UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-22245
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First Trust Exchange-Traded Fund III
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(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
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: October 31
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Date of reporting period: April 30, 2014
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
The registrant's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
FIRST TRUST
First Trust Exchange-Traded Fund III
First Trust Preferred Securities and Income ETF (FPE)
Semi-Annual Report
For the
Six Months Ended
April 30, 2014
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TABLE OF CONTENTS
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
SEMI-ANNUAL REPORT
APRIL 30, 2014
Shareholder Letter.......................................................... 1
Fund Performance Overview................................................... 2
Portfolio Management........................................................ 5
Understanding Your Fund Expenses............................................ 6
Portfolio of Investments.................................................... 7
Statement of Assets and Liabilities......................................... 11
Statement of Operations..................................................... 12
Statements of Changes in Net Assets......................................... 13
Financial Highlights........................................................ 14
Notes to Financial Statements............................................... 15
Additional Information...................................................... 20
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Stonebridge Advisors LLC ("Stonebridge" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund III (the "Trust") described in
this report for the First Trust Preferred Securities and Income ETF (hereinafter
referred to as the "Fund") to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. When evaluating the information included in this report, you are
cautioned not to place undue reliance on these forward-looking statements, which
reflect the judgment of the Advisor and/or Sub-Advisor and their respective
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment 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
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://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.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund's portfolio and presents data and analysis that
provide insight into the Fund's performance and investment approach.
The statistical information that follows may help you understand the Fund's
performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor or Sub-Advisor are just that: informed opinions. They should not be
considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. The risks of investing
in the Fund are spelled out in its prospectus, statement of additional
information, this report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF SEMI-ANNUAL
LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2014
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
First Trust Preferred Securities and Income ETF (the "Fund").
As a shareholder, twice a year you receive a detailed report about your
investment. Additionally, First Trust Advisors L.P. ("First Trust") compiles the
Fund's financial statements for you to review. These reports are intended to
keep you up-to-date on your investment, and I encourage you to read this
document and discuss it with your financial advisor.
Despite some volatility, the six months covered by this report have been
positive for the U.S. markets. In fact, the S&P 500(R) Index, as measured on a
total return basis, rose 8.36% during the period. Of course, past performance
can never be an indicator of future performance, but First Trust believes that
staying invested in quality products through up and down markets and having a
long-term horizon can help investors reach their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your financial advisor can tell you about the other investments First Trust
offers that might fit your financial goals. We encourage you to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track and help you choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE) First Trust Preferred
Securities and Income ETF's (the "Fund") investment objective is to seek total
return and to provide current income. Under normal market conditions, the Fund
invests at least 80% of its net assets (including investment borrowings) in
preferred securities ("Preferred Securities") and income-producing debt
securities ("Income Securities"). The Fund invests in securities that are traded
over-the-counter or listed on an exchange. For purposes of the 80% test set
forth above, securities of open-end funds, closed-end funds or other
exchange-traded funds ("ETFs") registered under the Investment Company Act of
1940, as amended, that invest primarily in Preferred Securities or Income
Securities are deemed to be Preferred Securities or Income Securities.
Preferred Securities held by the Fund generally pay fixed or adjustable-rate
distributions to investors and have preference over common stock in the payment
of distributions and the liquidation of a company's assets, but are generally
junior to all forms of the company's debt, including both senior and
subordinated debt. Certain of the Preferred Securities may be issued by trusts
or other special purpose entities created by companies specifically for the
purpose of issuing such securities. Income Securities that may be held by the
Fund include corporate bonds, high yield securities, commonly referred to as
"junk" bonds, and convertible securities. The broad category of corporate debt
securities includes debt issued by U.S. and non-U.S. companies of all kinds,
including those with small, mid and large capitalizations. Corporate debt may
carry fixed or floating rates of interest.
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
6 MONTHS 1 YEAR TOTAL RETURNS TOTAL RETURNS
ENDED ENDED Inception (2/11/13) Inception (2/11/13)
4/30/14 4/30/14 to 4/30/14 to 4/30/14
FUND PERFORMANCE
NAV 6.98% -2.39% 0.69% 0.83%
Market Price 6.85% -2.33% 0.77% 0.94%
INDEX PERFORMANCE
BofA Merrill Lynch Fixed Rate Preferred Securities Index 8.07% 1.60% 3.43% 4.17%
BofA Merrill Lynch U.S. Capital Securities Index 5.77% 6.28% 8.10% 9.91%
Blended Index(1) 6.93% 3.95% 5.76% 7.04%
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Total returns for the periods since inception are calculated from the inception
date of the Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of the Fund did not trade in the
secondary market until after its inception, for the period from inception to the
first day of secondary market trading in shares of the Fund, the NAV of the Fund
is used as a proxy for the secondary market trading price to calculate market
returns. NAV and market returns assume that all dividend distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
(1) The Blended Index consists of a 50/50 blend of the BofA Merrill Lynch
Fixed Rate Preferred Securities Index and the BofA Merrill Lynch U.S.
Capital Securities Index. The Blended Index was added to reflect the
diverse allocation of institutional preferred and hybrid securities in the
Fund's portfolio. The indexes do not charge management fees or brokerage
expenses, and no such fees or expenses were deducted from the performance
shown. Indexes are unmanaged and an investor cannot invest directly in an
index.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE) (CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF APRIL 30, 2014
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% OF TOTAL
SECTOR INVESTMENTS
Financials 88.9%
Utilities 6.7
Consumer Staples 2.4
Telecommunication Services 2.0
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Total 100.0%
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CREDIT QUALITY AS OF APRIL 30, 2014
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% OF TOTAL
CREDIT RATING(2) INVESTMENTS
AA- 1.0%
A 4.6
A- 6.2
BBB+ 12.9
BBB 15.7
BBB- 20.7
BB+ 21.3
BB 8.9
BB- 1.6
NR 7.1
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Total 100.0%
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TOP TEN PORTFOLIO HOLDINGS AS OF APRIL 30, 2014
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% OF TOTAL
SECURITY INVESTMENTS
Cloverie PLC for Zurich Insurance Co., Ltd. 3.0%
Goldman Sachs Group, Inc., Series K 2.6
Lloyds Bank PLC 2.5
Genworth Holdings, Inc. 2.5
CHS, Inc., Series 2 2.4
Santander Finance Preferred SAU, Series 10 2.2
Aspen Insurance Holdings Ltd. 2.2
Aviva PLC 2.1
Natixis 2.1
Endurance Specialty Holdings Ltd., Series A 2.1
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Total 23.7%
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(2) The credit quality and ratings information presented above reflects the
ratings assigned by one or more nationally recognized statistical rating
organizations (NRSROs), including Standard & Poor's Ratings Group, a
division of the McGraw Hill Companies, Inc., 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. Sub-investment grade ratings are
those rated BB+/Ba1 or lower. Investment grade ratings are those rated
BBB-/Baa3 or higher. The credit ratings shown relate to the
creditworthiness of the issuers of the underlying securities in the Fund,
and not to the Fund or its shares. Credit ratings are subject to change.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE) (CONTINUED)
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 11, 2013 - APRIL 30, 2014
First Trust Preferred BofA Merrill Lynch Fixed BofA Merrill Lynch U.S. Blended
Securities and Income ETF Rate Preferred Securities Index Capital Securities Index Index
2/11/13 10,000 10,000 10,000 10,000
4/30/13 10,330 10,253 10,342 10,297
10/31/13 9,426 9,640 10,392 10,010
4/30/14 10,084 10,418 10,992 10,704
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH APRIL 30, 2014
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period February 12, 2013
(commencement of trading) through April 30, 2014. Shareholders may pay more than
NAV when they buy Fund shares and receive less than NAV when they sell those
shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
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NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
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FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
2/12/13 - 10/31/13 96 7 0 0
11/1/13 - 4/30/14 31 2 0 0
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NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
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FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
2/12/13 - 10/31/13 73 7 0 0
11/1/13 - 4/30/14 81 9 0 0
(1) The Blended Index consists of a 50/50 blend of the BofA Merrill Lynch
Fixed Rate Preferred Securities Index and the BofA Merrill Lynch U.S.
Capital Securities Index. The Blended Index was added to reflect the
diverse allocation of institutional preferred and hybrid securities in the
Fund's portfolio. The indexes do not charge management fees or brokerage
expenses, and no such fees or expenses were deducted from the performance
shown. Indexes are unmanaged and an investor cannot invest directly in an
index.
Page 4
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PORTFOLIO MANAGEMENT
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
SEMI-ANNUAL REPORT
APRIL 30, 2014
SUB-ADVISOR
STONEBRIDGE ADVISORS LLC
Stonebridge Advisors LLC ("Stonebridge" or the "Sub-Advisor") is the sub-advisor
to First Trust Preferred Securities and Income ETF (the "Fund") and is a
registered investment advisor based in Wilton, Connecticut. Stonebridge
specializes in the management of preferred securities and North American equity
income securities.
PORTFOLIO MANAGEMENT TEAM
Scott T. Fleming, President and CIO of Stonebridge Advisors LLC
Allen Shepard, PhD, Vice President, Senior Risk Analyst and Portfolio Analytics
Robert Wolf, Vice President, Portfolio Manager and Senior Credit Analyst
Danielle Salters, CFA, Credit Analyst
Page 5
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
UNDERSTANDING YOUR FUND EXPENSES
APRIL 30, 2014 (UNAUDITED)
As a shareholder of First Trust Preferred Securities and Income ETF (the "Fund")
you incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees and other Fund
expenses. This Example is intended to help you understand your ongoing costs of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended April 30, 2014.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
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ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
NOVEMBER 1, 2013 APRIL 30, 2014 PERIOD PERIOD (a)
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF
Actual $1,000.00 $1,069.80 0.85% $4.36
Hypothetical (5% return before expenses) $1,000.00 $1,020.58 0.85% $4.26
(a) Actual expenses are equal to the annualized expense ratio as indicated in
the table multiplied by the average account value over the period
(November 1, 2013 through April 30, 2014), multiplied by 181/365.
Hypothetical expenses are assumed for the most recent half-year period.
Page 6
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
PORTFOLIO OF INVESTMENTS
APRIL 30, 2014 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
----------- ----------------------------------------------------------------- ------------- ---------- ------------
$20 PAR PREFERRED SECURITIES - 0.4%
REAL ESTATE INVESTMENT TRUSTS - 0.4%
11,355 CommonWealth REIT................................................ 7.50% 11/15/19 $ 235,843
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TOTAL $20 PAR PREFERRED SECURITIES.......................................................... 235,843
(Cost $237,451) ------------
$25 PAR PREFERRED SECURITIES - 50.5%
BANKS - 15.7%
3,000 Barclays Bank PLC, Series 2...................................... 6.63% (a) 76,230
10,476 Barclays Bank PLC, Series 3...................................... 7.10% (a) 268,919
5,499 Barclays Bank PLC, Series 4...................................... 7.75% (a) 142,534
9,344 Barclays Bank PLC, Series 5...................................... 8.13% (a) 242,103
24,506 Citigroup Capital XIII (b)....................................... 7.88% 10/30/40 668,034
10,836 Citigroup, Inc., Series J (b).................................... 7.13% (a) 294,197
33,033 Citigroup, Inc., Series K (b).................................... 6.88% (a) 886,275
20,333 Fifth Third Bancorp, Series I (b)................................ 6.63% (a) 540,045
40,122 First Niagara Financial Group., Inc., Series B (b)............... 8.63% (a) 1,164,742
9,343 FNB Corp. (b).................................................... 7.25% (a) 249,822
2,134 HSBC Holdings PLC, Series 2...................................... 8.00% (a) 57,618
32,362 Lloyds Banking Group PLC......................................... 7.75% 07/15/50 870,538
43,337 PNC Financial Services Group, Inc., Series P (b)................. 6.13% (a) 1,164,032
5,706 Royal Bank of Scotland Group PLC, Series T....................... 7.25% (a) 144,875
49,116 Santander Finance Preferred SAU, Series 10....................... 10.50% (a) 1,285,857
35,400 US Bancorp, Series F (b)......................................... 6.50% (a) 1,021,290
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9,077,111
------------
CAPITAL MARKETS - 9.1%
6,475 Affiliated Managers Group, Inc................................... 6.38% 08/15/42 160,774
24,980 Apollo Investment Corp........................................... 6.63% 10/15/42 604,266
3,831 Ares Capital Corp................................................ 5.88% 10/01/22 98,189
10,000 BGC Partners, Inc................................................ 8.13% 06/15/42 270,700
6,508 Deutsche Bank Capital Funding Trust IX........................... 6.63% (a) 167,191
60,000 Goldman Sachs Group, Inc., Series K (b).......................... 6.38% (a) 1,516,800
29,517 Morgan Stanley (b)............................................... 6.88% (a) 784,857
10,661 Morgan Stanley, Series E (b)..................................... 7.13% (a) 291,045
20,000 Morgan Stanley, Series G......................................... 6.63% (a) 500,000
10,905 Raymond James Financial, Inc..................................... 6.90% 03/15/42 286,474
22,241 State Street Corp., Series D (b)................................. 5.90% (a) 577,377
------------
5,257,673
------------
DIVERSIFIED FINANCIAL SERVICES - 3.3%
13,912 Allied Capital Corp.............................................. 6.88% 04/15/47 342,931
5,721 Countrywide Capital IV........................................... 6.75% 04/01/33 146,172
11,045 ING Groep N.V.................................................... 7.05% (a) 284,298
11,005 ING Groep N.V.................................................... 7.20% (a) 284,039
20,539 KKR Financial Holdings LLC....................................... 8.38% 11/15/41 578,789
11,260 KKR Financial Holdings LLC, Series A............................. 7.38% (a) 285,441
------------
1,921,670
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2%
3,671 Verizon Communications, Inc...................................... 5.90% 02/15/54 92,032
------------
ELECTRIC UTILITIES - 1.0%
21,941 SCE Trust III (b)................................................ 5.75% (a) 566,297
------------
See Notes to Financial Statements Page 7
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
----------- ----------------------------------------------------------------- ------------- ---------- ------------
$25 PAR PREFERRED SECURITIES (CONTINUED)
FOOD PRODUCTS - 2.3%
49,195 CHS, Inc., Series 2 (b).......................................... 7.10% (a) $ 1,358,766
------------
INSURANCE - 14.8%
6,800 Aegon N.V........................................................ 7.25% (a) 172,788
35,102 Aegon N.V........................................................ 8.00% 02/15/42 1,001,109
34,582 American Financial Group, Inc.................................... 7.00% 09/30/50 896,020
5,637 Arch Capital Group Ltd., Series C................................ 6.75% (a) 144,814
27,724 Aspen Insurance Holdings Ltd. (b)................................ 5.95% (a) 699,754
47,895 Aspen Insurance Holdings Ltd. (b)................................ 7.40% (a) 1,258,680
43,882 Aviva PLC........................................................ 8.25% 12/01/41 1,219,481
44,480 Endurance Specialty Holdings Ltd., Series A...................... 7.75% (a) 1,188,506
26,909 Hartford Financial Services Group, Inc. (b)...................... 7.88% 04/15/42 804,848
11,000 Montpelier Re Holdings Ltd., Series A............................ 8.88% (a) 296,010
10,819 PartnerRe Ltd., Series E......................................... 7.25% (a) 292,221
21,490 Reinsurance Group of America, Inc. (b)........................... 6.20% 09/15/42 582,379
------------
8,556,610
------------
MULTI-UTILITIES - 1.9%
20,681 Dominion Resources, Inc., Series A............................... 8.38% 06/15/64 527,365
22,760 Integrys Energy Group, Inc. (b).................................. 6.00% 08/01/73 574,690
------------
1,102,055
------------
REAL ESTATE INVESTMENT TRUSTS - 2.2%
6,576 EPR Properties, Series F......................................... 6.63% (a) 154,339
4,373 Hospitality Properties Trust, Series D........................... 7.13% (a) 112,823
10,000 MFA Financial, Inc............................................... 8.00% 04/15/42 252,000
5,896 National Retail Properties, Inc., Series D....................... 6.63% (a) 147,872
5,660 Regency Centers Corp., Series 6.................................. 6.63% (a) 142,971
18,769 Vornado Realty L.P............................................... 7.88% 10/01/39 485,179
------------
1,295,184
------------
TOTAL $25 PAR PREFERRED SECURITIES.......................................................... 29,227,398
(Cost $29,325,139) ------------
$100 PAR PREFERRED SECURITIES - 3.1%
BANKS - 1.8%
10,000 CoBank ACB, Series F (b) (c)..................................... 6.25% (a) 1,027,188
------------
ELECTRIC UTILITIES - 0.9%
5,000 Southern California Edison Co., Series A (d)..................... 4.92% (a) 510,062
------------
INSURANCE - 0.4%
2,500 Principal Financial Group, Inc., Series A (b).................... 5.56% (a) 259,610
------------
TOTAL $100 PAR PREFERRED SECURITIES......................................................... 1,796,860
(Cost $1,825,800) ------------
Page 8 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
PAR STATED STATED
AMOUNT DESCRIPTION RATE MATURITY VALUE
----------- ----------------------------------------------------------------- ------------- ---------- ------------
CAPITAL PREFERRED SECURITIES - 43.7%
BANKS - 19.2%
$ 600,000 Banco Bilbao Vizcaya Argentaria S.A. (b)......................... 9.00% (a) $ 664,500
500,000 Barclays PLC (b)................................................. 8.25% (a) 533,430
500,000 Citigroup, Inc., Series M (b).................................... 6.30% (a) 500,212
500,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (b) (c)....... 11.00% (a) 667,500
715,000 Credit Agricole S.A. (b)......................................... 8.38% (a) 832,975
1,000,000 Fuerstenberg Capital International Sarl & Cie SECS (b)........... 10.25% (a) 1,058,150
1,000,000 JPMorgan Chase & Co., Series S (b)............................... 6.75% (a) 1,065,000
1,000,000 Lloyds Bank PLC (b).............................................. 12.00% (a) 1,425,000
1,000,000 Natixis (b)...................................................... 10.00% (a) 1,202,500
1,000,000 Royal Bank of Scotland Group PLC, Series U (b)................... 7.64% (a) 1,045,000
1,000,000 Societe Generale S.A. (b)........................................ 7.88% (a) 1,045,650
1,000,000 Zions Bancorporation, Series J (b)............................... 7.20% (a) 1,045,500
------------
11,085,417
------------
CAPITAL MARKETS - 1.9%
1,000,000 Credit Suisse Group AG (b) (c)................................... 7.50% (a) 1,087,510
------------
DIVERSIFIED FINANCIAL SERVICES - 2.7%
500,000 General Electric Capital Corp., Series A (b)..................... 7.13% (a) 575,905
1,000,000 Glen Meadow Pass Through Trust (b) (c)........................... 6.51% 02/12/67 1,000,000
------------
1,575,905
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8%
1,000,000 Koninklijke KPN N.V. (b) (c)..................................... 7.00% 03/28/73 1,050,000
------------
ELECTRIC UTILITIES - 2.0%
1,000,000 Enel SpA (b) (c)................................................. 8.75% 09/24/73 1,155,000
------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.9%
500,000 AES Gener S.A. (b) (c)........................................... 8.38% 12/18/73 540,000
------------
INSURANCE - 15.2%
500,000 Aquarius + Investments PLC for Swiss Reinsurance Co., Ltd. (b)... 8.25% (a) 562,350
1,000,000 Aviva PLC........................................................ 8.25% (a) 1,126,250
500,000 Catlin Insurance Co., Ltd. (b)................................... 7.25% (a) 518,750
1,500,000 Cloverie PLC for Zurich Insurance Co., Ltd. (b).................. 8.25% (a) 1,746,750
500,000 CNP Assurances (b)............................................... 7.50% (a) 557,400
600,000 Friends Life Group PLC (b)....................................... 7.88% (a) 662,250
1,500,000 Genworth Holdings, Inc. (b)...................................... 6.15% 11/15/66 1,408,125
1,000,000 Mitsui Sumitomo Insurance Co., Ltd. (b) (c)...................... 7.00% 03/15/72 1,178,750
500,000 Prudential PLC (b)............................................... 11.75% (a) 533,125
500,000 XL Group PLC, Series E (b)....................................... 6.50% (a) 495,000
------------
8,788,750
------------
TOTAL CAPITAL PREFERRED SECURITIES.......................................................... 25,282,582
(Cost $24,411,252) ------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ----------------------------------------------------------------- ------------- ---------- ------------
CORPORATE BONDS AND NOTES - 0.9%
BANKS - 0.9%
500,000 Banco Internacional del Peru SAA (b) (c)......................... 6.63% 03/19/29 514,375
------------
TOTAL CORPORATE BONDS AND NOTES............................................................. 514,375
(Cost $500,000) ------------
See Notes to Financial Statements Page 9
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- -------------------------------------------------------------------------------------------- ------------
CLOSED-END FUNDS - 0.5%
CAPITAL MARKETS - 0.5%
14,000 Flaherty & Crumrine Dynamic Preferred and Income Fund, Inc.................................. $ 318,640
------------
TOTAL CLOSED-END FUNDS...................................................................... 318,640
(Cost $306,316) ------------
TOTAL INVESTMENTS - 99.1%................................................................... 57,375,698
(Cost $56,605,958) (e)
NET OTHER ASSETS AND LIABILITIES - 0.9%..................................................... 538,455
------------
NET ASSETS - 100.0%......................................................................... $ 57,914,153
============
(a) Perpetual maturity.
(b) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at April 30, 2014. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(c) This security, sold within the terms of a private placement memorandum, is
exempt from regiupon resale under Rule 144A under the Securities Act of
1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Trust's Board of Trustees, this security has
been determined to be liquid by Stonebridge Advisors LLC the Fund's
sub-advisor. Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is
determined based on security specific factors and assumptions, which
require subjective judgment. At April 30, 2014, securities noted as such
amounted to $8,220,323 or 14.19% of net assets.
(d) Floating rate security. The interest rate shown reflects the rate in
effect at April 30, 2014.
(e) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2014, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,330,186 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $560,446.
-------------------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 4/30/2014 PRICES INPUTS INPUTS
--------------------------------------------------- ------------- ------------- -------------- --------------
$20 Par Preferred Securities*...................... $ 235,843 $ 235,843 $ -- $ --
$25 Par Preferred Securities*...................... 29,227,398 29,227,398 -- --
$100 Par Preferred Securities*..................... 1,796,860 -- 1,796,860 --
Capital Preferred Securities*...................... 25,282,582 -- 25,282,582 --
Corporate Bonds and Notes*......................... 514,375 -- 514,375 --
Closed-End Funds................................... 318,640 318,640 -- --
------------- ------------- -------------- --------------
Total Investments.................................. $ 57,375,698 $ 29,781,881 $ 27,593,817 $ --
============= ============= ============== ==============
* See the Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of April
30, 2014, the Fund transferred $25 par preferred securities valued at $173,803
from Level 2 to Level 1 of the fair value hierarchy as a result of being priced
on the primary exchange.
Page 10 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2014 (UNAUDITED)
ASSETS:
Investments, at value.................................................. $ 57,375,698
Cash................................................................... 1,382,038
Receivables:
Investment securities sold.......................................... 992,547
Interest............................................................ 483,621
Dividends........................................................... 71,425
-----------------
Total Assets........................................................ 60,305,329
-----------------
LIABILITIES:
Payables:
Investment securities purchased..................................... 2,350,733
Investment advisory fees............................................ 40,443
-----------------
Total Liabilities................................................. 2,391,176
-----------------
NET ASSETS............................................................. $ 57,914,153
=================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 63,366,208
Par value.............................................................. 30,550
Accumulated net investment income (loss)............................... 132,498
Accumulated net realized gain (loss) on investments.................... (6,384,843)
Net unrealized appreciation (depreciation) on investments.............. 769,740
-----------------
NET ASSETS............................................................. $ 57,914,153
=================
NET ASSET VALUE, per share............................................. $ 18.96
=================
Number of shares outstanding (unlimited number of
shares authorized, par value $0.01 per share)....................... 3,055,000
=================
Investments, at cost................................................... $ 56,605,958
=================
See Notes to Financial Statements Page 11
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2014 (UNAUDITED)
INVESTMENT INCOME:
Dividends.............................................................. $ 1,257,256
Interest............................................................... 607,315
Foreign tax withholding................................................ (70)
-----------------
Total investment income............................................ 1,864,501
-----------------
EXPENSES:
Investment advisory fees............................................... 245,665
-----------------
Total expenses...................................................... 245,665
-----------------
NET INVESTMENT INCOME (LOSS)........................................... 1,618,836
-----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:......................................
Investments....................................................... (2,228,847)
In-kind redemptions............................................... (451,225)
-----------------
Net realized gain (loss)............................................... (2,680,072)
-----------------
Net change in unrealized appreciation (depreciation) on investments.... 4,864,832
-----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 2,184,760
-----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................... $ 3,803,596
=================
Page 12 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE
4/30/2014 PERIOD ENDED
(UNAUDITED) 10/31/2013 (a)
-------------------- --------------------
OPERATIONS:
Net investment income (loss)......................................... $ 1,618,836 $ 2,225,791
Net realized gain (loss)............................................. (2,680,072) (4,336,151)
Net change in unrealized appreciation (depreciation)................. 4,864,832 (4,095,092)
-------------------- --------------------
Net increase (decrease) in net assets resulting from operations...... 3,803,596 (6,205,452)
-------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................ (1,577,197) (2,136,590)
Return of capital.................................................... -- (94,493)
-------------------- --------------------
Total distributions to shareholders.................................. (1,577,197) (2,231,083)
-------------------- --------------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold............................................ 2,765,084 86,035,226
Cost of shares redeemed.............................................. (11,799,802) (12,876,219)
-------------------- --------------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................. (9,034,718) 73,159,007
-------------------- --------------------
Total increase (decrease) in net assets.............................. (6,808,319) 64,722,472
NET ASSETS:
Beginning of period.................................................. 64,722,472 --
-------------------- --------------------
End of period........................................................ $ 57,914,153 $ 64,722,472
==================== ====================
Accumulated net investment income (loss) at end of period............ $ 132,498 $ 90,859
==================== ====================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.............................. 3,555,000 --
Shares sold.......................................................... 150,000 4,255,000
Shares redeemed...................................................... (650,000) (700,000)
-------------------- --------------------
Shares outstanding, end of period.................................... 3,055,000 3,555,000
==================== ====================
(a) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
First Trust Portfolios L.P. seeded the First Trust Preferred Securities
and Income ETF on January 29, 2013 in order to provide initial capital
required by SEC rules.
See Notes to Financial Statements Page 13
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS FOR THE PERIOD
ENDED 2/11/2013 (a)
4/30/2014 THROUGH
(UNAUDITED) 10/31/2013
-------------- ---------------
Net asset value, beginning of period......................... $ 18.21 $ 19.99
-------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................. 0.52 0.65
Net realized and unrealized gain (loss)...................... 0.73 (1.78)
-------------- ---------------
Total from investment operations............................. 1.25 (1.13)
-------------- ---------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................................ (0.50) (0.62)
Return of capital............................................ -- (0.03)
-------------- ---------------
Total distributions.......................................... (0.50) (0.65)
-------------- ---------------
Net asset value, end of period............................... $ 18.96 $ 18.21
============== ===============
TOTAL RETURN (b)............................................. 6.98% (5.74)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)......................... $ 57,914 $ 64,722
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets................ 0.85% (c) 0.85% (c)
Ratio of net investment income (loss) to average net
assets.................................................... 5.60% (c) 5.44% (c)
Portfolio turnover rate (d).................................. 62% 45%
(a) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
First Trust Portfolios L.P. seeded the First Trust Preferred Securities
and Income ETF on January 29, 2013 in order to provide initial capital
required by SEC rules.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
APRIL 30, 2014 (UNAUDITED)
1. ORGANIZATION
First Trust Exchange-Traded Fund III (the "Trust") is a non-diversified open-end
management investment company organized as a Massachusetts business trust on
January 9, 2008, and is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust offered shares of one fund during the period covered by this report,
the First Trust Preferred Securities and Income ETF (the "Fund"), which trades
under the ticker FPE on the NYSE Arca, Inc. ("NYSE Arca"). Unlike conventional
mutual funds, the Fund issues and redeems shares on a continuous basis, at net
asset value ("NAV"), only in large specified blocks consisting of 50,000 shares
called a "Creation Unit." Creation Units are issued and redeemed for securities
in which the Fund invests or for cash or, in certain circumstances, both. Except
when aggregated in Creation Units, the shares are not redeemable securities of
the Fund.
The Fund is an actively managed exchange-traded fund. The investment objective
of the Fund is to seek total return and to provide current income. Under normal
market conditions, the Fund invests at least 80% of its net assets (including
investment borrowings) in preferred securities and income-producing debt
securities including corporate bonds, high-yield securities and convertible
securities. 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 following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally
4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE
closes early on a valuation day, the NAV is determined as of that time. Domestic
debt securities and foreign securities are priced using data reflecting the
earlier closing of the principal markets for those securities. The 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 in
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. Market quotations and prices
used to value the Fund's investments are primarily obtained from third party
pricing services. The Fund's investments are valued as follows:
Preferred stocks and other equity securities listed on any national or
foreign exchange (excluding The NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")), are
valued at the last sale price on the exchange on which they are principally
traded or, for NASDAQ and AIM securities, the official closing price.
Securities traded on one or more than one securities exchange are valued at
the last sale price or official closing price, as applicable, at the close
of the securities exchange representing the principal market for such
securities.
Bonds, notes and other debt securities are valued on the basis of
valuations provided by dealers who make markets in such securities or by an
independent pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and the asked price, if available, and otherwise at
their closing bid price.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
APRIL 30, 2014 (UNAUDITED)
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
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 pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market 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 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. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology 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 April 30, 2014, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis. Amortization of premiums and accretion of
discounts are recorded using the effective interest method.
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
APRIL 30, 2014 (UNAUDITED)
Distributions received from the Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year are not
known until after the REIT's fiscal year end. The Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by the Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
C. Dividends and Distributions to Shareholders
Dividends from net investment income, 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, will be distributed at least
annually.
Distributions from income and capital gains are determined in accordance with
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 net asset value
per share. Temporary differences, which arise from recognizing certain items of
income, expense and gain/loss in different periods for financial statement and
tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal period ended October
31, 2013 was as follows:
Distributions paid from:
Ordinary income.................................... $ 2,136,590
Capital gain....................................... --
Return of capital.................................. 94,493
As of October 31, 2013, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income...................... $ --
Accumulated capital and other losses............... (3,701,138)
Net unrealized appreciation (depreciation)......... (4,007,866)
D. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable year ended 2013
remains open to federal and state audit. As of April 30, 2014, 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 carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At October 31, 2013, the
Fund had non-expiring capital loss carryforwards for federal income tax purposes
of $3,701,138.
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, 2013, the Fund had no
net ordinary losses.
E. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by First Trust Advisors L.P. ("First Trust" or the "Advisor") (See Note
3).
Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
APRIL 30, 2014 (UNAUDITED)
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.
The Fund and First Trust have retained Stonebridge Advisors LLC ("Stonebridge"
or the "Sub-Advisor"), a majority-owned affiliate of First Trust, serves as the
Fund's sub-advisor and manages the Fund's portfolio subject to First Trust's
supervision. Stonebridge is responsible for the selection and on-going
monitoring of the securities in the Fund's investment portfolio. Pursuant to the
Investment Management Agreement, First Trust will supervise Stonebridge and its
management of the investment of the Fund's assets and will pay Stonebridge for
its services as the Fund's sub-advisor. First Trust and Stonebridge are equally
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, brokerage
commissions and other expenses connected with the execution of portfolio
transactions, distribution and service fees pursuant to a 12b-1 plan, if any,
and extraordinary expenses. The Fund has agreed to pay First Trust an annual
unitary management fee equal to 0.85% of its average daily net assets.
Stonebridge receives a sub-advisory fee equal to 0.425% of the average daily net
assets of the Fund less Stonebridge's share of the Fund's expenses. The
Sub-Advisor's fee is paid by the Advisor out of the Advisor's management fee.
First Trust also provides fund reporting services to the Fund for a flat annual
fee in the amount of $9,250, which is covered under the annual unitary
management fee.
The Fund has multiple service agreements with Brown Brothers Harriman & Co.
("BBH"). Under the servicing agreements, BBH performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BBH is responsible for custody of the Fund 's assets. As
fund accountant and administrator, BBH is responsible for maintaining the books
and records of the Fund 's securities and cash. As transfer agent, BBH is
responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. 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, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the period ended April 30, 2014, the cost of purchases and proceeds from
sales of investments, excluding short-term investments and in-kind transactions,
for the Fund were $35,868,418 and $37,256,431, respectively.
For the period ended April 30, 2014, the cost of in-kind purchases and proceeds
from in-kind sales for the Fund was $1,535,388 and $6,514,722, respectively.
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares. In order to purchase Creation Units of the Fund,
an investor must deposit (i) a designated portfolio of equity securities
determined by First Trust (the "Deposit Securities") and generally make or
receive a cash payment referred to as the "Cash Component," which is an amount
equal to the difference between the NAV of the Fund shares (per Creation Unit
aggregations) and the market value of the Deposited Securities, and/or (ii) cash
in lieu of all or a portion of the Deposit Securities. If the Cash Component is
a positive number (i.e., the NAV per Creation Unit Aggregation exceeds the
Deposit Amount), the creator will deliver the Cash Component. If the Cash
Component is a negative number (i.e., the NAV per Creation Unit Aggregation is
less than the Deposit Amount), the creator will receive the Cash Component.
Purchasers of Creation Units must pay to BBH, as transfer agent, a creation fee
(the "Creation Transaction Fee") regardless of the number of Creation Units
purchased in the transaction. The Creation Transaction Fee may vary and is based
on the composition of the securities included in the Fund's portfolio and the
countries in which the transactions are settled. The Creation Transaction Fee
may increase or decrease as the Fund's portfolio is adjusted to conform to
changes in the composition of the securities included in the Fund's portfolio
and the countries in which the transaction settled. The price for each Creation
Unit will equal the daily NAV per share times the number of shares in a Creation
Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When the Fund
permits an Authorized Participant to
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
APRIL 30, 2014 (UNAUDITED)
substitute cash or a different security in lieu of depositing one or more of the
requisite Deposit Securities, the Authorized Participant may also be assessed an
amount to cover the cost of purchasing the Deposit Securities and/or disposing
of the substituted securities, including operational processing and brokerage
costs, transfer fees, stamp taxes, and part or all of the spread between the
expected bid and offer side of the market related to such Deposit Securities
and/or substitute securities.
Parties redeeming Creation Units must pay to BBH, as transfer agent, a
redemption transaction fee (the "Redemption Transaction Fee"), regardless of the
number of Creation Units redeemed in the transaction. The Redemption Transaction
Fee may vary and is based on the composition of the securities included in the
Fund's portfolio and the countries in which the transactions are settled. The
Redemption Transaction Fee is currently $500. The Fund reserves the right to
effect redemptions in cash. An Authorized Participant may request cash
redemption in lieu of securities; however, the Fund may, in its discretion,
reject any such request.
6. BORROWINGS
Effective March 28, 2013, the First Trust Series Fund and the First Trust
Variable Insurance Trust entered into a $20 million Committed Line of Credit
("Line of Credit") with the Bank of Nova Scotia ("Scotia") to be a liquidity
backstop during periods of high redemption volume. On July 30, 2013, the Line of
Credit was increased to $50 million and the Trust and First Trust
Exchange-Traded Fund IV were added to the Credit Agreement. A commitment fee of
0.125% of the daily amount of the excess of the commitment amount over the
outstanding principal balance of the loans was charged by Scotia, which First
Trust allocated amongst the funds that had access to the Line of Credit. To the
extent that the Fund accessed the credit line, there would also be an interest
fee charged.
The Line of Credit terminated on April 25, 2014. Effective April 25, 2014, the
Trust, First Trust Series Fund and First Trust Exchange-Traded Fund IV entered
into an $80 million Credit Agreement with Scotia as administrative agent for a
group of lenders. A commitment fee of 0.125% of the daily amount of the excess
of the commitment amount over the outstanding principal balance of the loans
will be charged by Scotia, which First Trust will allocate 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.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse FTP, the distributor of the Fund, for amounts expended to
finance activities primarily intended to result in the sale of Creation Units or
the provision of investor services. FTP may also use this amount to compensate
securities dealers or other persons that are Authorized Participants for
providing distribution assistance, including broker-dealer and shareholder
support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before February 28, 2016.
8. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined there were the
following subsequent events:
On May 20, 2014, the Fund declared a dividend of $0.0726 per share to Common
Shareholders of record on May 23, 2014, payable May 30, 2014.
On June 23, 2014, the Fund declared a dividend of $0.124 per share to Common
Shareholders of record on June 26, 2014, payable June 30, 2014.
Page 19
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
APRIL 30, 2014 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q
is available (1) by calling (800) 988-5891; (2) on the Fund's website located at
http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and
(4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
RISK CONSIDERATIONS
You could lose money by investing in the Fund. An investment in the Fund is not
a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. There can be no
assurance that the Fund's investment objective will be achieved.
CASH TRANSACTIONS RISK. The Fund may under certain circumstances effect a
portion of creations and redemptions for cash, rather than in-kind securities.
As a result, an investment in the Fund may be less tax-efficient than an
investment in an ETF that effects its creations and redemption for in-kind
securities. Because the Fund may effect a portion of redemptions for cash, it
may be required to sell portfolio securities in order to obtain the cash needed
to distribute redemption proceeds. A sale of shares may result in capital gains
or losses, and may also result in higher brokerage costs.
CONCENTRATION RISK. A fund concentrated in a single industry or sector is likely
to present more risks than a fund that is broadly diversified over several
industries or sectors. Compared to the broad market, an individual industry or
sector may be more strongly affected by changes in the economic climate, broad
market shifts, moves in a particular dominant stock, or regulatory changes.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments. Credit risk may be heightened
if the Fund invests in "high yield" or "junk" debt; such securities, while
generally offering higher yields than investment grade debt with similar
maturities, involve greater risks, including the possibility of dividend or
interest deferral, default or bankruptcy, and are regarded as predominantly
speculative with respect to the issuer's capacity to pay dividends or interest
and repay principal.
DEPOSITARY RECEIPTS RISK. Depositary receipts may be less liquid than the
underlying securities in their primary trading market. Any distributions paid to
the holders of depositary receipts are usually subject to a fee charged by the
depositary. Holders of depositary receipts may have limited voting rights, and
investment restrictions in certain countries may adversely impact the value of
depositary receipts because such restrictions may limit the ability to convert
the securities into depositary receipts and vice versa. Such restrictions may
cause the securities of the underlying issuer to trade at a discount or premium
to the market price of the depositary receipts.
FINANCIAL COMPANY RISK. Financial companies are especially subject to the
adverse effects of economic recession, currency exchange rates, government
regulation, decreases in the availability of capital, volatile interest rates,
portfolio concentrations in geographic markets and in commercial and residential
real estate loans, and competition from new entrants in their fields of
business.
HIGH YIELD SECURITIES RISK. High yield securities are subject to greater market
fluctuations and risk of loss than securities with higher ratings. These
securities are issued by companies that may have limited operating history,
narrowly focused operations, and/or other impediments to the timely payment of
periodic interest and principal at maturity. If the economy slows down or dips
into recession, the issuers of high yield securities may not have sufficient
resources to continue making timely payment of periodic interest and principal
at maturity. The market for high yield securities is smaller and less liquid
than that for investment grade securities. High yield securities are generally
not listed on a national securities exchange but trade in the over-the-counter
markets. Due to the smaller, less liquid market for high yield securities, the
bid-offer spread on such securities is generally greater than it is for
investment grade securities and the purchase or sale of such securities may take
longer to complete.
ILLIQUID SECURITIES RISK. Illiquid securities involve the risk that the
securities will not be able to be sold at the time desired by the Fund or at
prices approximately the value at which the Fund is carrying the securities on
its books.
Page 20
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)
APRIL 30, 2014 (UNAUDITED)
INCOME RISK. If interest rates fall, the income from the Fund's portfolio will
decline as the Fund invests the proceeds from new share sales, or from matured
or called debt securities, at interest rates that are below the portfolio's
current earnings rate.
INTEREST RATE RISK. If interest rates rise, the prices of the fixed-rate
instruments held by the Fund may fall.
MANAGEMENT RISK. The Fund is subject to management risk because it is an
actively managed portfolio. In managing the Fund's investment portfolio, the
sub-advisor will apply investment techniques and risk analyses that may not have
the desired result. There can be no guarantee that the Fund will meet its
investment objective.
MARKET RISK. Market risk is the risk that a particular security owned by the
Fund or shares of the Fund in general may fall in value. Securities are subject
to market fluctuations caused by such factors as economic, political, regulatory
or market developments, changes in interest rates and perceived trends in
securities prices. Overall securities values could decline generally or could
underperform other investments.
NEW FUND RISK. The Fund currently has fewer assets than larger funds, and like
other relatively new funds, large inflows and outflows may impact the Fund's
market exposure for limited periods of time. This impact may be positive or
negative, depending on the direction of market movement during the period
effected.
NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
1940 Act. As a result, the Fund is only limited as to the percentage of its
assets which may be invested in the securities of any one issuer by the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended. The Fund may invest a relatively high percentage of its assets in a
limited number of issuers. As a result, the Fund may be more susceptible to a
single adverse economic or regulatory occurrence affecting one or more of these
issuers, experience increased volatility and be highly concentrated in certain
issuers.
NON-U.S. SECURITIES RISK. The Fund may invest in securities of non-U.S. issuers.
Such securities are subject to higher volatility than securities of domestic
issuers due to possible adverse political, social or economic developments,
restrictions on foreign investment or exchange of securities, lack of liquidity,
currency exchange rates, excessive taxation, government seizure of assets,
different legal or accounting standards, and less government supervision and
regulation of exchanges in foreign countries.
PREFERRED SECURITIES RISK. Preferred Securities combine some of the
characteristics of both common stocks and bonds. Preferred Securities are
typically subordinated to bonds and other debt instruments in a company's
capital structure, in terms of priority to corporate income, and therefore will
be subject to greater credit risk than those debt instruments. Preferred
Securities are also subject to credit risk, interest rate risk and income risk.
REIT RISK. Investing in REITs involves risks related to their structure and
focus, which include, but are not limited to, dependency upon management skills,
limited diversification, the risks of locating and managing financing for
projects, heavy cash flow dependency, possible default by borrowers, the costs
and potential losses of self-liquidation of one or more holdings, the risk of a
possible lack of mortgage funds and associated interest rate risks,
overbuilding, property vacancies, increases in property taxes and operating
expenses, changes in zoning laws, losses due to environmental damages, changes
in neighborhood values and appeal to purchases, the possibility of failing to
maintain exemptions from registration under the 1940 Act and, in many cases,
relatively small market capitalization, which may result in less market
liquidity and greater price volatility. Fund shareholders indirectly pay REIT
fees and expenses.
Page 21
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FIRST TRUST
First Trust Exchange-Traded Fund III
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Stonebridge Advisors, LLC
187 Danbury Road
Wilton, CT 06897
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEMS 6. SCHEDULE OF INVESTMENTS.
Schedules of Investments in securities of unaffiliated issuers as of the close
of the reporting period are included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),or
this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund III
---------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 20, 2014
-------------------
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/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 20, 2014
-------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: June 20, 2014
-------------------
* Print the name and title of each signing officer under his or her signature.