and
16)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
As of October 1, 2024, the United Kingdom’s Financial Conduct Authority ceased all London Interbank Offered Rates (“LIBOR”) publications. Transitioning to the Secured Overnight Financing Rate (“SOFR”), or any alternative reference rate, may affect the value, liquidity or return on certain investments previously based on LIBOR.
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 until payment is made. At October 31, 2024, the Fund held $2,699,533 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund had no forward purchase commitments.
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 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, 2024.
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, 2024, the Fund had no borrowings. 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. Free Credit Interest Balances are charged at a rate equal to Overnight Bank Funding Rate less 40 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, 2024, the Fund had no debit margin balance. For the fiscal year ended October 31, 2024, the Fund had margin interest expense of $1,517,359, as shown on the Statement of Operations. For the fiscal year ended October 31, 2024, the average margin balance and interest rates were $59,212,880 and 6.07%, respectively.
The Fund may enter into credit default swap contracts (“CDS”) for investment purposes or to manage credit risk. A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. Swap agreements may be privately negotiated in the over-the-counter market as a bilateral contract or centrally cleared.
A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value,” of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its Counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. In the event of a default by the Counterparty, the Fund will seek withdrawal of this collateral and may incur certain costs exercising its right with respect to the collateral. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances.
Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Cash deposited is segregated and included in “Cash segregated as collateral for open swap contracts” on the Statement of Assets and Liabilities. The daily change in valuation of centrally cleared swaps is included in “variation margin on swaps payable” in the Statement of Assets and Liabilities.
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 Payments received from (paid to) the Counterparty, including at termination, are recorded as “net realized gain (loss) on swap contracts” on the Statement of Operations.
CDS contracts are marked to market daily based upon quotations from brokers, market makers or an independent pricing service and the change in value, if any, is recorded as unrealized appreciation (depreciation). For a CDS contract sold by the Fund, payment of the agreed upon amount made by the Fund in the event of default of the referenced debt obligation is recorded as the cost of the reference debt obligation purchased/received. The Fund held no swaps contracts during the year ended October 31, 2024.
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. Unfunded loan commitments are categorized as Level 2 within the fair value hierarchy. 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, 2024, the Fund had no unfunded loan commitments.
The Fund invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of October 31, 2024, the Fund held a restricted security 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.
| Amount is less than 0.01%. |
G. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions 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, 2024 and 2023 was as follows:
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $291,964,006 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3). The Fund is subject to an interest expense due to the costs associated with the Fund’s short positions in securities.
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 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, 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 annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments, investments sold short and in-kind transactions, were $677,513,087 and $728,239,786, respectively. The cost of purchases to cover short sales and the proceeds of short sales were $0 and $0, respectively.
For the fiscal year ended October 31, 2024, the Fund had no in-kind transactions.
Effective February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund III, First Trust Series Fund and First Trust Variable Insurance Trust, entered into a new Credit Agreement with BNY as administrative agent for a group of lenders. The borrowing rate is the higher of the federal funds effective rate and the adjusted daily simple SOFR rate plus 1.00%. The commitment amount under the credit agreement is $620 million and such commitment amount may be increased up to $700 million with the consent of one or more lenders. BNY charges on behalf of the lenders a commitment fee of 0.20% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. Prior to
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Series Fund and First Trust Variable Insurance Trust, had a $200 million Credit Agreement with BNY. BNY charged a commitment fee of 0.25% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans. First Trust allocates the commitment fee and agency fee amongst the funds that have access to the credit line. To the extent that the Fund accesses the credit line, there would also be an interest fee charged. The Fund did not have any borrowings outstanding during the fiscal year ended October 31, 2024.
6. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Notes to Financial Statements (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 9. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
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, including the portfolio of investments, of First Trust Tactical High Yield ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian, agent banks and brokers; when replies were not received from agent banks and brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 23, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s 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
Other Information (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 (Unaudited) 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 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objectives, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund outperformed the Performance Universe median and underperformed the benchmark index for the one-year period ended December 31, 2023 and underperformed the Performance Universe median and the benchmark index for the three-, five- and ten-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its
Other Information (Continued)
First Trust Tactical High Yield ETF (HYLS)October 31, 2024 (Unaudited) 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.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust 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, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $747,397. This figure is comprised of $34,906 paid (or to be paid) in fixed compensation and $712,491 paid (or to be paid) in variable compensation. There were a total of 33 beneficiaries of the remuneration described above. Those amounts include $360,718 paid (or to be paid) to senior management of First Trust Advisors L.P. and $386,679 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.
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG) |
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Portfolio of InvestmentsOctober 31, 2024
| | |
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| Aerospace & Defense — 1.5% | |
| General Dynamics Corp. (a) | |
| Air Freight & Logistics — 3.0% | |
| C.H. Robinson Worldwide, Inc. (a) | |
| Expeditors International of Washington, Inc. (a) | |
| | |
| | |
| Brown-Forman Corp., Class B (a) | |
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| | |
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| Franklin Resources, Inc. (a) | |
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| T. Rowe Price Group, Inc. (a) | |
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| Air Products and Chemicals, Inc. (a) | |
| | |
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| | |
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| Sherwin-Williams (The) Co. (a) | |
| | |
| Commercial Services & Supplies — 1.5% | |
| | |
| Consumer Staples Distribution & Retail — 4.6% | |
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| | |
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| Containers & Packaging — 1.6% | |
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| | |
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| Electric Utilities — 1.5% | |
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| Electrical Equipment — 1.5% | |
| | |
| | |
| Archer-Daniels-Midland Co. (a) | |
| | |
See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Food Products (Continued) | |
| J.M. Smucker (The) Co. (a) | |
| McCormick & Co., Inc. (a) | |
| | |
| | |
| | |
| Health Care Equipment & Supplies — 4.5% | |
| | |
| Becton Dickinson & Co. (a) | |
| | |
| | |
| Health Care Providers & Services — 1.5% | |
| Cardinal Health, Inc. (a) | |
| Hotels, Restaurants & Leisure — 1.5% | |
| | |
| Household Products — 7.5% | |
| Church & Dwight Co., Inc. (a) | |
| | |
| Colgate-Palmolive Co. (a) | |
| | |
| Procter & Gamble (The) Co. (a) | |
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| | |
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| Cincinnati Financial Corp. (a) | |
| | |
| | |
| International Business Machines Corp. (a) | |
| Life Sciences Tools & Services — 1.4% | |
| West Pharmaceutical Services, Inc. (a) | |
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| Illinois Tool Works, Inc. (a) | |
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| Stanley Black & Decker, Inc. (a) | |
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| Consolidated Edison, Inc. (a) | |
| Oil, Gas & Consumable Fuels — 3.0% | |
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| | |
| | |
See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Personal Care Products — 1.5% | |
| | |
| | |
| | |
| Professional Services — 1.5% | |
| Automatic Data Processing, Inc. (a) | |
| | |
| Essex Property Trust, Inc. (a) | |
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| Federal Realty Investment Trust (a) | |
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| Roper Technologies, Inc. (a) | |
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| Trading Companies & Distributors — 3.2% | |
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MONEY MARKET FUNDS — 0.1% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (b) | |
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| Total Investments — 100.3% | |
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| | | | | |
|
| Call Options Written — (0.3)% | |
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| Air Products and Chemicals, Inc. | | | | |
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| Archer-Daniels-Midland Co. | | | | |
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| Automatic Data Processing, Inc. | | | | |
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| C.H. Robinson Worldwide, Inc. | | | | |
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| | | | | |
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See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
WRITTEN OPTIONS (Continued) |
| Call Options Written (Continued) | |
| | | | | |
| Church & Dwight Co., Inc. | | | | |
| Cincinnati Financial Corp. | | | | |
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| Consolidated Edison, Inc. | | | | |
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| Essex Property Trust, Inc. | | | | |
| Expeditors International of Washington, Inc. | | | | |
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| Federal Realty Investment Trust | | | | |
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| Illinois Tool Works, Inc. | | | | |
| International Business Machines Corp. | | | | |
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| Procter & Gamble (The) Co. | | | | |
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| Sherwin-Williams (The) Co. | | | | |
| Stanley Black & Decker, Inc. | | | | |
| | | | | |
| T. Rowe Price Group, Inc. | | | | |
| | | | | |
| | | | | |
See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
WRITTEN OPTIONS (Continued) |
| Call Options Written (Continued) | |
| | | | | |
| West Pharmaceutical Services, Inc. | | | | |
| | |
| (Premiums received $21,095,955) | |
| Net Other Assets and Liabilities — 0.0% | |
| | |
| All or a portion of this security is held as collateral for the options written. At October 31, 2024, the value of these securities amounts to $689,532,417. |
| Rate shown reflects yield as of October 31, 2024. |
| This investment is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, investments noted as such are valued at $(68,713) or (0.0)% of net assets. |
Abbreviations throughout the Portfolio of Investments: |
| – Real Estate Investment Trusts |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Statement of Assets and Liabilities
October 31, 2024
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Investment securities sold | |
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|
| |
Options contracts written, at value | |
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Investment securities purchased | |
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|
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Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
Premiums received on options contracts written | |
See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Statement of Operations
For the Year Ended October 31, 2024
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|
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NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
| |
| |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) on: | |
| |
Written options contracts | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Statements of Changes in Net Assets
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Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
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CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
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Shares outstanding, end of period | | |
See Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
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Net asset value, end of period | | | | | |
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|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (e) | | | | | |
| Based on average shares outstanding. |
| 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. |
| Amount represents less than $0.01. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (the “Fund”), a diversified series of the Trust, which trades under the ticker “KNG” on Cboe BZX Exchange, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The 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® 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 securities that comprise the Index. 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 8% over the annual dividend yield of the S&P 500® Index and a secondary goal of generating capital appreciation.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. 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 Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
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 ask price, if both are available. Options contracts traded in the over-the-counter market may be valued as follows, depending on the market in which the investment trades: (1) the mean of the most recent bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Notes to Financial Statements (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 Shares of open-end funds are valued based on NAV per share.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the 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;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date.
Notes to Financial Statements (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 C. Options Contracts
The Fund will employ a “partial covered call strategy,” meaning that covered calls will be typically written on a notional value less than the total 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, however, the notional value of the covered calls will not exceed 100% of the value of each underlying Aristocrat Stock. 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 of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on 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, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the
Notes to Financial Statements (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had no non-expiring 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, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
First Trust is responsible for the expenses of the Fund including the cost of transfer agency, 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
Notes to Financial Statements (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Vest Financial LLC (“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 Vest, First Trust will supervise Vest and its management of the investment of the Fund’s assets and will pay Vest for its services as the Fund’s sub-advisor. Vest receives a sub-advisory fee equal to 0.20% of the average daily net assets of the Fund. 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 (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $5,317,773,711 and $5,338,440,029, respectively.
For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales were $2,191,246,841 and $391,632,802, respectively.
5. Derivative Transactions
The following table presents the types of derivatives held by the Fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
Notes to Financial Statements (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
| |
Net realized gain (loss) on written options contracts | |
Net change in unrealized appreciation (depreciation) on written options contracts | |
During the fiscal year ended October 31, 2024, the premiums for written options contracts opened were $185,911,773 and the premiums for written options contracts closed, exercised and expired were $172,712,829.
6. Offsetting on the Statement of 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 Statement of Assets and Liabilities subject to offsetting in the Fund as of the end of the reporting period:
| Gross
Amount of
Recognized
Liabilities | Gross Amount
Offset in the
Statement of
Assets and
Liabilities | Net Amount
of Liabilities
Presented in the
Statement of
Assets and
Liabilities | Gross Amount Not Offset
in the Statement of
Assets and Liabilities | |
| |
| | | | | | |
| | | | | | |
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.
7. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of
Notes to Financial Statements (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the four years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. The financial highlights for the year ended October 31, 2020 were audited by other auditors whose report dated December 23, 2020, expressed an unqualified opinion on such financial highlights.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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 Vest S&P 500® Dividend Aristocrats 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 Vest Financial LLC (the “Sub-Advisor”). The Board approved the continuation of the Agreements for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliates, First Trust Portfolios L.P. (“FTP”) and First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the
Other Information (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 (Unaudited) Fund, including the oversight of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board 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 schedule payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for 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 schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information for periods ended December 31, 2023 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. The Board noted that during 2023, it approved changes to the Fund’s investment strategy and that, effective July 24, 2023, the Fund’s underlying index increased its target income level from approximately 3% to approximately 8% over the annual dividend yield of the S&P 500 Index and the 20% notional value cap on covered call options written by the Fund’s underlying index was removed. 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 to that of the Performance Universe and to that of a broad-based benchmark index. However, 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.
Other Information (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 (Unaudited) On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. 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 noted that the Advisor pays the Sub-Advisor from the unitary fee and its understanding that the Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Fund, 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.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (the “Fund”), in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the “Directive”). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust’s interpretation of currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $449,205. This figure is comprised of $19,761 paid (or to be paid) in fixed compensation and $429,444 paid (or to be paid) in variable compensation. There were a total of 26 beneficiaries of the remuneration described above. Those amounts include
Other Information (Continued)
FT Vest S&P 500® Dividend Aristocrats Target Income ETF® (KNG)October 31, 2024 (Unaudited) $224,399 paid (or to be paid) to senior management of First Trust Advisors L.P. and $224,806 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Fund (collectively, “Code Staff”).
Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust’s remuneration policy (the “Remuneration Policy”) which is determined and implemented by First Trust’s senior management. The Remuneration Policy reflects First Trust’s ethos of good governance and encapsulates the following principal objectives:
i.
to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure;
ii.
to promote sound and effective risk management consistent with the risk profiles of the funds managed by First Trust; and
iii.
to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the funds managed by First Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Fund qualify for the dividends received deduction available to corporations and are hereby designated as qualified dividend income:
Dividends Received Deduction | Qualified Dividend Income |
| |
For the fiscal year ended October 31, 2024, the amount of long-term capital gain designated by the Fund was $51,991,373, which is taxable at the applicable capital gain tax rates for federal income tax purposes.
A portion of the Fund’s 2024 ordinary dividends (including short-term capital gains) paid to shareholders during the fiscal year ended October 31, 2024, 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.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
First Trust Long Duration Opportunities ETF (LGOV) |
First Trust Long Duration Opportunities ETF (LGOV)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Long Duration Opportunities ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Long Duration Opportunities ETF (LGOV)Portfolio of InvestmentsOctober 31, 2024
| | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 78.0% |
| Collateralized Mortgage Obligations — 49.7% | |
| | | | |
| Series 2024-1, Class A2 (a) (b) | | | |
| Federal Home Loan Mortgage Corporation Seasoned Loans Structured Transaction Trust | | | |
| Series 2024-2, Class A2 (a) (c) | | | |
| Federal Home Loan Mortgage Corporation | | | |
| Series 2015-4471, Class JB | | | |
| Series 2015-4499, Class CZ | | | |
| Series 2017-4680, Class YZ | | | |
| Series 2017-4738, Class TY | | | |
| Series 2017-4745, Class CZ | | | |
| Series 2019-4924, Class XB | | | |
| Series 2021-5135, Class BZ | | | |
| Series 2021-5140, Class ZD | | | |
| Series 2021-5179, Class GZ | | | |
| Series 2022-5202, Class ZN | | | |
| Series 2022-5204, Class HZ | | | |
| Series 2022-5213, Class DB | | | |
| Series 2023-5299, Class ZA | | | |
| Federal National Mortgage Association | | | |
| | | | |
| Series 2012-134, Class ZC | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2023-44, Class PO, PO | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2024-26, Class PO, PO | | | |
| Government National Mortgage Association | | | |
| | | | |
| | | | |
| | | | |
| Series 2015-164, Class MZ | | | |
| Series 2015-168, Class GI, IO | | | |
| | | | |
| Series 2016-111, Class PB | | | |
| | | | |
| | | | |
| Series 2022-124, Class MY | | | |
| Series 2022-128, Class PN | | | |
| Series 2022-137, Class JY | | | |
| | | | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Government National Mortgage Association (Continued) | | | |
| Series 2023-164, Class AZ | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| Commercial Mortgage-Backed Securities — 15.6% | |
| Federal Home Loan Mortgage Corporation Multifamily Structured Pass Through Certificates | | | |
| Series 2018-K155, Class A3 | | | |
| Series 2018-K157, Class A3 | | | |
| Series 2019-K095, Class XAM, IO (b) | | | |
| Series 2019-K1510, Class A3 | | | |
| Series 2019-K1511, Class X1, IO (b) | | | |
| Series 2019-K1512, Class A3 | | | |
| Series 2019-K1514, Class A2 | | | |
| Series 2020-K111, Class XAM, IO (b) | | | |
| Series 2020-K120, Class XAM, IO (b) | | | |
| Series 2020-K1515, Class X1, IO (b) | | | |
| Series 2020-K1516, Class X1, IO (b) | | | |
| Series 2020-K1517, Class A2 | | | |
| Series 2021-K129, Class X1, IO (b) | | | |
| Series 2021-K131, Class XAM, IO (b) | | | |
| Series 2021-K1519, Class A2 | | | |
| Series 2022-K140, Class XAM, IO (b) | | | |
| Series 2022-K143, Class XAM, IO (b) | | | |
| Series 2022-K145, Class A2 | | | |
| Series 2022-K146, Class A2 | | | |
| Series 2023-K153, Class X1, IO (b) | | | |
| Series 2023-KG08, Class A2 | | | |
| Series 2024-K164, Class A2 | | | |
| Series 2024-K165, Class XAM, IO (b) (e) | | | |
| Federal Home Loan Mortgage Corporation Multifamily WI Certificates | | | |
| Series 2024-K165, Class A2 | | | |
| Federal National Mortgage Association Alternative Credit Enhancement Securities | | | |
| Series 2024-M3, Class Z (b) | | | |
| Government National Mortgage Association | | | |
| Series 2020-159, Class Z (f) | | | |
| Series 2020-197, Class Z (b) | | | |
| Series 2021-4, Class Z (b) | | | |
| Series 2021-28, Class Z (b) | | | |
| | |
| Pass-Through Securities — 12.7% | |
| Federal Home Loan Mortgage Corporation |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Pass-Through Securities (Continued) | |
| Federal National Mortgage Association |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| Total U.S. Government Agency Mortgage-Backed Securities | |
| | |
U.S. GOVERNMENT BONDS AND NOTES — 20.5% |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total U.S. Government Bonds and Notes | |
| | |
U.S. GOVERNMENT AGENCY SECURITIES — 4.2% |
| Tennessee Valley Authority | | | |
| Tennessee Valley Authority | | | |
| Tennessee Valley Authority | | | |
| Total U.S. Government Agency Securities | |
| | |
| | |
EXCHANGE-TRADED FUNDS — 0.1% |
| | |
| First Trust Intermediate Government Opportunities ETF (g) | |
| | |
MONEY MARKET FUNDS — 1.7% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (h) | |
| | |
| Total Investments — 104.5% | |
| | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
|
| Call Options Purchased — 0.0% | |
| U.S. 10-Year Treasury Futures Call | | | | |
| | | | | |
|
| Call Options Written — (0.0)% | |
| U.S. 10-Year Treasury Futures Call | | | | |
| (Premiums received $34,894) | | | | |
| Put Options Written — (0.2)% | |
| | | | | |
| U.S. 2-Year Treasury Futures Put | | | | |
| U.S. 2-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| Total Put Options Written | |
| (Premiums received $824,190) | |
| | |
| (Premiums received $859,084) | |
| Net Other Assets and Liabilities — (4.3)% | |
| | |
Futures Contracts at October 31, 2024 (See Note 2D - Futures Contracts in the Notes to Financial Statements):
| | | | Unrealized
Appreciation
(Depreciation)/
Value |
U.S. 2-Year Treasury Notes | | | | |
U.S. 5-Year Treasury Notes | | | | |
U.S. 10-Year Treasury Notes | | | | |
| | | | |
| | | | |
U.S. Treasury Long Bond Futures | | | | |
Ultra 10-Year U.S. Treasury Notes | | | | |
Ultra U.S. Treasury Bond Futures | | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Portfolio of Investments (Continued)October 31, 2024 | 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, 2024, securities noted as such amounted to $11,926,743 or 1.9% of net assets. |
| Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment’s underlying collateral. The interest rate resets periodically. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $8,660,465 or 1.4% of net assets. |
| |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
| 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. |
| Investment in an affiliated fund. |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – Interest-Only Security - Principal amount shown represents par value on which interest payments are based |
| – Principal-Only Security |
| – Secured Overnight Financing Rate |
| – To-Be-Announced Security |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
U.S. Government Agency Mortgage-Backed Securities | | | | |
U.S. Government Bonds and Notes | | | | |
U.S. Government Agency Securities | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Portfolio of Investments (Continued)October 31, 2024 |
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Statement of Assets and Liabilities
October 31, 2024
| |
Investments, at value - Unaffiliated | |
Investments, at value - Affiliated | |
Total investments, at value | |
Options contracts purchased, at value | |
Cash segregated as collateral | |
| |
Investment securities sold | |
| |
| |
| |
|
| |
Options contracts written, at value | |
| |
Investment securities purchased | |
| |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
Investments, at cost - Unaffiliated | |
Investments, at cost - Affiliated | |
Total investments, at cost | |
Premiums paid on options contracts purchased | |
Premiums received on options contracts written | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
Investments - Unaffiliated | |
| |
Purchased options contracts | |
Written options contracts | |
| |
| |
Net increase from payment by the advisor | |
Net change in unrealized appreciation (depreciation) on: | |
Investments - Unaffiliated | |
| |
Purchased options contracts | |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Statements of Changes in Net Assets
| | |
| | |
Net investment income (loss) | | |
| | |
Net increase from payment by the advisor | | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets (d) | | | | | |
Ratio of net investment income (loss) to average net assets (d) | | | | | |
Portfolio turnover rate (f) | | | | | |
| Based on average shares outstanding. |
| The Fund received a payment from the advisor in the amount of $7,880, which represents less than $0.01 per share. Since the advisor reimbursed the Fund, there was no effect on the Fund’s total return. |
| 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. |
| Ratio of total expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| Includes excise tax. If this excise tax expense was not included, the expense ratio would have been 0.65%. |
| 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. |
| The portfolio turnover rate not including mortgage dollar rolls was 69%, 69% and 118% for the years ended October 31, 2022, October 31, 2021 and October 31, 2020, respectively. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Long Duration Opportunities ETF (the “Fund”), a diversified series of the Trust, which trades under the ticker “LGOV” on NYSE Arca, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The 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. Under normal market conditions, the portfolio managers will manage the Fund’s portfolio to have 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.
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
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 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:
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:
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.
ETFs and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Exchange-traded futures contracts are valued at the end of the day settlement 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 ask price, if both are available. Options contracts traded in the over-the-counter market may be valued as follows, depending on the market in which the investment trades: (1) the mean of the most recent bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option.
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
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the prospects for the borrower’s/issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry (for corporate debt only); and
14)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
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
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 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, 2024, the Fund held $2,691,047 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund had no forward purchase commitments.
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 a 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.
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statement of Operations. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are included in “Variation margin” payable or receivable on the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments.
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, exchange-listed U.S. Treasury futures contracts and exchange-listed options on secured overnight financing rate 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
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 long position (call) or short position (put) in a futures contract at a specified exercise price prior to the expiration of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. Prior to exercise or expiration, a futures option contract may be closed out by an offsetting purchase or sale of a futures option of the same series. When the Fund writes (sells) an option, an amount equal to the premium received by the Fund is included in “Options contracts written, at value” on the Statement of Assets and Liabilities. When the Fund purchases (buys) an option, the premium paid represents the cost of the option, which is included in “Premiums paid on options contracts purchased” on the Statement of Assets and Liabilities. Options are marked-to-market daily and their value is affected by changes in the value of the underlying security, changes in interest rates, changes in the actual or perceived volatility of the securities markets and the underlying securities, and the remaining time to the option’s expiration. The value of options may also be adversely affected if the market for the options becomes less liquid or the trading volume diminishes.
The Fund uses options on futures contracts in connection with hedging strategies. Generally, these strategies are applied under the same market and market sector conditions in which the Fund uses put and call options on securities. The purchase of put options on futures contracts is analogous to the purchase of puts on securities so as to hedge the Fund’s securities holdings against the risk of declining market prices. The writing of a call option or the purchasing of a put option on a futures contract constitutes a partial hedge against declining prices of securities which are deliverable upon exercise of the futures contract. If the price at expiration of a written call option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund’s holdings of securities. If the price when the option is exercised is above the exercise price, however, the Fund will incur a loss, which may be offset, in whole or in part, by the increase in the value of the securities held by the Fund that were being hedged. Writing a put option or purchasing a call option on a futures contract serves as a partial hedge against an increase in the value of the securities the Fund intends to acquire. Realized gains and losses on written options are included in “Net realized gain (loss) on written options contracts” on the Statement of Operations. Realized gains and losses on purchased options are included in “Net realized gain (loss) on purchased options contracts” on the Statement of Operations.
The Fund is required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option and other futures positions held by the Fund. The Fund will pledge in a segregated account at the Fund’s custodian, liquid assets, such as cash, U.S. government securities or other high-grade liquid debt obligations equal in value to the amount due on the underlying obligation. Such segregated assets will be marked-to-market daily, and additional assets will be pledged in the segregated account whenever the total value of the pledged assets falls below the amount due on the underlying obligation.
The risks associated with the use of options on future contracts include the risk that the Fund may close out its position as a writer of an option only if a liquid secondary market exists for such options, which cannot be assured. The Fund’s successful use of options on futures contracts depends on the Advisor’s ability to correctly predict the movement in prices on futures contracts and the underlying instruments, which may prove to be incorrect. In addition, there may be imperfect correlation between the instruments being hedged and the futures contract subject to option.
F. Interest-Only Securities
An interest-only security (“IO Security”) is the interest-only portion of a mortgage-backed security that receives some or all of the interest portion of the underlying mortgage-backed security and little or no principal. A reference principal value called a notional value is used to calculate the amount of interest due to the IO Security. IO Securities are sold at a deep discount to their notional principal amount. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of an IO Security will fall. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of an IO Security will rise. These securities, if any, are identified on the Portfolio of Investments.
G. Principal-Only Securities
A principal-only security (“PO Security”) is the principal-only portion of a mortgage-backed security that does not receive any interest, is priced at a deep discount to its redemption value and ultimately receives the redemption value. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of a PO Security will rise. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of a PO Security will fall. These securities, if any, are identified on the Portfolio of Investments.
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 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. The Fund’s investment performance and risks are directly related to the investment performance and risks of the affiliated funds. The affiliated funds’ financial statements may be found at SEC.gov. Dividend income, if any, realized gains and losses, and change in appreciation (depreciation) from affiliated funds are presented on the Statement of Operations.
Amounts relating to investments in affiliated funds at October 31, 2024, and for the fiscal year then ended are as follows:
| | | | | Change in
Unrealized
Appreciation
(Depreciation) | | | |
First Trust Intermediate Government Opportunities ETF | | | | | | | | |
K. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions 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, 2024 and 2023 was as follows:
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $13,067,815 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
During the fiscal year ended October 31, 2024, the Fund utilized $2,890,557 of non-expiring capital loss carryforwards.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 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 annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
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.
During the fiscal year ended October 31, 2024, the Fund received a payment from the Advisor in the amount of $7,880 in connection with a trade error.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
The costs of purchases of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and investments sold short, for the fiscal year ended October 31, 2024, were $1,078,827,519 and $265,273, respectively. The proceeds from sales and paydowns of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and investments sold short, for the fiscal year ended October 31, 2024 were $600,750,358 and $0, respectively. The cost of purchases to cover short sales and the proceeds from short sales were $127,088,684 and $127,254,191, respectively.
For the fiscal year ended October 31, 2024, the Fund had no in-kind transactions.
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 5. Derivative Transactions
The following table presents the types of derivatives held by the Fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
Interest Rate Risk Exposure | |
Net realized gain (loss) on: | |
Purchased options contracts | |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) on: | |
Purchased options contracts | |
Written options contracts | |
| |
The average notional value of futures contracts outstanding during the fiscal year ended October 31, 2024, which is indicative of the volume of this derivative type, was $349,579,850.
During the fiscal year ended October 31, 2024, the premiums for purchased options contracts opened were $5,280,644 and the premiums for purchased options contracts closed, exercised and expired were $7,238,693.
During the fiscal year ended October 31, 2024, the premiums for written options contracts opened were $4,054,474 and the premiums for written options contracts closed, exercised and expired were $3,424,384.
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 Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market
Notes to Financial Statements (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Long Duration Opportunities ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 19, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 204 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s 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
Other Information (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 (Unaudited) provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, 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 total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund underperformed the Performance Universe median for the one- and three-year periods ended December 31, 2023 and outperformed the benchmark index for the one- and three-year periods ended December 31, 2023. The Board noted the Advisor’s discussion of the Fund’s performance at the April 25, 2024 meeting.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its
Other Information (Continued)
First Trust Long Duration Opportunities ETF (LGOV)October 31, 2024 (Unaudited) 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.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust Long 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, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $124,796. This figure is comprised of $7,169 paid (or to be paid) in fixed compensation and $117,627 paid (or to be paid) in variable compensation. There were a total of 28 beneficiaries of the remuneration described above. Those amounts include $32,831 paid (or to be paid) to senior management of First Trust Advisors L.P. and $91,965 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.
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
First Trust Low Duration Opportunities ETF (LMBS) |
First Trust Low Duration Opportunities ETF (LMBS)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Low Duration Opportunities ETF (the “Fund”) will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of InvestmentsOctober 31, 2024
| | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 81.6% |
| Collateralized Mortgage Obligations — 40.2% | |
| Federal Home Loan Mortgage Corporation Seasoned Credit Risk Transfer Trust | | | |
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| | | | |
| Federal Home Loan Mortgage Corporation Seasoned Loans Structured Transaction Trust | | | |
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| Series 2024-2, Class VF, 30 Day Average SOFR + 1.25% (a) (b) (c) | | | |
| Federal Home Loan Mortgage Corporation STACR REMIC Trust | | | |
| Series 2024-HQA1, Class M2, 30 Day Average SOFR + 2.00% (a) (c) | | | |
| Federal Home Loan Mortgage Corporation | | | |
| Series 1998-2089, Class PJ, IO | | | |
| Series 1998-2102, Class Z | | | |
| Series 2002-2410, Class OG | | | |
| Series 2002-2437, Class SA, IO, (30 Day Average SOFR + CSA) ×-1+ 7.90% (d) | | | |
| Series 2003-2557, Class HL | | | |
| Series 2003-2564, Class AC | | | |
| Series 2003-2574, Class PE | | | |
| Series 2003-2577, Class LI, IO | | | |
| Series 2003-2581, Class LL | | | |
| Series 2003-2597, Class AE | | | |
| Series 2003-2613, Class LL | | | |
| Series 2003-2626, Class ZW | | | |
| Series 2003-2626, Class ZX | | | |
| Series 2004-2793, Class PE | | | |
| Series 2004-2891, Class ZA | | | |
| Series 2004-2907, Class DZ | | | |
| Series 2005-2973, Class GE | | | |
| Series 2005-3031, Class BI, IO, (30 Day Average SOFR + CSA) ×-1+ 6.69% (d) | | | |
| Series 2005-3054, Class ZW | | | |
| Series 2005-3074, Class ZH | | | |
| Series 2006-243, Class 11, IO, STRIPS (e) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal Home Loan Mortgage Corporation (Continued) | | | |
| Series 2006-3117, Class ZU | | | |
| Series 2006-3196, Class ZK | | | |
| Series 2007-3274, Class B | | | |
| Series 2007-3322, Class NF, (30 Day Average SOFR + CSA) × 2,566.67 - 16,683.33%, 0.00% Floor (c) | | | |
| Series 2007-3340, Class PF, 30 Day Average SOFR + CSA + 0.30% (c) | | | |
| Series 2007-3360, Class CB | | | |
| Series 2007-3380, Class FS, 30 Day Average SOFR + CSA + 0.35% (c) | | | |
| Series 2008-3406, Class B | | | |
| Series 2008-3413, Class B | | | |
| Series 2008-3420, Class AZ | | | |
| Series 2008-3448, Class SA, IO, (30 Day Average SOFR + CSA) ×-1+ 6.05% (d) | | | |
| Series 2009-3542, Class ZP | | | |
| Series 2009-3550, Class LL | | | |
| Series 2009-3563, Class ZP | | | |
| Series 2009-3572, Class JS, IO, (30 Day Average SOFR + CSA) ×-1+ 6.80% (d) | | | |
| Series 2009-3585, Class QZ | | | |
| Series 2009-3587, Class FX, 30 Day Average SOFR + CSA + 0.00% (c) | | | |
| Series 2009-3593, Class F, 30 Day Average SOFR + CSA + 0.50% (c) | | | |
| Series 2009-3605, Class NC | | | |
| Series 2010-3622, Class PB | | | |
| Series 2010-3645, Class WD | | | |
| Series 2010-3667, Class PL | | | |
| Series 2010-3704, Class ED | | | |
| Series 2010-3714, Class PB | | | |
| Series 2010-3735, Class IK, IO | | | |
| Series 2010-3735, Class JI, IO | | | |
| Series 2010-3740, Class SC, IO, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2010-3770, Class GZ | | | |
| Series 2011-3796, Class PB | | | |
| Series 2011-3820, Class NC | | | |
| Series 2011-3895, Class PW | | | |
| Series 2011-3925, Class ZD | | | |
| Series 2011-3954, Class GS, IO, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2012-267, Class S5, IO, STRIPS, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2012-276, Class S5, IO, STRIPS, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2012-3999, Class WA (e) | | | |
| Series 2012-4000, Class PY | | | |
| Series 2012-4012, Class GC | | | |
| Series 2012-4015, Class KB | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal Home Loan Mortgage Corporation (Continued) | | | |
| Series 2012-4021, Class IP, IO | | | |
| Series 2012-4026, Class GZ | | | |
| Series 2012-4030, Class IL, IO | | | |
| Series 2012-4054, Class AI, IO | | | |
| Series 2012-4090, Class YZ | | | |
| Series 2012-4097, Class ES, IO, (30 Day Average SOFR + CSA) ×-1+ 6.10% (d) | | | |
| Series 2012-4097, Class SA, IO, (30 Day Average SOFR + CSA) ×-1+ 6.05% (d) | | | |
| Series 2012-4098, Class PE | | | |
| Series 2012-4103, Class HI, IO | | | |
| Series 2012-4116, Class AS, IO, (30 Day Average SOFR + CSA) ×-1+ 6.15% (d) | | | |
| Series 2012-4121, Class HI, IO | | | |
| Series 2012-4136, Class TU, IO, (30 Day Average SOFR + CSA) ×-22.50+ 139.5%, 4.50% Cap (d) | | | |
| Series 2012-4145, Class YI, IO | | | |
| Series 2013-299, Class S1, IO, STRIPS, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2013-303, Class C2, IO, STRIPS | | | |
| Series 2013-304, Class C37, IO, STRIPS | | | |
| Series 2013-304, Class C40, IO, STRIPS | | | |
| Series 2013-4151, Class DI, IO | | | |
| Series 2013-4170, Class CO, PO | | | |
| Series 2013-4176, Class HE | | | |
| Series 2013-4177, Class GL | | | |
| Series 2013-4193, Class AI, IO | | | |
| Series 2013-4193, Class PB | | | |
| Series 2013-4199, Class BZ | | | |
| Series 2013-4211, Class PB | | | |
| Series 2013-4213, Class GZ | | | |
| Series 2013-4218, Class ZK | | | |
| Series 2013-4224, Class ME | | | |
| Series 2013-4226, Class NS, (30 Day Average SOFR + CSA) × -3+ 10.50%, 0.00% Floor (d) | | | |
| Series 2013-4247, Class AY | | | |
| Series 2013-4265, Class IB, IO (g) | | | |
| Series 2014-4316, Class BZ | | | |
| Series 2014-4316, Class XZ | | | |
| Series 2014-4329, Class VZ | | | |
| Series 2014-4387, Class IE, IO | | | |
| Series 2015-4499, Class CZ | | | |
| Series 2015-4512, Class W (e) (h) | | | |
| Series 2015-4520, Class AI, IO | | | |
| Series 2016-4546, Class PZ | | | |
| Series 2016-4546, Class ZT | | | |
| Series 2016-4568, Class MZ | | | |
| Series 2016-4570, Class ST, IO, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2016-4587, Class ZH | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal Home Loan Mortgage Corporation (Continued) | | | |
| Series 2016-4591, Class GI, IO | | | |
| Series 2016-4600, Class WT | | | |
| Series 2016-4605, Class KS, (30 Day Average SOFR + CSA) × -1.57+ 4.71%, 0.00% Floor (d) | | | |
| Series 2016-4609, Class YI, IO | | | |
| Series 2017-4681, Class JY | | | |
| Series 2018-4774, Class SL, IO, (30 Day Average SOFR + CSA) ×-1+ 6.20% (d) | | | |
| Series 2018-4798, Class GZ | | | |
| Series 2018-4826, Class ME | | | |
| Series 2018-4833, Class PY | | | |
| Series 2018-4842, Class FA, 30 Day Average SOFR + CSA + 0.35% (c) | | | |
| Series 2019-4872, Class BZ | | | |
| Series 2019-4902, Class FB, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-4910, Class SA, IO, (30 Day Average SOFR + CSA) ×-1+ 6.05% (d) | | | |
| Series 2019-4911, Class FB, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-4919, Class FP, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-4928, Class F, 30 Day Average SOFR + CSA + 0.50% (c) | | | |
| Series 2019-4929, Class FB, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-4937, Class MF, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-4938, Class BS, IO, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2019-4942, Class FA, 30 Day Average SOFR + CSA + 0.50% (c) | | | |
| Series 2019-4943, Class NS, IO, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2020-4959, Class JF, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2020-4959, Class LB | | | |
| Series 2020-4974, Class IA, IO | | | |
| Series 2020-4980, Class FP, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-4990, Class AF, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-4991, Class DA | | | |
| Series 2020-4994, Class FT, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-5001, Class A | | | |
| Series 2020-5002, Class FJ, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-5004, Class F, 30 Day Average SOFR + CSA + 0.35% (c) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal Home Loan Mortgage Corporation (Continued) | | | |
| Series 2020-5004, Class FG, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-5034, Class IO, IO (e) | | | |
| Series 2020-5045, Class AF, 30 Day Average SOFR + 0.25% (c) | | | |
| Series 2020-5045, Class BF, 30 Day Average SOFR + 0.30% (c) | | | |
| Series 2021-5178, Class HL | | | |
| Series 2022-5201, Class PF, 30 Day Average SOFR + 0.30% (c) | | | |
| Series 2022-5208, Class HZ | | | |
| Series 2022-5208, Class Z | | | |
| Series 2022-5210, Class LB | | | |
| Series 2022-5220, Class KZ | | | |
| Series 2022-5221, Class VE | | | |
| Series 2022-5221, Class YC | | | |
| Series 2022-5222, Class BZ | | | |
| Series 2022-5222, Class DP | | | |
| Series 2022-5224, Class BE | | | |
| Series 2022-5224, Class DZ | | | |
| Series 2022-5225, Class HZ | | | |
| Series 2022-5225, Class NZ | | | |
| Series 2022-5228, Class DZ | | | |
| Series 2022-5230, Class DL | | | |
| Series 2022-5232, Class GO, PO | | | |
| Series 2022-5255, Class KZ | | | |
| Series 2022-5256, Class FC, 30 Day Average SOFR + 0.75% (c) | | | |
| Series 2022-5270, Class AL | | | |
| Series 2022-5282, Class MB | | | |
| Series 2023-5339, Class GO, PO | | | |
| Series 2023-5350, Class PO, PO | | | |
| Series 2023-5357, Class OB, PO | | | |
| Series 2024-413, Class PO, PO, STRIPS | | | |
| Series 2024-5410, Class PO, PO | | | |
| Federal National Mortgage Association Grantor Trust | | | |
| Series 2005-T1, Class A1, 1 Mo. CME Term SOFR + CSA + 0.40% (c) | | | |
| Federal National Mortgage Association | | | |
| Series 1996-51, Class AY, IO | | | |
| Series 2001-34, Class SR, IO, (30 Day Average SOFR + CSA) × -1+ 8.10% (d) | | | |
| Series 2001-42, Class SB, (30 Day Average SOFR + CSA) ×-16 + 128.00%, 8.50% Cap (d) | | | |
| | | | |
| | | | |
| Series 2002-320, Class 2, IO, STRIPS | | | |
| Series 2002-323, Class 6, IO, STRIPS | | | |
| Series 2002-324, Class 2, IO, STRIPS | | | |
| | | | |
| | | | |
| Series 2003-32, Class UI, IO | | | |
| | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal National Mortgage Association (Continued) | | | |
| Series 2003-63, Class F1, 30 Day Average SOFR + CSA + 0.30% (c) | | | |
| | | | |
| Series 2003-343, Class 2, IO, STRIPS | | | |
| Series 2003-345, Class 14, IO, STRIPS | | | |
| Series 2003-348, Class 17, IO, STRIPS | | | |
| Series 2003-348, Class 18, IO, STRIPS (e) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2005-2, Class S, IO, (30 Day Average SOFR + CSA) ×-1 + 6.60% (d) | | | |
| Series 2005-2, Class TB, IO, (30 Day Average SOFR + CSA) × -1+ 5.90%, 0.40% Cap (d) | | | |
| | | | |
| Series 2005-40, Class SA, IO, (30 Day Average SOFR + CSA) × -1+ 6.70% (d) | | | |
| | | | |
| | | | |
| Series 2005-79, Class NS, IO, (30 Day Average SOFR + CSA) × -1+ 6.09% (d) | | | |
| | | | |
| | | | |
| Series 2005-359, Class 6, IO, STRIPS | | | |
| Series 2005-362, Class 13, IO, STRIPS | | | |
| Series 2006-5, Class 2A2, 30 Day Average SOFR + CSA + 0.14% (c) | | | |
| Series 2006-5, Class N2, IO (h) | | | |
| Series 2006-15, Class IS, IO, (30 Day Average SOFR + CSA) × -1+ 6.58% (d) | | | |
| Series 2006-20, Class PI, IO, (30 Day Average SOFR + CSA) × -1+ 6.68% (d) | | | |
| | | | |
| | | | |
| Series 2006-117, Class GF, 30 Day Average SOFR + CSA + 0.35% (c) | | | |
| Series 2006-118, Class A1, 30 Day Average SOFR + CSA + 0.06% (c) | | | |
| | | | |
| Series 2007-25, Class FB, 30 Day Average SOFR + CSA + 0.33% (c) | | | |
| | | | |
| | | | |
| | | | |
| Series 2007-116, Class PB | | | |
| Series 2007-117, Class MD | | | |
| Series 2007-W10, Class 3A (h) | | | |
| Series 2008-3, Class FZ, 30 Day Average SOFR + CSA + 0.55% (c) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal National Mortgage Association (Continued) | | | |
| | | | |
| Series 2008-17, Class IP, IO | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2009-103, Class PZ | | | |
| Series 2009-106, Class SN, IO, (30 Day Average SOFR + CSA) ×-1+ 6.25% (d) | | | |
| Series 2009-109, Class PZ | | | |
| Series 2009-115, Class HZ | | | |
| | | | |
| Series 2010-21, Class KO, PO | | | |
| | | | |
| | | | |
| | | | |
| Series 2010-68, Class BI, IO | | | |
| Series 2010-115, Class PO, PO | | | |
| Series 2010-129, Class SM, IO, (30 Day Average SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2010-142, Class DL | | | |
| | | | |
| | | | |
| Series 2011-30, Class LS, IO (e) | | | |
| | | | |
| | | | |
| Series 2011-73, Class PI, IO (g) | | | |
| Series 2011-74, Class TQ, IO, (30 Day Average SOFR + CSA) × -6.43+ 55.93%, 4.50% Cap (d) | | | |
| Series 2011-101, Class EI, IO | | | |
| Series 2011-105, Class MB | | | |
| Series 2011-111, Class PZ | | | |
| Series 2011-123, Class JS, IO, (30 Day Average SOFR + CSA) × -1+ 6.65% (d) | | | |
| | | | |
| | | | |
| Series 2012-66, Class DI, IO | | | |
| Series 2012-101, Class AI, IO | | | |
| Series 2012-103, Class HI, IO | | | |
| Series 2012-118, Class IB, IO | | | |
| Series 2012-122, Class SD, IO, (30 Day Average SOFR + CSA) ×-1+ 6.10% (d) | | | |
| Series 2012-133, Class KO, PO | | | |
| Series 2012-138, Class MA | | | |
| Series 2012-146, Class QA | | | |
| Series 2012-409, Class 49, IO, STRIPS (e) | | | |
| Series 2012-409, Class 53, IO, STRIPS (e) | | | |
| | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal National Mortgage Association (Continued) | | | |
| Series 2013-13, Class IK, IO | | | |
| | | | |
| | | | |
| | | | |
| Series 2013-43, Class IX, IO | | | |
| | | | |
| Series 2013-55, Class AI, IO | | | |
| | | | |
| | | | |
| Series 2013-105, Class BN | | | |
| Series 2013-105, Class KO, PO | | | |
| Series 2013-106, Class KN | | | |
| | | | |
| Series 2013-119, Class VZ | | | |
| Series 2013-119, Class ZB | | | |
| Series 2013-130, Class QY | | | |
| Series 2013-136, Class DZ | | | |
| | | | |
| Series 2014-29, Class GI, IO | | | |
| Series 2014-46, Class KA (b) (e) | | | |
| | | | |
| Series 2014-68, Class GI, IO | | | |
| | | | |
| Series 2014-84, Class LI, IO | | | |
| | | | |
| Series 2015-76, Class BI, IO (g) | | | |
| Series 2015-93, Class KI, IO | | | |
| | | | |
| | | | |
| Series 2016-40, Class MS, IO, (30 Day Average SOFR + CSA) × -1+ 6.00% (d) | | | |
| | | | |
| Series 2016-62, Class SB, IO, (30 Day Average SOFR + CSA) × -1+ 6.10% (d) | | | |
| Series 2016-63, Class AF, 30 Day Average SOFR + CSA + 0.50% (c) | | | |
| Series 2016-73, Class PI, IO | | | |
| Series 2016-74, Class HI, IO | | | |
| Series 2016-83, Class FA, 30 Day Average SOFR + CSA + 0.50% (c) | | | |
| Series 2016-84, Class DF, 30 Day Average SOFR + CSA + 0.42% (c) | | | |
| Series 2017-18, Class AS, IO, (30 Day Average SOFR + CSA) × -1+ 6.05% (d) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Federal National Mortgage Association (Continued) | | | |
| | | | |
| Series 2018-45, Class FT, 30 Day Average SOFR + CSA + 0.30% (c) | | | |
| Series 2018-72, Class FB, 30 Day Average SOFR + CSA + 0.35% (c) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2019-18, Class FL, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2019-33, Class F, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-33, Class FK, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-38, Class CF, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2019-41, Class SN, IO, (30 Day Average SOFR + CSA) × -1+ 6.05% (d) | | | |
| Series 2019-70, Class WA, PO | | | |
| Series 2020-9, Class SJ, IO, (30 Day Average SOFR + CSA) ×-1 + 6.00% (d) | | | |
| Series 2020-12, Class FL, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2020-20, Class KI, IO | | | |
| Series 2020-22, Class FA, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-34, Class FA, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2020-38, Class NF, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2020-47, Class FA, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-49, Class FB, 30 Day Average SOFR + CSA + 0.40% (c) | | | |
| Series 2020-93, Class NI, IO | | | |
| | | | |
| Series 2023-44, Class PO, PO | | | |
| Series 2023-40, Class DO, PO | | | |
| | | | |
| | | | |
| Series 2024-26, Class PO, PO | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Government National Mortgage Association | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2004-71, Class ST, (1 Mo. CME Term SOFR + CSA) × -6.25+ 44.50%, 7.00% Cap (d) | | | |
| Series 2004-88, Class SM, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.10% (d) | | | |
| Series 2004-105, Class JZ | | | |
| Series 2004-105, Class KA | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2005-93, Class PO, PO | | | |
| | | | |
| | | | |
| | | | |
| Series 2007-27, Class SD, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.20% (d) | | | |
| Series 2007-41, Class OL, PO | | | |
| Series 2007-42, Class SB, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.75% (d) | | | |
| | | | |
| Series 2007-81, Class FZ, 1 Mo. CME Term SOFR + CSA + 0.35% (c) | | | |
| Series 2008-33, Class XS, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 7.70% (d) | | | |
| | | | |
| | | | |
| Series 2008-71, Class JI, IO | | | |
| Series 2009-14, Class KI, IO | | | |
| Series 2009-14, Class KS, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.30% (d) | | | |
| Series 2009-25, Class SE, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 7.60% (d) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2009-61, Class WQ, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.25% (d) | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Government National Mortgage Association (Continued) | | | |
| Series 2009-79, Class OK, PO | | | |
| | | | |
| | | | |
| Series 2009-106, Class SL, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.10% (d) | | | |
| Series 2009-106, Class WZ | | | |
| Series 2009-126, Class LB | | | |
| | | | |
| | | | |
| Series 2010-85, Class SL, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.60% (d) | | | |
| Series 2010-116, Class BM | | | |
| Series 2010-116, Class JB | | | |
| Series 2010-157, Class OP, PO | | | |
| | | | |
| | | | |
| Series 2011-48, Class LI, IO | | | |
| Series 2011-61, Class WS, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.47% (d) | | | |
| Series 2011-63, Class BI, IO | | | |
| Series 2011-81, Class IC, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.72%, 0.62% Cap (d) | | | |
| Series 2011-112, Class IP, IO | | | |
| Series 2011-129, Class CL | | | |
| Series 2011-151, Class TB, IO, (1 Mo. CME Term SOFR + CSA) ×-70+ 465.50%, 3.50% Cap (d) | | | |
| Series 2012-84, Class QS, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.10% (d) | | | |
| Series 2012-84, Class SJ, (1 Mo. CME Term SOFR + CSA) × -0.57+ 2.51%, 0.00% Floor (d) | | | |
| Series 2012-108, Class KB | | | |
| Series 2012-143, Class TI, IO | | | |
| Series 2012-149, Class PC (e) | | | |
| Series 2013-5, Class IA, IO | | | |
| | | | |
| Series 2013-69, Class PI, IO | | | |
| | | | |
| | | | |
| Series 2013-130, Class WS, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.10% (d) | | | |
| Series 2013-183, Class PB | | | |
| Series 2014-44, Class IC, IO | | | |
| Series 2014-44, Class ID, IO (e) (h) | | | |
| Series 2014-91, Class JI, IO | | | |
| | | | |
| Series 2014-115, Class QI, IO (g) | | | |
| Series 2014-116, Class SB, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 5.60% (d) | | | |
| Series 2014-118, Class TV, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.25% (d) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Government National Mortgage Association (Continued) | | | |
| | | | |
| Series 2015-66, Class LI, IO | | | |
| Series 2015-95, Class IK, IO (e) (g) | | | |
| Series 2015-123, Class ZA | | | |
| Series 2015-124, Class DI, IO (g) | | | |
| Series 2015-137, Class WA (e) (h) | | | |
| Series 2015-138, Class MI, IO | | | |
| Series 2015-151, Class KW (e) | | | |
| Series 2015-164, Class MZ | | | |
| Series 2015-168, Class GI, IO | | | |
| | | | |
| Series 2016-20, Class FN, 1 Mo. CME Term SOFR + CSA + 0.40% (c) | | | |
| Series 2016-37, Class AF, 1 Mo. CME Term SOFR + CSA + 0.47% (c) | | | |
| Series 2016-55, Class PB (e) | | | |
| Series 2016-69, Class WI, IO | | | |
| Series 2016-75, Class SA, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.00% (d) | | | |
| Series 2016-78, Class UI, IO | | | |
| | | | |
| Series 2016-99, Class JA (e) | | | |
| Series 2016-109, Class ZM | | | |
| Series 2016-111, Class PI, IO | | | |
| Series 2016-120, Class AS, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.10% (d) | | | |
| Series 2016-141, Class PC | | | |
| Series 2016-145, Class LZ | | | |
| Series 2016-156, Class ZM | | | |
| Series 2016-160, Class LE | | | |
| Series 2016-167, Class KI, IO | | | |
| Series 2017-12, Class SD, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.10% (d) | | | |
| | | | |
| Series 2017-32, Class DI, IO | | | |
| | | | |
| Series 2017-56, Class BI, IO | | | |
| Series 2017-123, Class IO, IO | | | |
| Series 2017-130, Class LS, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.20% (d) | | | |
| Series 2017-133, Class JI, IO | | | |
| Series 2017-186, Class TI, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 6.50%, 0.50% Cap (d) | | | |
| | | | |
| Series 2018-79, Class IO, IO | | | |
| Series 2018-131, Class IA, IO | | | |
| Series 2018-134, Class KB | | | |
| Series 2018-155, Class KD | | | |
| Series 2018-160, Class GY | | | |
| Series 2018-78I, Class EZ | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| Government National Mortgage Association (Continued) | | | |
| Series 2019-27, Class DI, IO | | | |
| Series 2019-128, Class EF, 1 Mo. CME Term SOFR + CSA + 0.57%, 4.00% Cap (c) | | | |
| Series 2019-128, Class ES, IO, (1 Mo. CME Term SOFR + CSA) ×-1+ 3.43%, 0.00% Floor (d) | | | |
| Series 2020-62, Class IC, IO | | | |
| Series 2020-62, Class WI, IO | | | |
| Series 2020-84, Class IM, IO | | | |
| Series 2020-84, Class IO, IO | | | |
| Series 2021-46, Class IL, IO | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2022-124, Class EY | | | |
| Series 2022-124, Class MY | | | |
| Series 2022-146, Class MF, 30 Day Average SOFR + 0.45% (c) | | | |
| Series 2022-154, Class EZ | | | |
| Series 2022-191, Class BY | | | |
| Series 2022-204, Class YC | | | |
| | | | |
| | |
| Commercial Mortgage-Backed Securities — 12.6% | |
| Federal Home Loan Mortgage Corporation Multiclass Certificates | | | |
| Series 2020-RR02, Class DX, IO (e) | | | |
| Series 2020-RR06, Class BX, IO (e) | | | |
| Series 2020-RR09, Class AX, IO (e) | | | |
| Series 2020-RR09, Class BX, IO (e) | | | |
| Series 2020-RR10, Class X, IO (e) | | | |
| Series 2020-RR11, Class AX, IO (e) | | | |
| Series 2020-RR11, Class BX, IO (e) | | | |
| Series 2021-P009, Class X, IO (h) | | | |
| Series 2021-P011, Class X1, IO (h) | | | |
| Series 2021-RR15, Class X, IO (h) | | | |
| Series 2021-RR18, Class X, IO (h) | | | |
| Series 2021-RR19, Class X, IO (h) | | | |
| Series 2021-RR20, Class X, IO (h) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Commercial Mortgage-Backed Securities (Continued) | |
| Federal Home Loan Mortgage Corporation Multifamily Structured Pass Through Certificates | | | |
| Series 2014-K039, Class X3, IO (h) | | | |
| Series 2015-K047, Class X3, IO (h) | | | |
| Series 2016-K054, Class A1 | | | |
| Series 2016-KIR1, Class X, IO (h) | | | |
| Series 2018-K157, Class A3 | | | |
| Series 2018-K158, Class A3 | | | |
| Series 2018-KSW4, Class A, 30 Day Average SOFR + CSA + 0.43% (c) | | | |
| Series 2019-K097, Class X1, IO (h) | | | |
| Series 2019-K099, Class X1, IO (h) | | | |
| Series 2019-K099, Class XAM, IO (h) | | | |
| Series 2019-K100, Class X1, IO (h) | | | |
| Series 2019-K101, Class X1, IO (e) | | | |
| Series 2019-K102, Class XAM, IO (e) | | | |
| Series 2019-K103, Class XAM, IO (h) | | | |
| Series 2019-K734, Class X1, IO (h) | | | |
| Series 2019-K734, Class XAM, IO (h) | | | |
| Series 2019-K735, Class X1, IO (h) | | | |
| Series 2019-K736, Class X1, IO (h) | | | |
| Series 2019-K1510, Class X1, IO (h) | | | |
| Series 2019-K1511, Class X1, IO (h) | | | |
| Series 2019-K1512, Class X1, IO (h) | | | |
| Series 2019-K1513, Class X1, IO (h) | | | |
| Series 2019-KJ24, Class A2 | | | |
| Series 2020-K109, Class XAM, IO (h) | | | |
| Series 2020-K110, Class X1, IO (h) | | | |
| Series 2020-K110, Class XAM, IO (h) | | | |
| Series 2020-K112, Class XAM, IO (h) | | | |
| Series 2020-K113, Class XAM, IO (h) | | | |
| Series 2020-K114, Class XAM, IO (h) | | | |
| Series 2020-K115, Class X1, IO (h) | | | |
| Series 2020-K115, Class XAM, IO (h) | | | |
| Series 2020-K116, Class X1, IO (h) | | | |
| Series 2020-K116, Class XAM, IO (h) | | | |
| Series 2020-K117, Class A2 | | | |
| Series 2020-K117, Class XAM, IO (h) | | | |
| Series 2020-K118, Class X1, IO (h) | | | |
| Series 2020-K118, Class XAM, IO (h) | | | |
| Series 2020-K119, Class XAM, IO (h) | | | |
| Series 2020-K120, Class XAM, IO (h) | | | |
| Series 2020-K121, Class X1, IO (h) | | | |
| Series 2020-K121, Class XAM, IO (h) | | | |
| Series 2020-K122, Class X1, IO (h) | | | |
| Series 2020-K122, Class XAM, IO (h) | | | |
| Series 2020-K737, Class X1, IO (e) | | | |
| Series 2020-K738, Class XAM, IO (e) | | | |
| Series 2020-K739, Class X1, IO (h) | | | |
| Series 2020-K739, Class XAM, IO (h) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Commercial Mortgage-Backed Securities (Continued) | |
| Federal Home Loan Mortgage Corporation Multifamily Structured Pass Through Certificates (Continued) | | | |
| Series 2020-K740, Class XAM, IO (h) | | | |
| Series 2020-K1515, Class X1, IO (h) | | | |
| Series 2020-K1516, Class X1, IO (h) | | | |
| Series 2020-K1517, Class X1, IO (h) | | | |
| Series 2020-KG04, Class X1, IO (h) | | | |
| Series 2021-K123, Class A2 | | | |
| Series 2021-K124, Class A2 | | | |
| Series 2021-K128, Class XAM, IO (h) | | | |
| Series 2021-K129, Class X1, IO (h) | | | |
| Series 2021-K129, Class XAM, IO (h) | | | |
| Series 2021-K130, Class X1, IO (h) | | | |
| Series 2021-K130, Class XAM, IO (h) | | | |
| Series 2021-K131, Class XAM, IO (h) | | | |
| Series 2021-K132, Class XAM, IO (h) | | | |
| Series 2021-K741, Class XAM, IO (h) | | | |
| Series 2021-K744, Class X1, IO (h) | | | |
| Series 2021-K1522, Class A1 | | | |
| Series 2021-KG05, Class X1, IO (h) | | | |
| Series 2022-K142, Class A1 | | | |
| Series 2022-K148, Class XAM, IO (h) | | | |
| Series 2022-K150, Class A1 | | | |
| Series 2022-K152, Class A1 | | | |
| Series 2022-KJ41, Class A2 | | | |
| Series 2023-K154, Class A1 | | | |
| Series 2023-K508, Class A2 | | | |
| Series 2024-K520, Class A2 | | | |
| Series 2023-KJ47, Class A2 | | | |
| Series 2024-K757, Class XAM, IO (h) | | | |
| Series 2024-KJ51, Class A2 | | | |
| Federal National Mortgage Association Alternative Credit Enhancement Securities | | | |
| Series 2023-M1, Class 2A1 (h) | | | |
| Series 2023-M1, Class Z (h) | | | |
| Series 2024-M3, Class Z (h) | | | |
| | | | |
| Series 2019-KL4F, Class BAS (a) (h) | | | |
| Government National Mortgage Association | | | |
| Series 2011-31, Class Z (e) | | | |
| Series 2012-120, Class Z (e) | | | |
| Series 2013-74, Class AG (h) | | | |
| Series 2013-194, Class AE (e) | | | |
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| Series 2015-125, Class VA (e) | | | |
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| Series 2017-35, Class Z (e) | | | |
| Series 2017-106, Class AE | | | |
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See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Commercial Mortgage-Backed Securities (Continued) | |
| Government National Mortgage Association (Continued) | | | |
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| Series 2024-32, Class IO, IO (h) | | | |
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| Pass-Through Securities — 28.8% | |
| Federal Home Loan Mortgage Corporation |
| Pool 760043, 5 Yr. Constant Maturity Treasury Rate + 1.39% (c) | | | |
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See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Pass-Through Securities (Continued) | |
| Federal Home Loan Mortgage Corporation (Continued) |
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| Federal National Mortgage Association |
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See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Pass-Through Securities (Continued) | |
| Federal National Mortgage Association (Continued) |
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See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Pass-Through Securities (Continued) | |
| Federal National Mortgage Association (Continued) |
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See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Pass-Through Securities (Continued) | |
| Federal National Mortgage Association (Continued) |
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| Government National Mortgage Association |
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See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Pass-Through Securities (Continued) | |
| Government National Mortgage Association (Continued) |
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| Total U.S. Government Agency Mortgage-Backed Securities | |
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MORTGAGE-BACKED SECURITIES — 6.5% |
| Collateralized Mortgage Obligations — 3.4% | |
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| Series 2019-2, Class M1 (a) | | | |
| Series 2019-3, Class A3 (a) | | | |
| Series 2021-1R, Class A2 (a) | | | |
| Series 2021-1R, Class A3 (a) | | | |
| BRAVO Residential Funding Trust |
| Series 2021-NQM1, Class A2 (a) | | | |
| Series 2021-NQM1, Class A3 (a) | | | |
| Chase Home Lending Mortgage Trust |
| Series 2019-ATR2, Class A11, 1 Mo. CME Term SOFR + CSA + 0.90% (a) (c) | | | |
| CHL Mortgage Pass-Through Trust |
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See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| |
| Series 2019-INV1, Class A11 (a) | | | |
| Citigroup Global Markets Mortgage Securities VII, Inc. |
| Series 2003-UP2, Class PO1, PO | | | |
| Connecticut Avenue Securities Trust |
| Series 2021-R02, Class 2M2, 30 Day Average SOFR + 2.00% (a) (c) | | | |
| Series 2022-R02, Class 2M2, 30 Day Average SOFR + 3.00% (a) (c) | | | |
| Series 2024-R01, Class 1M1, 30 Day Average SOFR + 1.05% (a) (c) | | | |
| Series 2024-R04, Class 1A1, 30 Day Average SOFR + 1.00% (a) (c) | | | |
| Credit Suisse Mortgage Trust |
| Series 2018-RPL9, Class A (a) | | | |
| Series 2021-RPL6, Class A1 (a) | | | |
| Ellington Financial Mortgage Trust |
| Series 2019-2, Class M1 (a) | | | |
| Series 2022-2, Class A1 (a) | | | |
| Series 2023-1, Class A1, steps up to 6.73% on 01/01/27 (a) (j) | | | |
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| Series 2024-1, Class A (a) (h) | | | |
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| Series 2018-2, Class A4 (a) | | | |
| Series 2018-4, Class B1 (a) (h) | | | |
| Series 2019-2, Class A11 (a) | | | |
| GMACM Mortgage Loan Trust |
| Series 2003-J10, Class A1 | | | |
| GS Mortgage-Backed Securities Trust |
| Series 2019-PJ3, Class A1 (a) | | | |
| Series 2021-PJ6, Class A8 (a) | | | |
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| Series 2024-AFC1, Class A1, steps up to 6.22% on 09/01/2028 (a) (j) | | | |
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| Series 2004-S2, Class 5A1 | | | |
| Series 2015-IVR2, Class A5 (a) (h) | | | |
| Series 2019-1, Class A5 (a) | | | |
| Series 2019-8, Class A15 (a) | | | |
| Series 2019-INV2, Class A15 (a) | | | |
| Series 2020-INV1, Class A15 (a) | | | |
| Mello Mortgage Capital Acceptance |
| Series 2018-MTG2, Class A9 (a) | | | |
| MetLife Securitization Trust |
| Series 2018-1A, Class A (a) | | | |
| New Residential Mortgage Loan Trust |
| Series 2015-2A, Class B1 (a) | | | |
| Series 2016-1A, Class A1 (a) | | | |
| Series 2018-4A, Class A1S, 1 Mo. CME Term SOFR + CSA + 0.75% (a) (c) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MORTGAGE-BACKED SECURITIES (Continued) |
| Collateralized Mortgage Obligations (Continued) | |
| |
| Series 2018-EXP1, Class 1A3 (a) | | | |
| Onslow Bay Mortgage Loan Trust |
| Series 2021-NQM4, Class A1 (a) | | | |
| Provident Funding Mortgage Trust |
| Series 2019-1, Class A5 (a) | | | |
| Series 2020-1, Class A5 (a) | | | |
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| Series 2024-RPL2, Class A1, steps up to 4.50% on 05/25/28 (a) (j) | | | |
| Seasoned Credit Risk Transfer Trust |
| Series 2017-2, Class M1 (a) | | | |
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| Series 2017-CH1, Class A13 (a) | | | |
| Series 2018-CH1, Class B1B (a) | | | |
| Starwood Mortgage Residential Trust |
| Series 2022-3, Class A1 (a) | | | |
| TIAA Bank Mortgage Loan Trust |
| Series 2018-3, Class A1 (a) | | | |
| Towd Point Mortgage Trust |
| Series 2017-2, Class A2 (a) | | | |
| Series 2019-1, Class A1 (a) | | | |
| Series 2019-HY2, Class A1, 1 Mo. CME Term SOFR + CSA + 1.00% (a) (c) | | | |
| Vista Point Securitization Trust |
| Series 2020-1, Class M1 (a) | | | |
| Wells Fargo Mortgage Backed Securities Trust |
| Series 2019-1, Class A1 (a) | | | |
| WinWater Mortgage Loan Trust |
| Series 2016-1, Class 2A3 (a) | | | |
| Series 2016-1, Class B1 (a) (h) | | | |
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| Commercial Mortgage-Backed Securities — 3.1% | |
| Arbor Multifamily Mortgage Securities Trust |
| Series 2020-MF1, Class A5 (a) | | | |
| Series 2020-MF1, Class AS (a) | | | |
| BAMLL Commercial Mortgage Securities Trust |
| Series 2013-WBRK, Class A (a) (h) | | | |
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| Series 2019-BN23, Class XA, IO (h) | | | |
| Series 2020-BN26, Class XA, IO (h) | | | |
| Series 2022-BNK43, Class A1 | | | |
| Series 2022-BNK43, Class ASB | | | |
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| Series 2018-TALL, Class A, 1 Mo. CME Term SOFR + CSA + 0.87% (a) (c) | | | |
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| Series 2021-C10, Class ASB | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MORTGAGE-BACKED SECURITIES (Continued) |
| Commercial Mortgage-Backed Securities (Continued) | |
| |
| Series 2023-V2, Class XA, IO (h) | | | |
| Series 2024-V6, Class XA, IO (h) | | | |
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| Series 2024-5C3, Class XA, IO (h) | | | |
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| Series 2021-WILL, Class A, 1 Mo. CME Term SOFR + CSA + 1.75% (a) (c) | | | |
| Series 2022-OANA, Class A, 1 Mo. CME Term SOFR + 1.90% (a) (c) | | | |
| BX Commercial Mortgage Trust |
| Series 2019-IMC, Class A, 1 Mo. CME Term SOFR + CSA + 1.00% (a) (c) | | | |
| CFCRE Commercial Mortgage Trust |
| Series 2017-C8, Class XA, IO (h) | | | |
| Citigroup Commercial Mortgage Trust |
| Series 2016-P4, Class XA, IO (h) | | | |
| Series 2020-555, Class A (a) | | | |
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| Series 2024-277P, Class X, IO (a) | | | |
| Commercial Mortgage Trust |
| Series 2016-DC2, Class A4 | | | |
| Credit Suisse Mortgage Trust |
| Series 2020-WEST, Class A (a) | | | |
| CSAIL Commercial Mortgage Trust |
| Series 2020-C19, Class XA, IO (h) | | | |
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| Series 2023-V1, Class XA, IO | | | |
| GS Mortgage Securities Trust |
| Series 2019-GC38, Class XA, IO (h) | | | |
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| Series 2016-HHV, Class A (a) | | | |
| JP Morgan Chase Commercial Mortgage Securities Trust |
| Series 2017-JP5, Class A4 | | | |
| Series 2018-PHH, Class A, 1 Mo. CME Term SOFR + CSA + 1.26% (a) (c) | | | |
| Morgan Stanley Capital I Trust |
| Series 2018-MP, Class A (a) (h) | | | |
| NYO Commercial Mortgage Trust |
| Series 2021-1290, Class A, 1 Mo. CME Term SOFR + CSA + 1.10% (a) (c) | | | |
| Series 2021-1290, Class C, 1 Mo. CME Term SOFR + CSA + 2.00% (a) (c) | | | |
| |
| Series 2019-OBP, Class A (a) | | | |
| Queens Center Mortgage Trust |
| Series 2013-QCA, Class A (a) | | | |
| Ready Capital Mortgage Financing LLC |
| Series 2021-FL6, Class A, 1 Mo. CME Term SOFR + CSA + 0.95% (a) (c) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MORTGAGE-BACKED SECURITIES (Continued) |
| Commercial Mortgage-Backed Securities (Continued) | |
| Wells Fargo Commercial Mortgage Trust |
| Series 2021-C61, Class ASB | | | |
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| Series 2014-MONT, Class A (a) (h) | | | |
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| Total Mortgage-Backed Securities | |
| | |
U.S. GOVERNMENT BONDS AND NOTES — 5.0% |
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| Total U.S. Government Bonds and Notes | |
| | |
ASSET-BACKED SECURITIES — 3.4% |
| Ally Auto Receivables Trust |
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| Series 2020-SFR1, Class A (a) | | | |
| Series 2020-SFR4, Class A (a) | | | |
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| Capital Street Master Trust |
| Series 2024-1, Class A, 30 Day Average SOFR + 1.35% (a) (b) (c) | | | |
| |
| Series 2024-4A, Class A4 (a) | | | |
| Series 2024-5A, Class A3 (a) | | | |
| Citizens Auto Receivables Trust |
| Series 2024-1, Class A3 (a) | | | |
| CoreVest American Finance Trust |
| Series 2020-1, Class A1 (a) | | | |
| Series 2020-3, Class A (a) | | | |
| Series 2020-4, Class A (a) | | | |
| Series 2021-1, Class A (a) | | | |
| Series 2021-2, Class A (a) | | | |
| Series 2021-3, Class A (a) | | | |
| CWABS, Inc. Asset-Backed Certificates Trust |
| Series 2004-5, Class M1, 1 Mo. CME Term SOFR + CSA + 0.86% (c) | | | |
| Diamond Resorts Owner Trust |
| Series 2021-1A, Class A (a) | | | |
| |
| Series 2020-SFR1, Class A (a) | | | |
| |
| Series 2021-1A, Class A (a) | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | |
ASSET-BACKED SECURITIES (Continued) |
| |
| Series 2006-SEA1, Class M2, 1 Mo. CME Term SOFR + CSA + 1.65% (a) (c) | | | |
| Honda Auto Receivables Owner Trust |
| | | | |
| Hyundai Auto Receivables Trust |
| | | | |
| |
| Series 2021-CRE3, Class A, 1 Mo. CME Term SOFR + CSA + 1.50% (a) (c) | | | |
| Nissan Auto Receivables Owner Trust |
| | | | |
| Oscar US Funding XVII LLC |
| Series 2024-2A, Class A3 (a) | | | |
| Pagaya AI Debt Grantor Trust |
| Series 2024-10, Class A (a) (l) | | | |
| |
| Series 2023-5, Class A (a) | | | |
| Porsche Innovative Lease Owner Trust |
| Series 2024-1A, Class A3 (a) | | | |
| Series 2024-2A, Class A3 (a) | | | |
| Sierra Timeshare Receivables Funding LLC |
| Series 2020-2A, Class A (a) | | | |
| Sunnova Hestia II Issuer LLC |
| Series 2024-GRID1, Class 1A (a) | | | |
| |
| Series 2022-7, Class A1A, steps up to 5.98% on 11/20/24 (j) | | | |
| | | | |
| Total Asset-Backed Securities | |
| | |
| | |
EXCHANGE-TRADED FUNDS — 0.1% |
| | |
| First Trust Commercial Mortgage Opportunities ETF (m) | |
| First Trust Intermediate Government Opportunities ETF (m) | |
| First Trust Long Duration Opportunities ETF (m) | |
| First Trust Structured Credit Income Opportunities ETF (m) | |
| Total Exchange-Traded Funds | |
| | |
MONEY MARKET FUNDS — 13.0% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (n) | |
| | |
| Total Investments — 109.6% | |
| | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
|
| Call Options Purchased — 0.0% | |
| U.S. 10-Year Treasury Futures Call | | | | |
| Ultra U.S. Treasury Long Bond Futures Call | | | | |
| | |
| | |
| | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT — (0.4)% |
| Pass-Through Securities — (0.4)% | |
| Federal National Mortgage Association | |
| | | | |
| Total Investments Sold Short — (0.4)% | |
| | |
| | | | | |
|
| Call Options Written — (0.1)% | |
| 3 Month SOFR Futures Call | | | | |
| 3 Month SOFR Futures Call | | | | |
| SOFR 1-Year Mid-Curve Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 10-Year Treasury Futures Call | | | | |
| U.S. 10-Year Treasury Futures Call | | | | |
| U.S. 10-Year Treasury Futures Call | | | | |
| U.S. 10-Year Treasury Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| Ultra U.S. Treasury Long Bond Futures Call | | | | |
| Ultra U.S. Treasury Long Bond Futures Call | | | | |
| Total Call Options Written | |
| (Premiums received $9,850,272) | |
| Put Options Written — (0.5)% | |
| | | | | |
| SOFR 1-Year Mid-Curve Futures Put | | | | |
| U.S. 2-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
WRITTEN OPTIONS (Continued) |
| Put Options Written (Continued) | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| Ultra U.S. 10-Year Treasury Long Bond Futures Put | | | | |
| Ultra U.S. 10-Year Treasury Long Bond Futures Put | | | | |
| Ultra U.S. Treasury Long Bond Futures Put | | | | |
| Ultra U.S. Treasury Long Bond Futures Put | | | | |
| Total Put Options Written | |
| (Premiums received $8,121,483) | |
| | |
| (Premiums received $17,971,755) | |
| Net Other Assets and Liabilities — (8.6)% | |
| | |
Futures Contracts at October 31, 2024 (See Note 2D - Futures Contracts in the Notes to Financial Statements):
| | | | Unrealized
Appreciation
(Depreciation)/
Value |
U.S. 2-Year Treasury Notes | | | | |
U.S. 5-Year Treasury Notes | | | | |
| | | | |
| | | | |
U.S. 10-Year Treasury Notes | | | | |
U.S. Treasury Long Bond Futures | | | | |
Ultra 10-Year U.S. Treasury Notes | | | | |
Ultra U.S. Treasury Bond Futures | | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024 | This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $385,622,589 or 8.5% of net assets. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $31,630,218 or 0.7% of net assets. |
| Floating or variable rate security. |
| Inverse floating rate security. |
| 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. |
| |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by the Advisor. |
| Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment’s underlying collateral. The interest rate resets periodically. |
| 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). |
| Step-up security. A security where the coupon increases or steps up at a predetermined date. |
| All or a portion of this security is segregated as collateral for open futures and options contracts. At October 31, 2024, the segregated value of these securities amounts to $87,438,710. |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
| Investment in an affiliated fund. |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – Chicago Mercantile Exchange |
| – Credit Spread Adjustment |
| – Interest-Only Security - Principal amount shown represents par value on which interest payments are based |
| – Principal-Only Security |
| – Real Estate Mortgage Investment Conduit |
| – Secured Overnight Financing Rate |
| – Structured Agency Credit Risk |
| – Separate Trading of Registered Interest and Principal of Securities |
| – To-Be-Announced Security |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
U.S. Government Agency Mortgage-Backed Securities | | | | |
Mortgage-Backed Securities | | | | |
U.S. Government Bonds and Notes | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
U.S. Government Agency Mortgage-Backed Securities Sold Short | | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Statement of Assets and Liabilities
October 31, 2024
| |
Investments, at value - Unaffiliated | |
Investments, at value - Affiliated | |
Total investments, at value | |
Options contracts purchased, at value | |
Cash segregated as collateral | |
| |
Investment securities sold | |
| |
| |
| |
| |
| |
|
| |
Investments sold short, at value | |
Options contracts written, at value | |
| |
| |
Investment securities purchased | |
Distributions to shareholders | |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
Investments, at cost - Unaffiliated | |
Investments, at cost - Affiliated | |
Total investments, at cost | |
Premiums paid on options contracts purchased | |
Investments sold short, proceeds | |
Premiums received on options contracts written | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
| |
| |
|
| |
| |
| |
Less fees waived by the investment advisor | |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
Investments - Unaffiliated | |
| |
| |
Purchased options contracts | |
Written options contracts | |
| |
| |
Net change in unrealized appreciation (depreciation) on: | |
Investments - Unaffiliated | |
| |
| |
Purchased options contracts | |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Statements of Changes in Net Assets
| | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets (c) | | | | | |
Ratio of net expenses to average net assets (c) | | | | | |
Ratio of net investment income (loss) to average net assets (c) | | | | | |
Portfolio turnover rate (d) | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived by the investment advisor. |
| Ratios of expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
| The portfolio turnover rate not including mortgage dollar rolls was 556%, 641%, 368% and 245% for the years ended October 31, 2023, 2022, 2021, and 2020, respectively. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
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 Nasdaq, Inc. (“Nasdaq”). The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund (“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 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 may also invest in securities of other investment companies, including ETFs, that invest primarily in Mortgage-Related Investments. The Fund will limit its investments in Mortgage-Related Investments that are neither issued nor 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.
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
(1)
“Government Entities” means the U.S. government, its agencies and instrumentalities, and U.S. government-sponsored entities.
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 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:
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:
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.
Common stocks, ETFs 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 end of the day settlement 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 ask price, if both are available. Options contracts traded in the over-the-counter market may be valued as follows, depending on the market in which the investment trades: (1) the mean of the most recent bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option.
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
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the 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);
14)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
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
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 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, 2024, the Fund held $9,745,000 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund held $285,403,098 of forward purchase commitments.
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 a 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.
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statement of Operations. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are included in “Variation margin” payable or receivable on the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments.
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
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 long position (call) or short position (put) in a futures contract at a specified exercise price prior to the expiration of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. Prior to exercise or expiration, a futures option contract may be closed out by an offsetting purchase or sale of a futures option of the same series. When the Fund writes (sells) an option, an amount equal to the premium received by the Fund is included in “Options contracts written, at value” on the Statement of Assets and Liabilities. When the Fund purchases (buys) an option, the premium paid represents the cost of the option, which is included in “Premiums paid on options contracts purchased” on the Statement of Assets and Liabilities. Options are marked-to-market daily and their value is affected by changes in the value of the underlying security, changes in interest rates, changes in the actual or perceived volatility of the securities markets and the underlying securities, and the remaining time to the option’s expiration. The value of options may also be adversely affected if the market for the options becomes less liquid or the trading volume diminishes.
The Fund uses options on futures contracts in connection with hedging strategies. Generally, these strategies are applied under the same market and market sector conditions in which the Fund uses put and call options on securities. The purchase of put options on futures contracts is analogous to the purchase of puts on securities so as to hedge the Fund’s securities holdings against the risk of declining market prices. The writing of a call option or the purchasing of a put option on a futures contract constitutes a partial hedge against declining prices of securities which are deliverable upon exercise of the futures contract. If the price at expiration of a written call option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund’s holdings of securities. If the price when the option is exercised is above the exercise price, however, the Fund will incur a loss, which may be offset, in whole or in part, by the increase in the value of the securities held by the Fund that were being hedged. Writing a put option or purchasing a call option on a futures contract serves as a partial hedge against an increase in the value of the securities the Fund intends to acquire. Realized gains and losses on written options are included in “Net realized gain (loss) on written options contracts” on the Statement of Operations. Realized gains and losses on purchased options are included in “Net realized gain (loss) on purchased options contracts” on the Statement of Operations.
The Fund is required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option and other futures positions held by the Fund. The Fund will pledge in a segregated account at the Fund’s custodian, liquid assets, such as cash, U.S. government securities or other high-grade liquid debt obligations equal in value to the amount due on the underlying obligation. Such segregated assets will be marked-to-market daily, and additional assets will be pledged in the segregated account whenever the total value of the pledged assets falls below the amount due on the underlying obligation.
The risks associated with the use of options on future contracts include the risk that the Fund may close out its position as a writer of an option only if a liquid secondary market exists for such options, which cannot be assured. The Fund’s successful use of options on futures contracts depends on the Advisor’s ability to correctly predict the movement in prices on futures contracts and the underlying instruments, which may prove to be incorrect. In addition, there may be imperfect correlation between the instruments being hedged and the futures contract subject to option.
F. Interest-Only Securities
An interest-only security (“IO Security”) is the interest-only portion of a mortgage-backed security that receives some or all of the interest portion of the underlying mortgage-backed security and little or no principal. A reference principal value called a notional value is used to calculate the amount of interest due to the IO Security. IO Securities are sold at a deep discount to their notional principal amount. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of an IO Security will fall. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of an IO Security will rise. These securities, if any, are identified on the Portfolio of Investments.
G. Principal-Only Securities
A principal-only security (“PO Security”) is the principal-only portion of a mortgage-backed security that does not receive any interest, is priced at a deep discount to its redemption value and ultimately receives the redemption value. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of a PO Security will rise. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of a PO Security will fall. These securities, if any, are identified on the Portfolio of Investments.
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 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. The Fund’s investment performance and risks are directly related to the investment performance and risks of the affiliated funds. The affiliated funds’ financial statements may be found at SEC.gov. Dividend income, if any, realized gains and losses, and change in appreciation (depreciation) from affiliated funds are presented on the Statement of Operations.
Amounts relating to investments in affiliated funds at October 31, 2024, and for the fiscal year then ended are as follows:
| | | | | Change in
Unrealized
Appreciation
(Depreciation) | | | |
First Trust Commercial Mortgage Opportunities ETF | | | | | | | | |
First Trust Intermediate Government Opportunities ETF | | | | | | | | |
First Trust Long Duration Opportunities ETF | | | | | | | | |
First Trust Structured Credit Income Opportunities ETF | | | | | | | | |
| | | | | | | | |
K. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions 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,
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal years ended October 31, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $66,923,382 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit, and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
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 a contractual agreement between the Trust, on behalf of LMBS, and First Trust, the management fees paid to First Trust will be reduced by the proportional amount of the Fund’s acquired fund fees and expenses that are attributed to the Fund’s investment in the shares of 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) the termination of LMBS’s investment management agreement with First Trust; however, it is expected to remain in place at least until June 30, 2025. First Trust does not have the right to recover the waived fees. For the fiscal year ended October 31, 2024, First Trust waived $5,917 of management fees.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
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.
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
The costs of purchases of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and investments sold short, for the fiscal year ended October 31, 2024, were $9,955,786,203 and $244,000,462, respectively. The proceeds from sales and paydowns of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and investments sold short, for the fiscal year ended October 31, 2024 were $9,261,226,942 and $403,081,745, respectively. The cost of purchases to cover short sales and the proceeds from short sales were $6,023,195,816 and $6,228,408,786, respectively.
For the fiscal year ended October 31, 2024, 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, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
Interest Rate Risk Exposure | |
Net realized gain (loss) on: | |
Purchased options contracts | |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) on: | |
Purchased options contracts | |
Written options contracts | |
| |
During the fiscal year ended October 31, 2024, the premiums for purchased options contracts opened were $2,353,510 and the premiums for purchased options contracts closed, exercised and expired were $3,068,512.
During the fiscal year ended October 31, 2024, the premiums for written options contracts opened were $75,436,605 and the premiums for written options contracts closed, exercised and expired were $72,031,067.
The average notional value of futures contracts outstanding during the fiscal year ended October 31, 2024, which is indicative of the volume of this derivative type, was $1,916,151,301.
Notes to Financial Statements (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 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 Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Low Duration Opportunities ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 23, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s 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
Other Information (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 (Unaudited) provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objectives, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, 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 considered that at the June 2–3, 2024 meeting, the Advisor agreed to a Fee Offset Agreement for the Fund through June 30, 2025, whereby the Advisor will offset the unitary fee paid by the Fund related to the portion of the Fund’s assets invested in other investment companies advised by the Advisor. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund outperformed the Performance Universe median and the benchmark index for the one-, three- and five-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the
Other Information (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 (Unaudited) 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.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust 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, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $3,855,513. This figure is comprised of $221,474 paid (or to be paid) in fixed compensation and $3,634,039 paid (or to be paid) in variable compensation. There were a total of 28 beneficiaries of the remuneration described above. Those amounts include $1,014,300 paid (or to be paid) to senior management of First Trust Advisors L.P. and $2,841,213 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.
Distributions paid to the foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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.
Other Information (Continued)
First Trust Low Duration Opportunities ETF (LMBS)October 31, 2024 (Unaudited) Of the ordinary income (including short-term capital gain) distributions made by the Fund during the fiscal year ended October 31, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
First Trust Intermediate Government Opportunities ETF (MGOV) |
First Trust Intermediate Government Opportunities ETF (MGOV)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Intermediate Government Opportunities ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Intermediate Government Opportunities ETF (MGOV)Portfolio of InvestmentsOctober 31, 2024
| | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 102.5% |
| Collateralized Mortgage Obligations — 44.3% | |
| Federal Home Loan Mortgage Corporation Seasoned Credit Risk Transfer Trust | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Federal Home Loan Mortgage Corporation Seasoned Loans Structured Transaction Trust | | | |
| | | | |
| | | | |
| Series 2024-2, Class VF, 30 Day Average SOFR + 1.25% (a) (b) (c) | | | |
| Federal Home Loan Mortgage Corporation | | | |
| Series 2013-4213, Class GZ | | | |
| Series 2014-4316, Class BZ | | | |
| Series 2014-4316, Class XZ | | | |
| Series 2017-4741, Class GY | | | |
| Series 2017-4745, Class CZ | | | |
| Series 2018-4798, Class GZ | | | |
| Series 2019-4929, Class FB, 30 Day Average SOFR + CSA + 0.45% (c) | | | |
| Series 2020-4959, Class LB | | | |
| Series 2022-5256, Class FC, 30 Day Average SOFR + 0.75% (c) | | | |
| Series 2024-413, Class PO, PO, STRIPS | | | |
| Federal National Mortgage Association | | | |
| Series 2012-118, Class VZ | | | |
| Series 2012-134, Class ZC | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Series 2024-26, Class PO, PO | | | |
| Government National Mortgage Association | | | |
| Series 2015-123, Class ZA | | | |
| Series 2022-191, Class BY | | | |
| | | | |
| | |
| Commercial Mortgage-Backed Securities — 25.8% | |
| Federal Home Loan Mortgage Corporation Multiclass Certificates | | | |
| Series 2020-RR06, Class BX, IO (e) | | | |
| Federal Home Loan Mortgage Corporation Multifamily Structured Pass Through Certificates | | | |
| Series 2016-K152, Class A1 | | | |
| Series 2016-KW01, Class X3, IO (f) | | | |
| Series 2018-K157, Class A3 | | | |
| Series 2018-KSW4, Class A, 30 Day Average SOFR + CSA + 0.43% (c) | | | |
| Series 2019-K1510, Class A2 | | | |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Commercial Mortgage-Backed Securities (Continued) | |
| Federal Home Loan Mortgage Corporation Multifamily Structured Pass Through Certificates (Continued) | | | |
| Series 2019-K1512, Class A2 | | | |
| Series 2019-K1512, Class X1, IO (f) | | | |
| Series 2019-KJ24, Class A2 | | | |
| Series 2020-K110, Class X1, IO (f) | | | |
| Series 2020-K740, Class XAM, IO (f) | | | |
| Series 2020-KG04, Class X1, IO (f) | | | |
| Series 2021-K129, Class XAM, IO (f) | | | |
| Series 2021-K130, Class X1, IO (f) | | | |
| Series 2021-K125, Class A1 | | | |
| Series 2021-KG05, Class X1, IO (f) | | | |
| Series 2022-K142, Class A1 | | | |
| Series 2022-K143, Class XAM, IO (f) | | | |
| Series 2022-K152, Class A1 | | | |
| Series 2024-K165, Class XAM, IO (f) (g) | | | |
| Series 2024-K757, Class XAM, IO (f) | | | |
| Series 2024-KJ51, Class A2 | | | |
| | | | |
| Series 2019-KL4F, Class BAS (a) (f) | | | |
| Government National Mortgage Association | | | |
| Series 2024-32, Class IO, IO (f) | | | |
| | |
| Pass-Through Securities — 32.4% | |
| Federal Home Loan Mortgage Corporation |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Federal National Mortgage Association |
| | | | |
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| | | | |
| | | | |
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| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Portfolio of Investments (Continued)October 31, 2024 | | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) |
| Pass-Through Securities (Continued) | |
| Federal National Mortgage Association (Continued) |
| | | | |
| | | | |
| | |
| Total U.S. Government Agency Mortgage-Backed Securities | |
| | |
U.S. GOVERNMENT BONDS AND NOTES — 6.2% |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total U.S. Government Bonds and Notes | |
| | |
| | |
EXCHANGE-TRADED FUNDS — 0.2% |
| | |
| iShares 20+ Year Treasury Bond ETF | |
| | |
MONEY MARKET FUNDS — 2.3% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.71% (h) | |
| | |
| Total Investments — 111.2% | |
| | |
| | | | |
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT — (0.7)% |
| Pass-Through Securities — (0.7)% | |
| Federal National Mortgage Association | |
| | | | |
| Total Investments Sold Short — (0.7)% | |
| | |
| | | | | |
|
| Call Options Written — (0.2)% | |
| SOFR 1-Year Mid-Curve Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 5-Year Treasury Futures Call | | | | |
| U.S. 10-Year Treasury Futures Call | | | | |
| U.S. 10-Year Treasury Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
WRITTEN OPTIONS (Continued) |
| Call Options Written (Continued) | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| U.S. Treasury Long Bond Futures Call | | | | |
| Total Call Options Written | |
| (Premiums received $231,178) | |
| Put Options Written — (0.5)% | |
| SOFR 1-Year Mid-Curve Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 5-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. 10-Year Treasury Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| U.S. Treasury Long Bond Futures Put | | | | |
| Ultra U.S. 10-Year Treasury Long Bond Futures Put | | | | |
| Ultra U.S. Treasury Long Bond Futures Put | | | | |
| Total Put Options Written | |
| (Premiums received $99,372) | |
| | |
| (Premiums received $330,550) | |
| Net Other Assets and Liabilities — (9.8)% | |
| | |
Futures Contracts at October 31, 2024 (See Note 2D - Futures Contracts in the Notes to Financial Statements):
| | | | Unrealized
Appreciation
(Depreciation)/
Value |
U.S. 2-Year Treasury Notes | | | | |
U.S. 5-Year Treasury Notes | | | | |
U.S. Treasury Long Bond Futures | | | | |
Ultra U.S. Treasury Bond Futures | | | | |
| | | | |
| | | | |
U.S. 10-Year Treasury Notes | | | | |
Ultra 10-Year U.S. Treasury Notes | | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Portfolio of Investments (Continued)October 31, 2024 | 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, 2024, securities noted as such amounted to $1,492,853 or 2.5% of net assets. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $1,000,996 or 1.7% of net assets. |
| Floating or variable rate security. |
| |
| 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. |
| Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment’s underlying collateral. The interest rate resets periodically. |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – Credit Spread Adjustment |
| – Interest-Only Security - Principal amount shown represents par value on which interest payments are based |
| – Principal-Only Security |
| – Secured Overnight Financing Rate |
| – Separate Trading of Registered Interest and Principal of Securities |
| – To-Be-Announced Security |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
U.S. Government Agency Mortgage-Backed Securities | | | | |
U.S. Government Bonds and Notes | | | | |
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| | | | |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Portfolio of Investments (Continued)October 31, 2024 |
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
U.S. Government Agency Mortgage-Backed Securities Sold Short | | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Statement of Assets and Liabilities
October 31, 2024
| |
| |
Cash segregated as collateral | |
| |
Investment securities sold | |
| |
| |
| |
| |
| |
|
| |
Investments sold short, at value | |
Options contracts written, at value | |
| |
Investment securities purchased | |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
Investments sold short, proceeds | |
Premiums received on options contracts written | |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
| |
| |
Purchased options contracts | |
Written options contracts | |
| |
| |
Net increase from payment by the advisor | |
Net change in unrealized appreciation (depreciation) on: | |
| |
| |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Statements of Changes in Net Assets
| | Period
Ended
10/31/2023 (a) |
| | |
Net investment income (loss) | | |
| | |
Net increase from payment by the advisor | | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
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|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
| Inception date is August 2, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
See Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)Financial Highlights
For a share outstanding throughout each period
| | Period
Ended
10/31/2023 (a) |
|
Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) (b) | | |
Net realized and unrealized gain (loss) | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
| | |
| | |
| | |
Net asset value, end of period | | |
| | |
|
Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets (f) | | |
Ratio of net investment income (loss) to average net assets (f) | | |
Portfolio turnover rate (h) | | |
| Inception date is August 2, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| The per share amount does not correlate with the aggregate realized and unrealized gain (loss) due to the timing of the Fund share sales and repurchases in relation to market value fluctuation of the underlying investments. |
| The Fund received a payment from the advisor in the amount of $71, which represents less than $0.01 per share. Since the advisor reimbursed the Fund, there was no effect on the Fund’s total return. |
| 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. |
| Ratio of total expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
| The portfolio turnover rate not including mortgage dollar rolls was 121% for the period ended October 31, 2023. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Intermediate Government Opportunities ETF (the “Fund”), a non-diversified series of the Trust, which trades under the ticker “MGOV” on NYSE Arca, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund (“ETF”). The Fund’s investment objective is to seek to maximize long-term total return. The Fund seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in a portfolio of debt securities issued or guaranteed by the U.S. government (including U.S. Treasury bonds, notes and bills), its agencies or government-sponsored entities (“Government Securities”). The Fund’s investments in Government Securities include publicly-issued U.S. Treasury securities and mortgage-related securities such as pass-through securities, collateralized mortgage obligations and commercial mortgage-backed securities. The Fund may also invest in exchange-traded funds that principally invest in Government Securities as well as futures contracts, options and swap agreements that utilize Government Securities as their reference asset. The Fund may purchase mortgage-related securities in “to-be-announced” (“TBA”) transactions, including mortgage dollar rolls. The Fund may invest in fixed or floating rate 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.
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:
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:
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 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.
ETFs 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 end of the day settlement 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 ask price, if both are available. Options contracts traded in the over-the-counter market may be valued as follows, depending on the market in which the investment trades: (1) the mean of the most recent bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option.
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)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the 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);
14)
the borrower’s/issuer’s competitive position within the industry;
15)
the borrower’s/issuer’s ability to access additional liquidity through public and/or private markets; and
16)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income 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 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, 2024, the Fund held $376,747 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund had no forward purchase commitments.
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 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 a 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.
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures contracts to hedge against or gain exposure to changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statement of Operations. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are included in “Variation margin” payable or receivable on the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments.
The Fund may invest in exchange-listed options on U.S. Treasury securities, exchange-listed options on U.S. Treasury futures contracts, exchange-listed U.S. Treasury futures contracts and exchange-listed options on secured overnight financing rate 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.
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 The Fund uses options on futures contracts in connection with hedging strategies. Generally, these strategies are applied under the same market and market sector conditions in which the Fund uses put and call options on securities. The purchase of put options on futures contracts is analogous to the purchase of puts on securities so as to hedge the Fund’s securities holdings against the risk of declining market prices. The writing of a call option or the purchasing of a put option on a futures contract constitutes a partial hedge against declining prices of securities which are deliverable upon exercise of the futures contract. If the price at expiration of a written call option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund’s holdings of securities. If the price when the option is exercised is above the exercise price, however, the Fund will incur a loss, which may be offset, in whole or in part, by the increase in the value of the securities held by the Fund that were being hedged. Writing a put option or purchasing a call option on a futures contract serves as a partial hedge against an increase in the value of the securities the Fund intends to acquire. Realized gains and losses on written options are included in “Net realized gain (loss) on written options contracts” on the Statement of Operations. Realized gains and losses on purchased options are included in “Net realized gain (loss) on purchased options contracts” on the Statement of Operations.
The Fund is required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option and other futures positions held by the Fund. The Fund will pledge in a segregated account at the Fund’s custodian, liquid assets, such as cash, U.S. government securities or other high-grade liquid debt obligations equal in value to the amount due on the underlying obligation. Such segregated assets will be marked-to-market daily, and additional assets will be pledged in the segregated account whenever the total value of the pledged assets falls below the amount due on the underlying obligation.
The risks associated with the use of options on future contracts include the risk that the Fund may close out its position as a writer of an option only if a liquid secondary market exists for such options, which cannot be assured. The Fund’s successful use of options on futures contracts depends on the Advisor’s ability to correctly predict the movement in prices on futures contracts and the underlying instruments, which may prove to be incorrect. In addition, there may be imperfect correlation between the instruments being hedged and the futures contract subject to option.
F. Interest-Only Securities
An interest-only security (“IO Security”) is the interest-only portion of a mortgage-backed security that receives some or all of the interest portion of the underlying mortgage-backed security and little or no principal. A reference principal value called a notional value is used to calculate the amount of interest due to the IO Security. IO Securities are sold at a deep discount to their notional principal amount. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of an IO Security will fall. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of an IO Security will rise. These securities, if any, are identified on the Portfolio of Investments.
G. Principal-Only Securities
A principal-only security (“PO Security”) is the principal-only portion of a mortgage-backed security that does not receive any interest, is priced at a deep discount to its redemption value and ultimately receives the redemption value. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of a PO Security will rise. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of a PO Security will fall. These securities, if any, are identified on the Portfolio of Investments.
H. Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more new securities, each with a specified percentage of the underlying security’s principal or interest payments. Mortgage-backed securities may be partially stripped so that each investor class receives some interest and some principal. When securities are completely stripped, however, all of the interest is distributed to holders of one type of security known as an IO Security and all of the principal is distributed to holders of another type of security known as a PO Security. These securities, if any, are identified on the Portfolio of Investments.
I. Mortgage Dollar Rolls and TBA Transactions
The Fund may invest, without limitation, in mortgage dollar rolls. The Fund intends to enter into mortgage dollar rolls only with high quality securities dealers and banks, as determined by the Fund’s investment advisor. In a mortgage dollar roll, the Fund will sell (or
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 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 Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions 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 year ended October 31, 2024 and period ended October 31, 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2023 and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $83,862 of non-
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
During the fiscal year ended October 31, 2024, the Fund utilized $258,735 of non-expiring capital loss carryforwards.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit, and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 | |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion up to and including $15 billion | |
Fund net assets greater than $15 billion | |
During the fiscal year ended October 31, 2024, the Fund received a payment from the Advisor in the amount of $71 in connection with a trade error.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
The costs of purchases of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and investments sold short, for the fiscal year ended October 31, 2024, were $127,307,302 and $138,266, respectively. The proceeds from sales and paydowns of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and investments sold short, for the fiscal year ended October 31, 2024 were $82,446,965 and $20,031, respectively. The cost of purchases to cover short sales and the proceeds of short sales were $38,687,921 and $38,626,146, respectively.
For the fiscal year ended October 31, 2024, 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, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
Interest Rate Risk Exposure | |
Net realized gain (loss) on: | |
Purchased options contracts | |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) on: | |
Written options contracts | |
| |
The average notional value of futures contracts outstanding during the fiscal year ended October 31, 2024, which is indicative of the volume of this derivative type, was $12,377,528.
During the fiscal year ended October 31, 2024, the premiums for purchased options contracts opened were $11,360 and the premiums for purchased options contracts closed, exercised and expired were $11,360.
During the fiscal year ended October 31, 2024, the premiums for written options contracts opened were $738,466 and the premiums for written options contracts closed, exercised and expired were $444,020.
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 Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, 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
Notes to Financial Statements (Continued)
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Intermediate Government Opportunities ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund IV, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights for the year then ended, and for the period from August 2, 2023 (commencement of investment operations) through October 31, 2023, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period from August 2, 2023 (commencement of investment operations) through October 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Intermediate Government Opportunities ETF (MGOV)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2024 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, 2024, none qualify for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
Annual Financial
Statements and
Other Information |
For the Period Ended
October 31, 2024 |
First Trust Exchange-Traded Fund IV
FT Vest Rising Dividend Achievers Target Income ETF (RDVI) |
FT Vest SMID Rising Dividend Achievers Target Income ETF (SDVD) |
FT Vest Technology Dividend Target Income ETF (TDVI) |
FT Vest Dow Jones Internet & Target Income ETF (FDND) |
First Trust Exchange-Traded Fund IV
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that any series of First Trust Exchange-Traded Fund IV (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Funds’ advisor, may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data that provides insight into each Fund’s performance and investment approach.
The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
FT Vest Rising Dividend Achievers Target Income ETF (RDVI)Portfolio of InvestmentsOctober 31, 2024
| | |
|
| | |
| Bank of America Corp. (a) | |
| East West Bancorp, Inc. (a) | |
| | |
| | |
| | |
| Regions Financial Corp. (a) | |
| | |
| | |
| CF Industries Holdings, Inc. (a) | |
| Communications Equipment — 2.1% | |
| | |
| | |
| | |
| Capital One Financial Corp. (a) | |
| Discover Financial Services (a) | |
| | |
| | |
| | |
| Financial Services — 12.2% | |
| Equitable Holdings, Inc. (a) | |
| Jackson Financial, Inc., Class A (a) | |
| Mastercard, Inc., Class A (a) | |
| MGIC Investment Corp. (a) | |
| | |
| | |
| | |
| Ground Transportation — 2.1% | |
| Old Dominion Freight Line, Inc. (a) | |
| Health Care Providers & Services — 1.5% | |
| Elevance Health, Inc. (a) | |
| Household Durables — 5.9% | |
| | |
| | |
| Lennar Corp., Class A (a) | |
| | |
| | |
| | |
| | |
| Hartford Financial Services Group (The), Inc. (a) | |
| | |
| | |
| Accenture PLC, Class A (a) | |
| Cognizant Technology Solutions Corp., Class A (a) | |
| | |
| | |
| Mueller Industries, Inc. (a) | |
See Notes to Financial Statements
FT Vest Rising Dividend Achievers Target Income ETF (RDVI)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| | |
| | |
| | |
| | |
| | |
| Interpublic Group of (The) Cos., Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Oil, Gas & Consumable Fuels — 10.0% | |
| California Resources Corp. (a) | |
| | |
| | |
| | |
| Magnolia Oil & Gas Corp., Class A (a) | |
| | |
| Semiconductors & Semiconductor Equipment — 7.5% | |
| Applied Materials, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Williams-Sonoma, Inc. (a) | |
| Technology Hardware, Storage & Peripherals — 1.9% | |
| | |
| Textiles, Apparel & Luxury Goods — 1.8% | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.2% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (b) | |
| | |
| Total Investments — 100.0% | |
| | |
See Notes to Financial Statements
FT Vest Rising Dividend Achievers Target Income ETF (RDVI)Portfolio of Investments (Continued)October 31, 2024 | | | | | |
|
| Call Options Written — (0.0)% | |
| | | | | |
| (Premiums received $1,804,712) | | | | |
| Net Other Assets and Liabilities — (0.0)% | |
| | |
| All or a portion of this security is held as collateral for the options written. At October 31, 2024, the value of these securities amounts to $59,536,462. |
| Rate shown reflects yield as of October 31, 2024. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
FT Vest SMID Rising Dividend Achievers Target Income ETF (SDVD)Portfolio of InvestmentsOctober 31, 2024
| | |
|
| Air Freight & Logistics — 1.0% | |
| Expeditors International of Washington, Inc. (a) | |
| Automobile Components — 1.9% | |
| | |
| | |
| | |
| | |
| Winnebago Industries, Inc. (a) | |
| | |
| | |
| | |
| Citizens Financial Group, Inc. (a) | |
| | |
| East West Bancorp, Inc. (a) | |
| Eastern Bankshares, Inc. (a) | |
| | |
| | |
| Huntington Bancshares, Inc. (a) | |
| International Bancshares Corp. (a) | |
| | |
| Regions Financial Corp. (a) | |
| Synovus Financial Corp. (a) | |
| Wintrust Financial Corp. (a) | |
| | |
| | |
| | |
| | |
| Advanced Drainage Systems, Inc. (a) | |
| | |
| | |
| | |
| | |
| Franklin Resources, Inc. (a) | |
| | |
| CF Industries Holdings, Inc. (a) | |
| | |
| | |
| Construction & Engineering — 2.2% | |
| Comfort Systems USA, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Diversified Consumer Services — 1.0% | |
| Perdoceo Education Corp. (a) | |
See Notes to Financial Statements
FT Vest SMID Rising Dividend Achievers Target Income ETF (SDVD)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Electronic Equipment, Instruments & Components — 1.0% | |
| Vishay Intertechnology, Inc. (a) | |
| Energy Equipment & Services — 2.9% | |
| Atlas Energy Solutions, Inc. (a) | |
| Cactus, Inc., Class A (a) | |
| Select Water Solutions, Inc. (a) | |
| | |
| | |
| Endeavor Group Holdings, Inc., Class A (a) | |
| Financial Services — 7.7% | |
| Corebridge Financial, Inc. (a) | |
| Equitable Holdings, Inc. (a) | |
| | |
| Jackson Financial, Inc., Class A (a) | |
| MGIC Investment Corp. (a) | |
| | |
| | |
| | |
| | |
| Cal-Maine Foods, Inc. (a) | |
| Ground Transportation — 1.0% | |
| Landstar System, Inc. (a) | |
| Household Durables — 6.9% | |
| Century Communities, Inc. (a) | |
| | |
| Installed Building Products, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| American Financial Group, Inc. (a) | |
| Cincinnati Financial Corp. (a) | |
| | |
| Reinsurance Group of America, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Lincoln Electric Holdings, Inc. (a) | |
| Mueller Industries, Inc. (a) | |
| | |
| | |
| | |
See Notes to Financial Statements
FT Vest SMID Rising Dividend Achievers Target Income ETF (SDVD)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Marine Transportation — 1.2% | |
| | |
| | |
| Interpublic Group of (The) Cos., Inc. (a) | |
| | |
| | |
| | |
| Commercial Metals Co. (a) | |
| | |
| | |
| | |
| Oil, Gas & Consumable Fuels — 6.5% | |
| California Resources Corp. (a) | |
| | |
| | |
| Magnolia Oil & Gas Corp., Class A (a) | |
| | |
| Texas Pacific Land Corp. (a) | |
| | |
| Paper & Forest Products — 1.0% | |
| | |
| Professional Services — 4.2% | |
| | |
| | |
| Jacobs Solutions, Inc. (a) | |
| | |
| | |
| Semiconductors & Semiconductor Equipment — 0.9% | |
| Amkor Technology, Inc. (a) | |
| | |
| | |
| Dick’s Sporting Goods, Inc. (a) | |
| Williams-Sonoma, Inc. (a) | |
| | |
| Technology Hardware, Storage & Peripherals — 2.1% | |
| Dell Technologies, Inc., Class C (a) | |
| | |
| | |
| Textiles, Apparel & Luxury Goods — 4.1% | |
| | |
| | |
| | |
| | |
| | |
| Trading Companies & Distributors — 1.0% | |
| | |
| | |
| | |
See Notes to Financial Statements
FT Vest SMID Rising Dividend Achievers Target Income ETF (SDVD)Portfolio of Investments (Continued)October 31, 2024 | | |
MONEY MARKET FUNDS — 0.3% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (b) | |
| | |
| Total Investments — 100.0% | |
| | |
| | | | | |
|
| Call Options Written — (0.1)% | |
| | | | | |
| (Premiums received $191,854) | | | | |
| Net Other Assets and Liabilities — 0.1% | |
| | |
| All or a portion of this security is held as collateral for the options written. At October 31, 2024, the value of these securities amounts to $7,154,872. |
| Rate shown reflects yield as of October 31, 2024. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
FT Vest Technology Dividend Target Income ETF (TDVI)Portfolio of InvestmentsOctober 31, 2024
| | |
|
| Communications Equipment — 5.0% | |
| | |
| Motorola Solutions, Inc. (a) | |
| | |
| Telefonaktiebolaget LM Ericsson, ADR | |
| | |
| | |
| Diversified Telecommunication Services — 9.3% | |
| | |
| | |
| Cogent Communications Holdings, Inc. (a) | |
| Iridium Communications, Inc. | |
| | |
| Telefonica Brasil S.A., ADR | |
| | |
| | |
| Verizon Communications, Inc. (a) | |
| | |
| Electronic Equipment, Instruments & Components — 5.0% | |
| Amphenol Corp., Class A (a) | |
| | |
| Benchmark Electronics, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| Vishay Intertechnology, Inc. (a) | |
| | |
| Health Care Technology — 0.0% | |
| | |
| Interactive Media & Services — 0.3% | |
| | |
| | |
| | |
| | |
| | |
| Cognizant Technology Solutions Corp., Class A (a) | |
| Hackett Group (The), Inc. (a) | |
| | |
| International Business Machines Corp. (a) | |
| | |
| | |
| | |
| Comcast Corp., Class A (a) | |
| | |
| Professional Services — 1.5% | |
| | |
| CSG Systems International, Inc. (a) | |
See Notes to Financial Statements
FT Vest Technology Dividend Target Income ETF (TDVI)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Professional Services (Continued) | |
| Dun & Bradstreet Holdings, Inc. (a) | |
| | |
| Leidos Holdings, Inc. (a) | |
| | |
| Science Applications International Corp. (a) | |
| SS&C Technologies Holdings, Inc. (a) | |
| | |
| Semiconductors & Semiconductor Equipment — 36.3% | |
| Amkor Technology, Inc. (a) | |
| | |
| Applied Materials, Inc. (a) | |
| | |
| | |
| | |
| | |
| Kulicke & Soffa Industries, Inc. (a) | |
| | |
| Microchip Technology, Inc. (a) | |
| Monolithic Power Systems, Inc. (a) | |
| NXP Semiconductors N.V. (a) | |
| Power Integrations, Inc. (a) | |
| | |
| Silicon Motion Technology Corp., ADR | |
| Skyworks Solutions, Inc. (a) | |
| | |
| Taiwan Semiconductor Manufacturing Co., Ltd., ADR (a) | |
| Texas Instruments, Inc. (a) | |
| Universal Display Corp. (a) | |
| | |
| | |
| | |
| | |
| Clear Secure, Inc., Class A | |
| Dolby Laboratories, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Progress Software Corp. (a) | |
| Roper Technologies, Inc. (a) | |
| | |
| Sapiens International Corp. N.V. | |
| | |
| Technology Hardware, Storage & Peripherals — 6.0% | |
| Dell Technologies, Inc., Class C (a) | |
| Hewlett Packard Enterprise Co. (a) | |
| | |
See Notes to Financial Statements
FT Vest Technology Dividend Target Income ETF (TDVI)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Technology Hardware, Storage & Peripherals (Continued) | |
| Logitech International S.A. (a) | |
| | |
| Seagate Technology Holdings PLC (a) | |
| | |
| | |
| Wireless Telecommunication Services — 3.8% | |
| Rogers Communications, Inc., Class B (a) | |
| | |
| Turkcell Iletisim Hizmetleri A/S, ADR | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.3% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (b) | |
| | |
| Total Investments — 99.9% | |
| | |
| | | | | |
|
| Call Options Written — (0.0)% | |
| | | | | |
| (Premiums received $51,210) | | | | |
| Net Other Assets and Liabilities — 0.1% | |
| | |
| All or a portion of this security is held as collateral for the options written. At October 31, 2024, the value of these securities amounts to $2,242,631. |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
See Notes to Financial Statements
FT Vest Technology Dividend Target Income ETF (TDVI)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
FT Vest Dow Jones Internet & Target Income ETF (FDND)Portfolio of InvestmentsOctober 31, 2024
| | |
|
| | |
| | |
| | |
| | |
| Commercial Services & Supplies — 2.4% | |
| | |
| Communications Equipment — 10.2% | |
| Arista Networks, Inc. (a) (b) | |
| | |
| | |
| Juniper Networks, Inc. (b) | |
| | |
| | |
| | |
| ROBLOX Corp., Class A (a) (b) | |
| | |
| Financial Services — 4.2% | |
| PayPal Holdings, Inc. (a) (b) | |
| Health Care Technology — 1.6% | |
| Veeva Systems, Inc., Class A (a) (b) | |
| Hotels, Restaurants & Leisure — 11.8% | |
| Airbnb, Inc., Class A (a) (b) | |
| | |
| DoorDash, Inc., Class A (a) (b) | |
| DraftKings, Inc., Class A (a) (b) | |
| | |
| Interactive Media & Services — 21.4% | |
| Alphabet, Inc., Class A (b) | |
| Alphabet, Inc., Class C (b) | |
| Meta Platforms, Inc., Class A (b) | |
| Pinterest, Inc., Class A (a) (b) | |
| ZoomInfo Technologies, Inc. (a) (b) | |
| | |
| | |
| Akamai Technologies, Inc. (a) (b) | |
| Cloudflare, Inc., Class A (a) (b) | |
| GoDaddy, Inc., Class A (a) (b) | |
| | |
| Snowflake, Inc., Class A (a) (b) | |
| | |
| | |
| Professional Services — 0.5% | |
| | |
| | |
| Atlassian Corp., Class A (a) (b) | |
| Box, Inc., Class A (a) (b) | |
| Confluent, Inc., Class A (a) (b) | |
| Datadog, Inc., Class A (a) (b) | |
| | |
See Notes to Financial Statements
FT Vest Dow Jones Internet & Target Income ETF (FDND)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| | |
| Dropbox, Inc., Class A (a) (b) | |
| | |
| MARA Holdings, Inc. (a) (b) | |
| Nutanix, Inc., Class A (a) (b) | |
| | |
| Smartsheet, Inc., Class A (a) (b) | |
| Workday, Inc., Class A (a) (b) | |
| Zoom Video Communications, Inc., Class A (a) (b) | |
| | |
| | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.2% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (c) | |
| | |
| Total Investments — 100.0% | |
| | |
| | | | | |
|
| Call Options Written — (0.0)% | |
| | | | | |
| (Premiums received $1,898) | | | | |
| Net Other Assets and Liabilities — 0.0% | |
| | |
| Non-income producing security. |
| All or a portion of this security is held as collateral for the options written. At October 31, 2024, the value of these securities amounts to $884,890. |
| Rate shown reflects yield as of October 31, 2024. |
See Notes to Financial Statements
FT Vest Dow Jones Internet & Target Income ETF (FDND)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
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First Trust Exchange-Traded Fund IVStatements of Assets and Liabilities
October 31, 2024
| FT Vest Rising Dividend Achievers Target Income ETF
(RDVI) | FT Vest SMID Rising Dividend Achievers Target Income ETF
(SDVD) | FT Vest Technology Dividend Target Income ETF
(TDVI) | FT Vest Dow Jones Internet & Target Income ETF
(FDND) |
| | | | |
| | | | |
| | | | |
Cash segregated as collateral | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
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|
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Options contracts written, at value | | | | |
| | | | |
Investment securities purchased | | | | |
| | | | |
| | | | |
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|
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| | | | |
| | | | |
Accumulated distributable earnings (loss) | | | | |
| | | | |
NET ASSET VALUE, per share | | | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | | | |
| | | | |
Premiums received on options contracts written | | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVStatements of Operations
For the Period Ended October 31, 2024
| FT Vest Rising Dividend Achievers Target Income ETF
(RDVI) | FT Vest SMID Rising Dividend Achievers Target Income ETF
(SDVD) | FT Vest Technology Dividend Target Income ETF
(TDVI) | FT Vest Dow Jones Internet & Target Income ETF
(FDND) (a) |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | |
| | | | |
| | | | |
NET INVESTMENT INCOME (LOSS) | | | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | | | |
Net realized gain (loss) on: | | | | |
| | | | |
| | | | |
Written options contracts | | | | |
Foreign currency transactions | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) on: | | | | |
| | | | |
Written options contracts | | | | |
Net change in unrealized appreciation (depreciation) | | | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | | | |
| Inception date is March 20, 2024, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVStatements of Changes in Net Assets
| FT Vest Rising Dividend Achievers Target Income ETF (RDVI) | FT Vest SMID Rising Dividend Achievers Target Income ETF (SDVD) |
| | | | Period
Ended
10/31/2023 (a) |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
| Inception date is August 9, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Inception date is March 20, 2024, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
See Notes to Financial Statements
FT Vest Technology Dividend Target Income ETF (TDVI) | FT Vest Dow Jones Internet & Target Income ETF (FDND) |
| Period
Ended
10/31/2023 (a) | Period
Ended
10/31/2024 (b) |
| | |
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| | |
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|
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|
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|
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See Notes to Financial Statements
First Trust Exchange-Traded Fund IVFinancial Highlights
For a share outstanding throughout each period FT Vest Rising Dividend Achievers Target Income ETF (RDVI)
| | Period
Ended
10/31/2022 (a) |
| | |
Net asset value, beginning of period | | | |
Income from investment operations: | | | |
Net investment income (loss) | | | |
Net realized and unrealized gain (loss) | | | |
Total from investment operations | | | |
Distributions paid to shareholders from: | | | |
| | | |
| | | |
| | | |
Net asset value, end of period | | | |
| | | |
|
Ratios to average net assets/supplemental data: | | | |
Net assets, end of period (in 000’s) | | | |
Ratio of total expenses to average net assets | | | |
Ratio of net investment income (loss) to average net assets | | | |
Portfolio turnover rate (g) | | | |
| 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. |
| Based on average shares outstanding. |
| Amount represents less than $0.01. |
| 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. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVFinancial Highlights (Continued)
For a share outstanding throughout each period FT Vest SMID Rising Dividend Achievers Target Income ETF (SDVD)
| | Period
Ended
10/31/2023 (a) |
|
Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) (b) | | |
Net realized and unrealized gain (loss) | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
| | |
| | |
| | |
Net asset value, end of period | | |
| | |
|
Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets | | |
Ratio of net investment income (loss) to average net assets | | |
Portfolio turnover rate (e) | | |
| Inception date is August 9, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVFinancial Highlights (Continued)
For a share outstanding throughout each period FT Vest Technology Dividend Target Income ETF (TDVI)
| | Period
Ended
10/31/2023 (a) |
|
Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) (b) | | |
Net realized and unrealized gain (loss) | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
| | |
| | |
| | |
Net asset value, end of period | | |
| | |
|
Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets | | |
Ratio of net investment income (loss) to average net assets | | |
Portfolio turnover rate (e) | | |
| Inception date is August 9, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IVFinancial Highlights (Continued)
For a share outstanding throughout the period FT Vest Dow Jones Internet & Target Income ETF (FDND)
| Period
Ended
10/31/2024 (a) |
|
Net asset value, beginning of period | |
Income from investment operations: | |
Net investment income (loss) (b) | |
Net realized and unrealized gain (loss) | |
Total from investment operations | |
Distributions paid to shareholders from: | |
| |
Net asset value, end of period | |
| |
|
Ratios to average net assets/supplemental data: | |
Net assets, end of period (in 000’s) | |
Ratio of total expenses to average net assets | |
Ratio of net investment income (loss) to average net assets | |
Portfolio turnover rate (e) | |
| Inception date is March 20, 2024, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The 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. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund IVOctober 31, 2024
1. Organization
First Trust Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the four funds (each a “Fund” and collectively, the “Funds”) listed below, each a non-diversified series of the Trust. The shares of each Fund are listed and traded on the Cboe BZX Exchange, Inc.
FT Vest Rising Dividend Achievers Target Income ETF – RDVI |
FT Vest SMID Rising Dividend Achievers Target Income ETF – SDVD |
FT Vest Technology Dividend Target Income ETF – TDVI |
FT Vest Dow Jones Internet & Target Income ETF – FDND(1) |
| Commenced investment operations on March 20, 2024. |
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 (“ETF”).
RDVI’s investment objective seeks to provide investors with current income with a secondary objective of providing capital appreciation. Under normal market conditions, RDVI will pursue its investment objectives by investing primarily in U.S. exchange-traded equity securities contained in the Nasdaq US Rising Dividend AchieversTM Index and by utilizing an “option strategy” consisting of writing (selling) U.S. exchange-traded call options on the S&P 500® Index or ETFs that track the S&P 500® Index. Under normal market conditions, RDVI 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.
SDVD’s investment objective seeks to provide investors with current income with a secondary objective of providing capital appreciation. Under normal market conditions, SDVD will pursue its investment objectives by investing primarily in U.S. exchange-traded equity securities contained in the Nasdaq US Small-Mid Cap Rising Dividend AchieversTM Index and by utilizing an “option strategy” consisting of writing (selling) U.S. exchange-traded call options on the Russell 2000® Index or ETFs that track the Russell 2000® Index. Under normal market conditions, SDVD 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 of small- and/or mid-capitalization companies.
TDVI’s investment objective seeks to provide investors with current income with a secondary objective of providing capital appreciation. Under normal market conditions, TDVI will pursue its investment objectives by investing primarily in U.S. exchange-traded equity securities contained in the Nasdaq Technology DividendTM Index and by utilizing an “option strategy” consisting of writing (selling) U.S. exchange-traded call options on the Nasdaq-100® Index and/or the S&P 500® Index, or ETFs that track the Nasdaq-100® Index or the S&P 500® Index. Under normal market conditions, TDVI 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 of technology companies (i.e., securities classified under the Technology Industry or Telecommunications Industry as defined by the Industry Classification Benchmark (ICB)).
FDND’s investment objective seeks to provide investors with current income with a secondary objective of providing capital appreciation. Under normal market conditions, FDND will pursue its investment objectives by investing primarily in U.S. exchange-traded equity securities intended to track the Dow Jones Internet Composite Index and by utilizing an “option strategy” consisting of writing (selling) U.S. exchange-traded call options on the Nasdaq-100® Index or ETFs that track the Nasdaq-100® Index. Under normal market conditions, FDND will invest at least 80% of its net assets (plus any borrowings for investment purposes) in securities and/or investments that provide exposure to securities of Internet Companies and securities intended to provide income to FDND in the form of option premiums. “Internet Companies” are companies that generate at least 50% of sales or revenue from the Internet, and belong to either the “Internet Commerce” sector (i.e., online retail, search, financial services, investment products, social media, advertising, and travel platforms, and internet radio) or the “Internet Services” sector (i.e., various services performed via the internet, cloud computing, enterprise software, networking capabilities, website creation tools, and digital marketing platforms).
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Common stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
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 ask price, if both are available. Options contracts traded in the over-the-counter market may be valued as follows, depending on the market in which the investment trades: (1) the mean of the most recent bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Shares of open-end funds are valued based on NAV per share.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the 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;
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 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 Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of October 31, 2024, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date.
Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund’s understanding of the applicable country’s tax rules and rates.
Each Fund is subject to equity price risk in the normal course of pursuing their investment objectives. RDVI will utilize an “option strategy” consisting of writing (selling) U.S. exchanged-traded call options on the S&P 500® Index or exchange-traded funds that track the S&P 500® Index. SDVD will utilize an “option strategy” consisting of writing (selling) U.S. exchanged-traded call options on the Russell 2000® Index or exchange-traded funds that track the Russell 2000® Index. TDVI will utilize an “option strategy” consisting of writing (selling) U.S. exchanged-traded call options on the Nasdaq-100® Index and/or the S&P 500® Index, or exchange-traded funds that track the Nasdaq-100® Index or the S&P 500® Index. FDND will utilize an “option strategy” consisting of writing (selling) U.S. exchanged-traded call options on the Nasdaq-100® Index or exchange-traded funds that track the Nasdaq-100® 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.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 When a Fund writes (sells) an option, an amount equal to the premium received by a Fund is included in “Options contracts written, at value” on the Statements 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 Statements 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 of each Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually. Each Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on 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 period ended October 31, 2024 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
FT Vest Rising Dividend Achievers Target Income ETF | | | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | | | |
FT Vest Technology Dividend Target Income ETF | | | |
FT Vest Dow Jones Internet & Target Income ETF | | | |
The tax character of distributions paid by each Fund during the fiscal period ended October 31, 2023 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
FT Vest Rising Dividend Achievers Target Income ETF | | | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | | | |
FT Vest Technology Dividend Target Income ETF | | | |
As of October 31, 2024, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
FT Vest Rising Dividend Achievers Target Income ETF | | | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | | | |
FT Vest Technology Dividend Target Income ETF | | | |
FT Vest Dow Jones Internet & Target Income ETF | | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 E. Income Taxes
Each Fund intends to qualify or continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. For RDVI, the taxable periods ended 2022, 2023 and 2024 remain open to federal and state audit. For SDVD and TDVI, the taxable periods ended 2023 and 2024 remain open to federal and state audit. For FDND the taxable period ended 2024 remains open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Funds had no non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for each Fund were as follows:
| Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
FT Vest Rising Dividend Achievers Target Income ETF | | | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | | | |
FT Vest Technology Dividend Target Income ETF | | | |
FT Vest Dow Jones Internet & Target Income ETF | | | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
FT Vest Rising Dividend Achievers Target Income ETF | | | | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | | | | |
FT Vest Technology Dividend Target Income ETF | | | | |
FT Vest Dow Jones Internet & Target Income ETF | | | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 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 selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
First Trust is responsible for the expenses of each 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 annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedules:
| | | |
Fund net assets up to and including $2.5 billion | | | |
Fund net assets greater than $2.5 billion up to and including $5 billion | | | |
Fund net assets greater than $5 billion up to and including $7.5 billion | | | |
Fund net assets greater than $7.5 billion up to and including $10 billion | | | |
Fund net assets greater than $10 billion | | | |
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Vest Financial LLC (“Vest”), an affiliate of First Trust, serves as each Fund’s sub-advisor and manages each Fund’s portfolio subject to First Trust’s supervision. Pursuant to the Investment Management Agreement, between the Trust, on behalf of the Funds, and the Advisor, and the Investment Sub-Advisory Agreement among the Trust, on behalf of the Funds, the Advisor and Vest, First Trust will supervise Vest and its management of the investment of each Fund’s assets and will pay Vest for its services as the Funds’ sub-advisor. Vest receives a sub-advisory fee equal to 0.20% of the average daily net assets of each Fund. 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 (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNY is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for each Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 4. Purchases and Sales of Securities
For the fiscal period ended October 31, 2024, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
FT Vest Rising Dividend Achievers Target Income ETF | | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | | |
FT Vest Technology Dividend Target Income ETF | | |
FT Vest Dow Jones Internet & Target Income ETF | | |
For the fiscal period ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
FT Vest Rising Dividend Achievers Target Income ETF | | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | | |
FT Vest Technology Dividend Target Income ETF | | |
FT Vest Dow Jones Internet & Target Income ETF | | |
5. Derivative Transactions
The following table presents the types of derivatives held by each Fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statements of Assets and Liabilities.
| | | |
| | Statements of Assets and
Liabilities Location | | Statements of Assets and
Liabilities Location | |
| | | | | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
| | | | | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
| | | | | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
| | | | | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
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, 2024, on each Fund’s derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
|
Statements of Operations Location | | | | |
| | | | |
Net realized gain (loss) on written options contracts | | | | |
Net change in unrealized appreciation (depreciation) on written options contracts | | | | |
The Funds do not have the right to offset financial assets and financial liabilities related to options contracts on the Statements of Assets and Liabilities.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 The following table presents the premiums for written options contracts opened, and premiums for written options contracts closed, exercised and expired, for the period ended October 31, 2024, on each Fund’s options contracts.
| Premiums for
written options
contracts opened | Premiums for
written options
contracts closed,
exercised and
expired |
| | |
| | |
| | |
| | |
6. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2026.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 8. 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.
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of FT Vest Rising Dividend Achievers Target Income ETF, FT Vest SMID Rising Dividend Achievers Target Income ETF, FT Vest Technology Dividend Target Income ETF, and FT Vest Dow Jones Internet & Target Income ETF (the “Funds”), each a series of the First Trust Exchange-Traded Fund IV, including the portfolios of investments, as of October 31, 2024, the related statements of operations, statements of changes in net assets, and the financial highlights for the periods indicated in the table below; and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of October 31, 2024, and the results of their operations, the changes in their net assets, and the financial highlights for the periods listed in the table below, in conformity with accounting principles generally accepted in the United States of America.
Individual Funds
Included in the Trust | | Statements of Changes
in Net Assets | |
FT Vest Rising Dividend Achievers Target Income ETF | For the year ended October 31, 2024 | For the years ended October 31, 2024 and 2023 | For the years ended October 31, 2024 and 2023, and for the period from October 19, 2022 (commencement of investment operations) through October 31, 2022 |
FT Vest SMID Rising Dividend Achievers Target Income ETF | For the year ended October 31, 2024 | For the year ended October 31, 2024, and for the period from August 9, 2023 (commencement of investment operations) through October 31, 2023 |
FT Vest Technology Dividend Target Income ETF |
FT Vest Dow Jones Internet & Target Income ETF | For the period from March 20, 2024 (commencement of investment operations) through October 31, 2024 |
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 20, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Funds’ accountants during the fiscal period ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of any Fund during the fiscal period ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of each Fund are compensated through the unitary management fee paid by each Fund to the advisor and not directly by each Fund. The investment advisory fee paid is included in the Statements of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund 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 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 Vest Financial LLC (the “Sub-Advisor”). The Board approved the continuation of the Agreements for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliates, First Trust Portfolios L.P. (“FTP”) and First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from 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
Other Information (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited) overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board noted that the Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. 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 objectives, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for the one-year period ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund outperformed the Performance Universe median and underperformed the benchmark index for the one-year period ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating
Other Information (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited) to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. 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 noted that the Advisor pays the Sub-Advisor from the unitary fee and its understanding that the Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Fund, 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.
For the taxable period ended October 31, 2024, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
| Dividends Received
Deduction |
FT Vest Rising Dividend Achievers Target Income ETF | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | |
FT Vest Technology Dividend Target Income ETF | |
FT Vest Dow Jones Internet & Target Income ETF | |
For the taxable period ended October 31, 2024, the following percentages of income dividends paid by the Funds are hereby designated as qualified dividend income:
| |
FT Vest Rising Dividend Achievers Target Income ETF | |
FT Vest SMID Rising Dividend Achievers Target Income ETF | |
FT Vest Technology Dividend Target Income ETF | |
FT Vest Dow Jones Internet & Target Income ETF | |
Other Information (Continued)
First Trust Exchange-Traded Fund IVOctober 31, 2024 (Unaudited) Long-term capital gain distributions designated by the Funds are taxable at the applicable capital gain tax rates for federal income tax purposes. For the fiscal period ended October 31, 2024, the below Fund designated long-term capital gain distributions in the following amount.
| Long-Term Capital
Gain Distribution |
FT Vest Rising Dividend Achievers Target Income ETF | |
(b) The Financial Highlights is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR.
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment Companies.
Not applicable to the Registrant.
Item 9. Proxy Disclosures for Open-End Management Investment Companies.
A Special Meeting of Shareholders of First Trust SSI Strategic Convertible Securities ETF (the “Fund”) was held on April 15, 2024. At the Special Meeting, shareholders approved a new investment sub-advisory agreement among the Trust (on behalf of the Fund), First Trust Advisors L.P. (as investment advisor), and SSI Investment Management LLC (as investment sub-advisor). Shareholders also approved a “manager of managers” structure for the Fund. With respect to each proposal, 1,667,735 shares of the 3,100,002 outstanding shares were present at the meeting. The following percentage votes were recorded regarding the new investment sub-advisory agreement: For - 82.89%; Against - 1.24%; Abstain; 15.88%. The following percentage votes were recorded regarding the “manager of managers” structure: For 82.00%; Against 2.26%; Abstain 15.75%.
Item 10. Remuneration Paid to Directors, Officers, and Others of Open-End Management Investment Companies
This information is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contract.
This statement is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to the Registrant.
Item 13. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to the Registrant.
Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable to the Registrant.
Item 15. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the Registrant’s board of directors, where those changes were implemented after the Registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 16. Controls and Procedures.
| (a) | The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 17. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
| (a) | Not applicable to the Registrant. |
| (b) | Not applicable to the Registrant. |
Item 18. Recovery of Erroneously Awarded Compensation.
| (a) | Not applicable to the Registrant. |
| (b) | Not applicable to the Registrant. |
Item 19. Exhibits.
| (a)(2) | Not applicable to the Registrant. |
| (a)(4) | Not applicable to the Registrant. |
| (a)(5) | Not applicable to the Registrant. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (registrant) | | First Trust Exchange-Traded Fund 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/ Derek D. Maltbie |
| | | Derek D. Maltbie, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer) |
* Print the name and title of each signing officer under his or her signature.
