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)
Form N-CSR is to be used by management
investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report
that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking
roles.
A registrant is required to disclose
the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to
respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management
and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden
estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington,
DC 20549-1090. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Report to Stockholders.
The registrant’s annual report
transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows:
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust North American
Energy Infrastructure Fund
(EMLP)
First Trust EIP Carbon Impact
ETF (ECLN)
Annual Report
For the Period Ended
October 31, 2019
Energy Income Partners, LLC
---------------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2019
Shareholder Letter........................................................... 1
Fund Performance Overview
First Trust North American Energy Infrastructure Fund (EMLP).............. 2
First Trust EIP Carbon Impact ETF (ECLN).................................. 4
Notes to Fund Performance Overview........................................... 6
Portfolio Commentary......................................................... 7
Understanding Your Fund Expenses............................................. 10
Portfolio of Investments
First Trust North American Energy Infrastructure Fund (EMLP).............. 11
First Trust EIP Carbon Impact ETF (ECLN).................................. 13
Statements of Assets and Liabilities......................................... 15
Statements of Operations..................................................... 16
Statements of Changes in Net Assets.......................................... 17
Financial Highlights......................................................... 18
Notes to Financial Statements................................................ 19
Report of Independent Registered Public Accounting Firm...................... 26
Additional Information....................................................... 27
Board of Trustees and Officers............................................... 35
Privacy Policy............................................................... 37
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Energy Income Partners, LLC ("EIP" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (each such series is referred to as a "Fund" and collectively, as
the "Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and/or Sub-Advisor and their respective representatives
only as of the date hereof. We undertake no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money investing in a Fund. See "Risk
Considerations" in the Additional Information section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund and presents data and analysis that provide
insight into each Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Funds, you may obtain an understanding of how the market environment affected
each Fund's performance. The statistical information that follows may help you
understand each Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor and/or Sub-Advisor are just that: informed opinions. They should not be
considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. The material risks of
investing in each Fund are spelled out in the prospectus, the statement of
additional information, and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2019
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
North American Energy Infrastructure Fund and the First Trust EIP Carbon Impact
ETF (the "Funds"), which contains detailed information about the Funds for the
period ended October 31, 2019, including a market overview and a performance
analysis. We encourage you to read this report carefully and discuss it with
your financial advisor. Please note that the First Trust EIP Carbon Impact ETF
("ECLN") was incepted in August 2019, and so the information in this letter
prior to that date will not apply to this Fund.
One of our responsibilities as asset managers is to be good listeners. Perhaps
the most effective way in which we do this continually is by paying close
attention to mutual fund and exchange-traded fund (ETF) money flows. After all,
investors vote with their dollars, and money flows provide valuable feedback
with respect to their biases. Over the past 12 months, we have learned that
investors, in general, have grown more risk-averse. For the 12-month period
ended October 31, 2019, investors funneled an estimated net $359.56 billion into
bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion
from equity mutual funds and ETFs, according to data from Morningstar. Over the
same period, money market funds took in an estimated net $583.27 billion. Those
figures were more balanced for the full-year 2018. Those estimated net flows
were as follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion
(bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to monitoring fund flows, we watch the performance of all the asset
classes. Market returns can either help validate or invalidate our
interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that
comprise the S&P 500(R) Index back it up. For the 12-month period ended October
31, 2019, as measured by total return, the top performers were Real Estate and
Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P
500(R) Index posted a total return of 14.33% for the period. These two sectors
are defensive in nature. They also tend to distribute cash dividends that are
often well above those sectors that are more cyclical in nature. The higher
dividend distributions likely drew the attention of fixed-income investors
dissatisfied with the current low-yield climate in the bond market, in our
opinion.
The absence of a new trade deal between the U.S. and China has been a bit of a
wet blanket on the global economy. Global growth projections have been trimmed
over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack
of any significant progress in the negotiations between the U.S. and China is a
concern, we believe a remedy will be found. Remember, as uncertain as things may
appear in the current climate, investors with diversified investment portfolios
were most likely rewarded over the past 12 months. Stay the course and stay
engaged!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the
Funds again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (6/20/12) 5 Years Ended Inception (6/20/12)
10/31/19 10/31/19 to 10/31/19 10/31/19 to 10/31/19
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 14.22% 1.73% 6.76% 8.93% 61.88%
Market Price 14.37% 1.72% 6.76% 8.88% 61.91%
INDEX PERFORMANCE
Blended Benchmark(1) 8.09% 1.23% 5.93% 6.29% 52.88%
S&P 500(R) Index 14.33% 10.78% 13.92% 66.81% 161.10%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Fund Performance Overview on page 6.)
-----------------------------
(1) The Blended Benchmark consists of the following two indices: 50% of the
PHLX Utility Sector Index which is a market capitalization weighted index
composed of geographically diverse public U.S. utility stocks; and 50% of
the Alerian MLP Total Return Index which is a float-adjusted,
capitalization-weighted composite of the 50 most prominent energy Master
Limited Partnerships (MLPs). Indices are unmanaged and an investor cannot
invest directly in an index. All index returns assume that distributions
are reinvested when they are received.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Electric Power & Transmission 39.48%
Natural Gas Transmission 31.24
Petroleum Product Transmission 14.85
Crude Oil Transmission 12.95
Coal 0.56
Other 0.92
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
TC Energy Corp. 8.85%
Enterprise Products Partners, L.P. 7.46
Kinder Morgan, Inc. 6.47
NextEra Energy, Inc. 5.39
NextEra Energy Partners, L.P. 4.76
Public Service Enterprise Group, Inc. 4.55
Enbridge, Inc. 4.21
TC Pipelines, L.P. 4.14
Plains GP Holdings, L.P. 3.95
Magellan Midstream Partners L.P. 3.74
-------
Total 53.52%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 20, 2012 - OCTOBER 31, 2019
First Trust North American Blended S&P 500(R)
Energy Infrastructure Fund Benchmark Index
<S> <C> <C> <C>
6/20/12 $10,000 $10,000 $10,000
10/31/12 10,690 10,582 10,495
4/30/13 12,379 12,241 12,008
10/31/13 12,138 12,064 13,347
4/30/14 13,341 13,381 14,463
10/31/14 14,861 14,383 15,652
4/30/15 15,005 13,803 16,341
10/31/15 12,793 12,040 16,467
4/30/16 13,004 12,531 16,538
10/31/16 14,330 13,087 17,209
4/30/17 14,896 14,126 19,501
10/31/17 14,768 13,897 21,276
4/30/18 13,914 13,586 22,089
10/31/18 14,171 14,142 22,840
4/30/19 15,869 15,241 25,068
10/31/19 16,188 15,288 26,111
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 November 1, 2014 through
October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/1/14 - 10/31/15 158 0 0 0 93 0 0 0
11/1/15 - 10/31/16 213 0 0 0 39 0 0 0
11/1/16 - 10/31/17 209 0 0 0 43 0 0 0
11/1/17 - 10/31/18 156 0 0 0 96 0 0 0
11/1/18 - 10/31/19 169 4 0 1 76 1 0 0
</TABLE>
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
TOTAL RETURNS
Inception (8/19/19)
to 10/31/19
<S> <C>
FUND PERFORMANCE
NAV 3.04%
Market Price 3.09%
INDEX PERFORMANCE
PHLX Utility Sector Index 4.89%
S&P 500(R) Index 4.24%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Fund Performance Overview on page 6.)
Page 4
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EIP CARBON IMPACT ETF (ECLN) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Electric Power & Transmission 77.40%
Natural Gas Transmission 17.97
Other 4.63
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
NextEra Energy Partners, L.P. 7.82%
Eversource Energy 6.61
CMS Energy Corp. 6.49
Xcel Energy, Inc. 6.39
NextEra Energy, Inc. 5.66
Alliant Energy Corp. 5.34
TC Pipelines, L.P. 4.98
WEC Energy Group, Inc. 4.85
Sempra Energy 4.84
Fortis, Inc. 4.72
-------
Total 57.70%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 19, 2019 - OCTOBER 31, 2019
First Trust EIP PHLX Utility S&P 500(R)
Carbon Impact ETF Sector Index Index
<S> <C> <C> <C>
8/19/19 $10,000 $10,000 $10,000
10/31/19 10,304 10,489 10,424
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 August 20, 2019 (commencement
of trading) through October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
8/20/19 - 10/31/19 27 0 0 0 25 0 0 0
</TABLE>
Page 5
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the periods
indicated.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint 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 each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 6
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
ADVISOR
First Trust Advisors, L.P. ("First Trust") is the investment advisor to the
First Trust North American Energy Infrastructure Fund ("EMLP") and the First
Trust EIP Carbon Impact ETF ("ECLN") (each a "Fund"). First Trust is responsible
for the ongoing monitoring of each Fund's investment portfolio, managing each
Fund's business affairs and providing certain administrative services necessary
for the management of each Fund.
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP or the "Sub-Advisor"), located in Westport,
CT, serves as the investment sub-advisor to the Funds. EIP was founded in 2003
and provides professional asset management services in the area of
energy-related master limited partnerships ("MLPs") and other high-payout
securities such as pipeline companies, power utilities, YieldCos, and energy
infrastructure real estate investment trusts ("REITs"). EIP mainly focuses on
investments in energy-related infrastructure assets such as pipelines, power
transmission and distribution, petroleum storage and terminals that receive
fee-based or regulated income from their corporate and individual customers. As
of October 31, 2019, EIP had approximately $6.2 billion of assets under
management or supervision. EIP advises two privately offered partnerships for
U.S. high net worth individuals and an open-end mutual fund. EIP also manages
separately managed accounts and provides its model portfolio to unified managed
accounts. Finally, in addition to the Funds, EIP serves as a sub-advisor to four
closed-end management investment companies, a sleeve of an actively managed
exchange-traded fund, a sleeve of a series of a variable insurance trust, and an
open-end UCITS fund incorporated in Ireland. EIP is a registered investment
advisor with the Securities and Exchange Commission.
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE -- CO-PORTFOLIO MANAGER, FOUNDER, CEO AND PRINCIPAL OF ENERGY
INCOME PARTNERS, LLC
EVA PAO -- CO-PORTFOLIO MANAGER AND PRINCIPAL OF ENERGY INCOME PARTNERS, LLC
JOHN TYSSELAND -- CO-PORTFOLIO MANAGER AND PRINCIPAL OF ENERGY INCOME
PARTNERS, LLC
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund.
COMMENTARY
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND
The Fund's investment objective is to seek total return. The Fund pursues its
investment objective by investing, under normal market conditions, at least 80%
of its net assets (including investment borrowings) in equity securities of
companies deemed by EIP to be engaged in the energy infrastructure sector. These
companies principally include publicly traded master limited partnerships and
limited liability companies taxed as partnerships ("MLPs"), MLP affiliates,
pipeline companies, utilities, and other companies that derive the majority of
their revenues from operating or providing services in support of infrastructure
assets such as pipelines, power transmission and petroleum and natural gas
storage in the petroleum, natural gas and power generation industries
(collectively, "Energy Infrastructure Companies"). The Fund will invest
principally in Energy Infrastructure Companies. Under normal market conditions,
the Fund will invest at least 80% of its net assets (including investment
borrowings) in equity securities of companies headquartered or incorporated in
the United States and Canada. There can be no assurance that the Fund's
investment objective will be achieved. The Fund may not be appropriate for all
investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index (the "MLP Index") and the PHLX
Utility Sector Index (the "UTY Index"), the total return for energy-related MLPs
and utilities for the 12-month period ended October 31, 2019 was -6.36% and
23.81%, respectively. These figures are according to data collected from Alerian
Capital Management and Bloomberg. As measured by the S&P 500(R) Index (the
"Index"), the broader equity market over the same period returned 14.33%.
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis for the 12-month period ended October 31,
2019, the Fund provided a total return of 14.22%, including the reinvestment of
dividends. This compares, according to collected data, to a total return of
8.09%(1) for the compounded average of the two indices (the "Blended Benchmark")
(-6.36% for the MLP Index and 23.81% for the UTY Index), and 14.33% for the S&P
500(R) Index.
-----------------------------
(1) The total return is the monthly rebalanced return for the MLP Index and
UTY Index.
Page 7
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
The Fund declared quarterly distributions during the fiscal year as follows:
$0.2910 per share in December 2018; $0.2195 per share in March 2019; $0.2188 per
share in June 2019; and $0.2472 per share in September 2019.
The Fund's NAV total return of 14.22% outperformed the 8.09% average return of
the Blended Benchmark. The Fund's outperformance was driven by overweight
positions in pipeline C-Corporations ("C-Corps") and underweight positions in
gathering and processing MLPs and a California Utility. The Blended Benchmark
does not have exposure to C-Corp pipeline companies while the Fund owns a
broader universe of infrastructure companies that includes C-Corp pipeline
companies, utilities, and MLPs. EIP believes the high payout ratio found in MLPs
and other infrastructure investments is only suitable for a narrow set of
long-lived assets that have stable non-cyclical cash flows, such as regulated
pipelines or other infrastructure assets that are legal or natural monopolies.
Over the long term, EIP believes this approach leads to a portfolio of companies
at the blue-chip end of the spectrum with less volatility and higher growth.
MARKET AND FUND OUTLOOK
Many of the assets held by MLPs were originally constructed decades ago by
pipeline and power utilities. When the U.S. deregulated much of the energy
industry, these utilities became cyclical commodity companies with too much debt
and the resulting financial stress caused divestment of their pipeline assets to
the MLP space that was trading at higher valuations. We believe the reverse
trend is happening today. Corporate consolidations and simplifications are part
of that trend. Corporate simplifications involving pipeline companies and their
associated MLPs began late in 2014 and are continuing in 2019. These
simplifications involve the acquisition of the subsidiary MLP by the C-Corp
parent as well as MLPs choosing to become taxable corporations. In our opinion,
we believe that this trend will likely continue following the Federal Energy
Regulatory Commission's Revised Policy Statement denying recovery of an Income
Tax Allowance (ITA) by most partnership-owned pipelines.
While MLPs represented a way for the industry to lower its cost of financing
between 2004 through 2014, the severe correction in the price of crude oil in
2014 caused a collapse in MLP valuations as much of the MLP Index had become
exposed to commodity prices between 2004 and 2014. MLP distribution cuts and
even some bankruptcies followed. Over the last four and a half years, about 60%
of the MLPs in the MLP Index have cut or eliminated their dividends. Now, MLPs
in the MLP Index trade at valuations that are about 40% lower than 2014, while,
during that same time period, the valuation multiples of non-MLP energy
infrastructure companies like utilities have risen. (Source: Alerian, Bloomberg
L.P., FactSet Research Systems Inc.) MLPs are now in many cases a higher-cost
way of financing these industries; the reverse of the conditions that led to the
growth of the asset class in the early part of the last decade. As a result, we
are now witnessing the consolidation or simplification of corporate structures
where the MLP sleeve of capital is being eliminated when it no longer reduces a
company's cost of equity financing.
While some stand-alone pipeline companies are now seeking a lower cost of
financing outside of the MLP structure, some cyclical companies continue to use
the MLP structure to finance non-cyclical assets through sponsored entities. In
most cases, these sponsored entities formed as MLPs still trade at higher
multiples compared to companies in cyclical industries such as refining, oil and
gas production, and petrochemicals. Therefore, some of these cyclical energy
companies still have an opportunity to lower their financing costs by divesting
stable assets such as pipelines and related storage facilities to an MLP
subsidiary as a method to reduce the overall company's cost of equity financing.
Whether from the perspective of a diversified energy company seeking to lower
its overall financing costs or the energy industry in its entirety, we believe
it is fair to say that MLPs are created when they lower the cost of equity
financing and eliminated when they do not.
Historically, the pipeline utility industry has moved in very long cycles and
the cycle that saw most of U.S. pipeline assets move to the MLP space due to the
MLP being a superior financing tool is reversing. In our view, the investment
merits of owning these assets (stable, slow-growing earnings with a high
dividend payout ratio) have not changed. The Fund continues to seek to invest
primarily in energy infrastructure companies including MLPs with mostly
non-cyclical cash flows, investment-grade ratings, conservative balance sheets,
modest and/or flexible organic growth commitments and liquidity on their
revolving lines of credit. Non-cyclical cash flows are, in our opinion, a good
fit with a steady anticipated dividend distribution that is meant to be most or
all of an energy infrastructure company's free cash flow.
Page 8
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
FIRST TRUST EIP CARBON IMPACT ETF
The First Trust EIP Carbon Impact ETF's (the "Fund") inception date was August
19, 2019. The Fund's investment objective is to seek to achieve a competitive
risk-adjusted total return balanced between dividends and capital appreciation.
The Fund pursues its investment objective by investing, under normal market
conditions, at least 80% of its net assets (including investment borrowings) in
equity securities of companies identified by EIP as having or seeking to have a
positive carbon impact. EIP defines positive carbon impact companies as
companies that reduce, have a publicly available plan to reduce, or enable the
reduction of carbon and other greenhouse gas ("GHG") emissions from the
production, transportation, conversion, storage and use of energy. The Fund's
investments will be concentrated in the industries constituting the energy
infrastructure sector. These companies principally include: utilities; natural
gas pipeline companies; manufacturers, contracted developers and/or owners of
renewable energy; and other companies that derive the majority of their earnings
from manufacturing, operating or providing services in support of infrastructure
assets and/or infrastructure activities such as renewable energy equipment,
energy storage, carbon capture and sequestration, fugitive methane abatement and
energy transmission and distribution equipment. The Fund will generally not
invest in companies comprising the following industries: coal production, oil
exploration and production, or crude oil storage, transportation and delivery.
The Fund's portfolio will be principally composed of equity securities,
including common stock, depositary receipts, and units issued by master limited
partnerships ("MLPs"). Such securities may be issued by small, mid and large
capitalization companies operating in developed market countries.
MARKET RECAP
As measured by the S&P 500(R) Index (the "Index") and the PHLX Utility Sector
Index (the "UTY Index"), the total return for the financial period from the
Fund's inception date of August 19, 2019 to October 31, 2019 was 4.24% and
4.89%, respectively. These figures are according to data collected from
Bloomberg.
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis for the financial period from the Fund's
inception date of August 19, 2019 to October 31, 2019, the Fund provided a total
return of 3.04%, including the reinvestment of dividends. Since inception, the
Fund's NAV total return of 3.04% underperformed the Index by 120 basis points
("bps") and the UTY Index by 185 bps.
The Fund did not declare quarterly distributions during the fiscal period.
Underperformance of the Fund relative to the UTY was partially driven by
overweight positions in an offshore wind developer and two Canadian Utilities
that underperformed the UTY. This underperformance was partially offset by our
overweight positions in a large renewable developer that outperformed the UTY
and an underweight position in a regulated utility that purchased non-regulated
assets during the period that underperformed the UTY. Installation of cheaper
renewable sources, smart meters and other technology is driving down costs and
environmental impact while improving system reliability. We believe these trends
will drive rate-base growth for regulated utilities that should also have a
positive carbon impact.
MARKET AND FUND OUTLOOK
Growth in earnings per share for regulated utilities is primarily driven by new
investment in the regulatory asset base. A transformation to cheaper and cleaner
electric power is allowing these investments to be made without immediate upward
pressure on customer bills. This trend began a decade ago when fuel costs, which
flow directly to customer bills, followed the decline in natural gas and coal
prices. Today, this favorable trend is being extended with the deployment of
increasingly low-cost renewable sources, technologies like automated meters
which require fewer field personnel and upgrades to the grid which pay back
through reduced bottlenecks, improved reliability and efficiencies that drive
down the delivered cost per kilowatt-hour. Cost reduction is key to regulated
utilities being able to invest capital to grow their earnings. From EIP
research, over the last decade, the Levelized Cost of Energy (LCOE), the total
life-cycle cost of generating electricity with a given technology, of renewables
has fallen significantly. This has prompted many utilities to incorporate more
wind and solar in their future resource plans. As investors, we want to own the
lowest cost way of shipping the lowest cost forms of energy, so we care about
the true cost of each form of power generation without subsidies and with the
cost of externalities, both positive and negative. We believe these trends will
drive rate-base growth for regulated utilities that should also have a positive
carbon impact.
Page 9
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2019 (UNAUDITED)
As a shareholder of First Trust North American Energy Infrastructure Fund or
First Trust EIP Carbon Impact ETF (each a "Fund" and collectively, the "Funds"),
you incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Funds and to compare these costs with the ongoing
costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period (or inception) and held through the six-month (or shorter) period ended
October 31, 2019.
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 period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2019 OCTOBER 31, 2019 PERIOD PERIOD (a)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST NORTH AMERICAN ENERGY
INFRASTRUCTURE FUND (EMLP)
Actual $1,000.00 $1,020.10 0.95% $4.84
Hypothetical (5% return before expenses) $1,000.00 $1,020.42 0.95% $4.84
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ANNUALIZED EXPENSES PAID
EXPENSE RATIO DURING THE PERIOD
BEGINNING ENDING BASED ON THE AUGUST 19, 2019 (b)
ACCOUNT VALUE ACCOUNT VALUE NUMBER OF DAYS TO
AUGUST 19, 2019 (b) OCTOBER 31, 2019 IN THE PERIOD OCTOBER 31, 2019 (c)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
Actual $1,000.00 $1,030.40 0.95% $1.93
Hypothetical (5% return before expenses) $1,000.00 $1,020.42 0.95% $4.84
</TABLE>
(a) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2019
through October 31, 2019), multiplied by 184/365 (to reflect the six-month
period).
(b) Inception date.
(c) Actual expenses are equal to the annualized expense ratio as indicated in
the table multiplied by the average account value over the period (August
19, 2019 through October 31, 2019), multiplied by 74/365. Hypothetical
expenses are assumed for the most recent six-month period.
Page 10
<PAGE>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 63.6%
ELECTRIC UTILITIES -- 22.4%
864,814 Alliant Energy Corp. $ 46,129,179
670,906 American Electric Power Co., Inc. 63,326,817
292,269 Duke Energy Corp. 27,549,276
599,865 Emera, Inc. (CAD) 24,835,349
570,401 Eversource Energy 47,765,380
1,640,104 Exelon Corp. 74,608,331
1,010,314 Fortis, Inc. (CAD) 41,974,324
91,162 Hydro One Ltd. (CAD) (a) 1,695,055
244,754 IDACORP, Inc. 26,340,425
557,994 NextEra Energy, Inc. 132,992,290
1,520,348 PPL Corp. 50,916,455
5,671 Southern (The) Co. 355,345
579,095 Xcel Energy, Inc. 36,778,323
--------------
575,266,549
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 0.5%
238,412 CorEnergy Infrastructure Trust,
Inc. 11,484,306
--------------
GAS UTILITIES -- 1.9%
183,235 Atmos Energy Corp. 20,610,273
15,156 Chesapeake Utilities Corp. 1,436,789
580,455 New Jersey Resources Corp. 25,307,838
--------------
47,354,900
--------------
MULTI-UTILITIES -- 11.7%
731,247 ATCO Ltd., Class I (CAD) 25,705,517
1,052,683 Canadian Utilities Ltd.,
Class A (CAD) 30,698,925
805,490 CMS Energy Corp. 51,486,921
156,619 Dominion Energy, Inc. 12,928,899
1,771,704 Public Service Enterprise Group,
Inc. 112,166,580
142,379 Sempra Energy 20,575,189
505,686 WEC Energy Group, Inc. 47,736,758
--------------
301,298,789
--------------
OIL, GAS & CONSUMABLE FUELS
-- 26.8%
2,849,016 Enbridge, Inc. 103,732,672
1,437,876 Equitrans Midstream Corp. 20,015,234
1,411,854 Inter Pipeline Ltd. (CAD) 23,700,624
1,350,284 Keyera Corp. (CAD) 31,299,196
7,985,435 Kinder Morgan, Inc. 159,548,991
781,653 ONEOK, Inc. 54,582,829
4,335,614 TC Energy Corp. 218,211,453
3,403,003 Williams (The) Cos., Inc. 75,920,997
--------------
687,011,996
--------------
WATER UTILITIES -- 0.3%
64,602 American Water Works Co., Inc. 7,963,488
--------------
TOTAL COMMON STOCKS -- 63.6% 1,630,380,028
(Cost $1,350,456,825) --------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
MASTER LIMITED PARTNERSHIPS
-- 32.5%
CHEMICALS -- 0.1%
144,042 Westlake Chemical Partners, L.P. $ 3,304,323
--------------
INDEPENDENT POWER AND
RENEWABLE ELECTRICITY
PRODUCERS -- 4.6%
2,226,011 NextEra Energy Partners, L.P. (b) 117,310,780
--------------
OIL, GAS & CONSUMABLE FUELS
-- 27.8%
1,213,461 Alliance Resource Partners, L.P. 13,833,456
932,393 BP Midstream Partners, L.P. 13,752,797
5,982,643 Energy Transfer, L.P. 75,321,475
7,061,677 Enterprise Products Partners,
L.P. 183,815,452
1,552,864 Holly Energy Partners, L.P. 35,482,943
1,480,202 Magellan Midstream Partners,
L.P. 92,246,189
777,114 MPLX, L.P. 20,492,496
827,863 Phillips 66 Partners, L.P. 46,269,263
5,251,765 Plains GP Holdings L.P.,
Class A (b) 97,472,758
670,790 Shell Midstream Partners, L.P. 13,764,611
1,065,165 Tallgrass Energy, L.P.,
Class A (b) 19,875,979
2,577,886 TC PipeLines, L.P. 102,135,843
--------------
714,463,262
--------------
TOTAL MASTER LIMITED
PARTNERSHIPS -- 32.5% 835,078,365
(Cost $811,354,057) --------------
MONEY MARKET FUNDS -- 6.3%
162,581,684 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.68% (c) 162,581,684
(Cost $162,581,684) --------------
TOTAL INVESTMENTS -- 102.4% 2,628,040,077
(Cost $2,324,392,566) (d)
NET OTHER ASSETS AND
LIABILITIES -- (2.4)% (62,680,054)
--------------
NET ASSETS -- 100.0% $2,565,360,023
==============
(a) This security is restricted in the U.S. and cannot be offered for public
sale without first being registered under the Securities Act of 1933, as
amended. This security is not restricted on the foreign exchange where it
trades freely without any additional registration. As such, it does not
require the additional disclosure required of restricted securities.
(b) This security is taxed as a "C" corporation for federal income tax
purposes.
(c) Rate shown reflects yield as of October 31, 2019.
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
(d) Aggregate cost for federal income tax purposes is $2,331,373,653. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$374,120,200 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$77,453,776. The net unrealized appreciation was $296,666,424.
Currency Abbreviations:
CAD - Canadian Dollar
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
LEVEL 1 SIGNIFICANT SIGNIFICANT
QUOTED OBSERVABLE UNOBSERVABLE
PRICES INPUTS INPUTS
-------------------------------------------
Common Stocks* $1,630,380,028 $ -- $ --
Master Limited
Partnerships* 835,078,365 -- --
Money Market
Funds 162,581,684 -- --
-------------------------------------------
Total Investments $2,628,040,077 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 79.0%
ELECTRIC UTILITIES -- 46.2%
1,932 Alliant Energy Corp. $ 103,053
552 American Electric Power Co., Inc. 52,103
824 Edison International 51,830
1,408 Emera, Inc. (CAD) 58,293
2,880 Enel S.p.A., ADR 22,262
1,524 Eversource Energy 127,620
792 Exelon Corp. 36,028
2,194 Fortis, Inc. (CAD) 91,152
486 Iberdrola S.A., ADR 20,013
554 IDACORP, Inc. 59,622
458 NextEra Energy, Inc. 109,160
396 Orsted A/S (DKK) (a) 34,736
2,038 PPL Corp. 68,253
1,940 Xcel Energy, Inc. 123,209
--------------
957,334
--------------
GAS UTILITIES -- 5.8%
450 Atmos Energy Corp. 50,616
1,106 New Jersey Resources Corp. 48,222
218 ONE Gas, Inc. 20,239
--------------
119,077
--------------
INDEPENDENT POWER AND
RENEWABLE ELECTRICITY
PRODUCERS -- 1.1%
1,952 EDP Renovaveis S.A. (EUR) 22,250
--------------
MULTI-UTILITIES -- 19.3%
1,958 CMS Energy Corp. 125,155
190 National Grid PLC, ADR 11,090
1,204 Public Service Enterprise Group,
Inc. 76,225
646 Sempra Energy 93,354
992 WEC Energy Group, Inc. 93,645
--------------
399,469
--------------
OIL, GAS & CONSUMABLE FUELS
-- 2.3%
164 Cheniere Energy, Inc. (b) 10,094
1,716 Williams (The) Cos., Inc. 38,284
--------------
48,378
--------------
WATER UTILITIES -- 4.3%
724 American Water Works Co., Inc. 89,247
--------------
TOTAL COMMON STOCKS -- 79.0% 1,635,755
(Cost $1,600,112) --------------
SHARES/
UNITS DESCRIPTION VALUE
------------------------------------------------------------
MASTER LIMITED PARTNERSHIPS
-- 14.2%
INDEPENDENT POWER AND
RENEWABLE ELECTRICITY
PRODUCERS -- 9.6%
1,100 Brookfield Renewable Partners,
L.P. (CAD) $ 46,803
2,862 NextEra Energy Partners, L.P. (c) 150,827
--------------
197,630
--------------
OIL, GAS & CONSUMABLE FUELS
-- 4.6%
2,424 TC PipeLines, L.P. 96,039
--------------
TOTAL MASTER LIMITED
PARTNERSHIPS -- 14.2% 293,669
(Cost $272,127) --------------
MONEY MARKET FUNDS -- 6.8%
120,872 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.68% (d) 120,872
19,571 JPMorgan 100% U.S. Treasury
Securities Money Market - Fund
Institutional Class
- 1.62% (d) 19,571
--------------
TOTAL MONEY MARKET FUNDS
-- 6.8% 140,443
(Cost $140,443) --------------
TOTAL INVESTMENTS -- 100.0% 2,069,867
(Cost $2,012,682) (e)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 476
--------------
NET ASSETS -- 100.0% $ 2,070,343
==============
(a) This security is restricted in the U.S. and cannot be offered for public
sale without first being registered under the Securities Act of 1933, as
amended. This security is not restricted on the foreign exchange where it
trades freely without any additional registration. As such, it does not
require the additional disclosure required of restricted securities.
(b) Non-income producing security.
(c) This security is taxed as a "C" corporation for federal income tax
purposes.
(d) Rate shown reflects yield as of October 31, 2019.
(e) Aggregate cost for federal income tax purposes is $2,012,167. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$77,750 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$20,050. The net unrealized appreciation was $57,700.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
Currency Abbreviations:
CAD - Canadian Dollar
DKK - Danish Krone
EUR - Euro
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
LEVEL 1 SIGNIFICANT SIGNIFICANT
QUOTED OBSERVABLE UNOBSERVABLE
PRICES INPUTS INPUTS
-------------------------------------------
Common Stocks* $ 1,635,755 $ -- $ --
Master Limited
Partnerships* 293,669 -- --
Money Market
Funds 140,443 -- --
-------------------------------------------
Total Investments $ 2,069,867 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 2019
<TABLE>
<CAPTION>
FIRST TRUST NORTH FIRST TRUST
AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
--------------------- ---------------------
ASSETS:
<S> <C> <C>
Investments, at value.................................................. $ 2,628,040,077 $ 2,069,867
Cash................................................................... 1,981,339 --
Foreign currency, at value............................................. 1 --
Receivables:
Investment securities sold.......................................... 19,005,553 --
Dividends........................................................... 12,543,442 2,149
Capital shares sold................................................. 3,724,930 --
----------------- -----------------
Total Assets..................................................... 2,665,295,342 2,072,016
----------------- -----------------
LIABILITIES:
Payables:
Investment securities purchased..................................... 97,862,956 --
Investment advisory fees............................................ 2,072,363 1,673
----------------- -----------------
Total Liabilities................................................ 99,935,319 1,673
----------------- -----------------
NET ASSETS............................................................. $ 2,565,360,023 $ 2,070,343
================= =================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 2,470,535,724 $ 2,008,968
Par value.............................................................. 1,033,050 1,000
Accumulated distributable earnings (loss).............................. 93,791,249 60,375
----------------- -----------------
NET ASSETS............................................................. $ 2,565,360,023 $ 2,070,343
================= =================
NET ASSET VALUE, per share............................................. $ 24.83 $ 20.70
================= =================
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share).............................. 103,305,000 100,002
================= =================
Investments, at cost................................................... $ 2,324,392,566 $ 2,012,682
================= =================
Foreign currency, at cost (proceeds)................................... $ 1 $ --
================= =================
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIRST TRUST NORTH FIRST TRUST
AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
--------------------- ---------------------
YEAR ENDED PERIOD ENDED
10/31/2019 10/31/2019 (a)
----------------- -----------------
INVESTMENT INCOME:
<S> <C> <C>
Dividends.............................................................. $ 62,368,279 $ 8,939
Foreign withholding tax................................................ (3,294,605) (151)
----------------- -----------------
Total investment income............................................. 59,073,674 8,788
----------------- -----------------
EXPENSES:
Investment advisory fees............................................... 22,731,027 3,918
----------------- -----------------
Total expenses...................................................... 22,731,027 3,918
----------------- -----------------
NET INVESTMENT INCOME (LOSS)........................................... 36,342,647 4,870
----------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... (87,159,319) (1,204)
In-kind redemptions................................................. 35,714,648 --
Foreign currency transactions....................................... (341,951) (476)
----------------- -----------------
Net realized gain (loss)............................................... (51,786,622) (1,680)
----------------- -----------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... 317,830,143 57,185
Foreign currency translation........................................ 370 --
----------------- -----------------
Net change in unrealized appreciation (depreciation)................... 317,830,513 57,185
----------------- -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 266,043,891 55,505
----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ 302,386,538 $ 60,375
================= =================
</TABLE>
(a) Inception date is August 19, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FIRST TRUST NORTH FIRST TRUST
AMERICAN ENERGY EIP CARBON
INFRASTRUCTURE FUND IMPACT ETF
(EMLP) (ECLN)
-------------------------------------- -----------------
YEAR ENDED YEAR ENDED PERIOD ENDED
10/31/2019 10/31/2018 10/31/2019 (a)
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)................................... $ 36,342,647 $ 30,933,982 $ 4,870
Net realized gain (loss)....................................... (51,786,622) 24,990,313 (1,680)
Net change in unrealized appreciation (depreciation)........... 317,830,513 (153,746,567) 57,185
----------------- ----------------- -----------------
Net increase (decrease) in net assets resulting
from operations............................................. 302,386,538 (97,822,272) 60,375
----------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.......................................... (28,709,335) (42,353,642) --
Return of capital.............................................. (67,709,012) (45,995,871) --
----------------- ----------------- -----------------
Total distributions to shareholders............................ (96,418,347) (88,349,513) --
----------------- ----------------- -----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold...................................... 392,227,615 587,184,789 2,009,968
Cost of shares redeemed........................................ (150,641,145) (194,184,205) --
----------------- ----------------- -----------------
Net increase (decrease) in net assets resulting
from shareholder transactions............................... 241,586,470 393,000,584 2,009,968
----------------- ----------------- -----------------
Total increase (decrease) in net assets........................ 447,554,661 206,828,799 2,070,343
NET ASSETS:
Beginning of period............................................ 2,117,805,362 1,910,976,563 --
----------------- ----------------- -----------------
End of period.................................................. $ 2,565,360,023 $ 2,117,805,362 $ 2,070,343
================= ================= =================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period........................ 93,555,000 77,855,000 --
Shares sold.................................................... 16,250,000 24,150,000 100,002
Shares redeemed................................................ (6,500,000) (8,450,000) --
----------------- ----------------- -----------------
Shares outstanding, end of period.............................. 103,305,000 93,555,000 100,002
================= ================= =================
</TABLE>
(a) Inception date is August 19, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST EXCHANGE-TRADED FUND IV
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND (EMLP)
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2019 2018 2017 2016 2015
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.64 $ 24.55 $ 24.76 $ 23.03 $ 27.72
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.36 0.35 0.44 0.30 0.39
Net realized and unrealized gain (loss) 2.81 (1.33) 0.32 2.37 (4.18)
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.17 (0.98) 0.76 2.67 (3.79)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.29) (0.45) (0.48) (0.30) (0.90)
Return of capital (0.69) (0.48) (0.49) (0.64) --
---------- ---------- ---------- ---------- ----------
Total distributions (0.98) (0.93) (0.97) (0.94) (0.90)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 24.83 $ 22.64 $ 24.55 $ 24.76 $ 23.03
========== ========== ========== ========== ==========
TOTAL RETURN (a) 14.22% (4.03)% 3.06% 12.01% (13.92)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,565,360 $2,117,805 $1,910,977 $1,379,029 $ 952,609
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average
net assets 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income (loss) to
average net assets 1.52% 1.40% 1.59% 1.44% 1.47%
Portfolio turnover rate (b) 33% 35% 24% 40% 34%
</TABLE>
<TABLE>
<CAPTION>
FIRST TRUST EIP CARBON IMPACT ETF (ECLN)
PERIOD ENDED
10/31/2019 (c)
------------
<S> <C>
Net asset value, beginning of period $ 20.09
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.05
Net realized and unrealized gain (loss) 0.56
----------
Total from investment operations 0.61
----------
Net asset value, end of period $ 20.70
==========
TOTAL RETURN (a) 3.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,070
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average
net assets 0.95% (d)
Ratio of net investment income (loss) to
average net assets 1.18% (d)
Portfolio turnover rate (b) 3%
</TABLE>
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Inception date is August 19, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(d) Annualized.
Page 18 See Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the two funds listed below. The shares of each fund are listed and traded
on the NYSE Arca, Inc. ("NYSE Arca").
First Trust North American Energy Infrastructure Fund - (NYSE Arca ticker
"EMLP")
First Trust EIP Carbon Impact ETF - (NYSE Arca ticker "ECLN")(1)
(1) ECLN commenced operations on August 19, 2019.
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Each Fund's Creation Units are generally issued and redeemed
in-kind for securities in which the Fund invests and, in certain circumstances,
for cash, and only to and from broker-dealers and large institutional investors
that have entered into participation agreements. Except when aggregated in
Creation Units, each Fund's shares are not redeemable securities.
Each Fund is an actively managed exchange-traded fund. EMLP's investment
objective is to seek total return. EMLP will invest, under normal market
conditions, at least 80% of its net assets (including investment borrowings) in
equity securities of companies deemed by Energy Income Partners ("EIP" or the
"Sub-Advisor") to be engaged in the energy infrastructure sector, which
principally include publicly-traded master limited partnerships and limited
liability companies taxed as partnerships ("MLPs"), MLP affiliates, pipeline
companies, utilities, and other companies that derive the majority of their
revenues from operating or providing services in support of infrastructure
assets such as pipelines, power transmission and petroleum and natural gas
storage in the petroleum, natural gas and power generation industries
(collectively, "Energy Infrastructure Companies"). In addition, under normal
market conditions, the Fund will invest at least 80% of its net assets
(including investment borrowings) in equity securities of companies
headquartered or incorporated in the United States and Canada. ECLN's investment
objective is to seek to achieve a competitive risk-adjusted total return
balanced between dividends and capital appreciation. ECLN will invest, under
normal market conditions, at least 80% of its net assets (including investment
borrowings) in equity securities of companies identified by EIP as having or
seeking to have a positive carbon impact, defined as companies that reduce, have
a publicly available plan to reduce, or enable the reduction of carbon and other
greenhouse gas emissions from the production, transportation, conversion,
storage and use of energy. ECLN's investments will be concentrated in the
industries constituting the energy infrastructure sector, which principally
include utilities, natural gas pipeline companies, manufacturers, contracted
developers and/or owners of renewable energy, and other companies that derive
the majority of their earnings from manufacturing, operating or providing
services in support of infrastructure assets and/or infrastructure activities
such as renewable energy equipment, energy storage, carbon capture and
sequestration, fugitive methane abatement and energy transmission and
distribution equipment.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are each considered an investment company and follow accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Funds in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Foreign securities are priced using data
reflecting the earlier closing of the principal markets for those securities.
Each Fund's NAV is calculated by dividing the value of all assets of each Fund
(including accrued interest and dividends), less all liabilities (including
accrued expenses and dividends declared but unpaid), by the total number of
shares outstanding.
Page 19
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019
Each Fund's investments are valued daily at market value or, in the absence of
the market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Funds'
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. Each Fund's investments are valued as
follows:
Common stocks, MLPs and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq Stock Market LLC ("Nasdaq") and the
London Stock Exchange Alternative Investment Market ("AIM")) are valued at
the last sale price on the exchange on which they are principally traded
or, for Nasdaq and AIM securities, the official closing price. Securities
traded on more than one securities exchange are valued at the last sale
price or official closing price, as applicable, at the close of the
securities exchange representing the principal market for such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund or exchange-traded fund trading of similar
securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
Because foreign markets may be open on different days than the days during which
investors may transact in the shares of a Fund, the value of the Fund's
securities may change on the days when investors are not able to transact in the
shares of the Fund. The value of securities denominated in foreign currencies is
converted into U.S. dollars using exchange rates determined daily as of the
close of regular trading on the NYSE.
Page 20
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of October 31, 2019, is
included with each Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in MLPs generally are comprised
of return of capital and investment income. A Fund records estimated return of
capital and investment income based on historical information available from
each MLP. These estimates may subsequently be revised based on information
received from the MLPs after their tax reporting periods are concluded.
C. FOREIGN CURRENCY
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investments and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities, other than investments in securities, which
result from changes in foreign currency exchange rates have been included in
"Net change in unrealized appreciation (depreciation) on foreign currency
translation" on the Statements of Operations. Unrealized gains and losses on
investments in securities which result from changes in foreign exchange rates
are included with fluctuations arising from changes in market price and are
shown in "Net change in unrealized appreciation (depreciation) on investments"
on the Statements of Operations. Net realized foreign currency gains and losses
include the effect of changes in exchange rates between trade date and
settlement date on investment security transactions, foreign currency
transactions and interest and dividends received and is included in "Net
realized gain (loss) on foreign currency transactions" on the Statements of
Operations. The portion of foreign currency gains and losses related to
fluctuations in exchange rates between the initial purchase settlement date and
subsequent sale trade date is included in "Net realized gain (loss) on
investments" on the Statements of Operations.
D. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on significantly modified portfolio securities
held by the Funds and have no impact on net assets or NAV per share. Temporary
differences, which arise from recognizing certain items of income, expense and
gain/loss in different periods for financial statement and tax purposes, will
reverse at some time in the future.
Page 21
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019
The tax character of distributions paid by each Fund during the fiscal period
ended October 31, 2019 was as follows:
<TABLE>
<CAPTION>
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
--------------- ------------- -----------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ 28,709,335 $ -- $ 67,709,012
First Trust EIP Carbon Impact ETF -- -- --
</TABLE>
The tax character of distributions paid during the fiscal year ended October 31,
2018 was as follows:
<TABLE>
<CAPTION>
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
--------------- ------------- -----------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ 42,353,642 $ -- $ 45,995,871
</TABLE>
As of October 31, 2019, the components of distributable earnings on a tax basis
for each Fund were as follows:
<TABLE>
<CAPTION>
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
--------------- ------------- -----------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ -- $(202,873,457) $ 296,664,706
First Trust EIP Carbon Impact ETF 3,879 (1,204) 57,700
</TABLE>
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.
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, 2019, EMLP
and ECLN had non-expiring capital loss carryforwards available for federal
income tax purposes of $202,873,457 and $1,204, respectively.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal period ended October 31, 2019, the Funds had
no net late year ordinary or capital losses.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. For EMLP, the taxable years ended
2016, 2017, 2018, and 2019 remain open to federal and state audit. For ECLN, the
taxable period ended 2019 remains open to federal and state audit. As of October
31, 2019, 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.
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
period ended October 31, 2019, the adjustments for each Fund were as follows:
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019
<TABLE>
<CAPTION>
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
--------------- --------------- ---------------
<S> <C> <C> <C>
First Trust North American Energy Infrastructure Fund $ (4,219,126) $ (24,140,500) $ 28,359,626
First Trust EIP Carbon Impact ETF (991) 991 --
</TABLE>
F. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
G. NEW ACCOUNTING PRONOUNCEMENT
On August 28, 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13,
"Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement," which amends the fair value measurement disclosure requirements of
ASC 820. The amendments of ASU 2018-13 include new, eliminated, and modified
disclosure requirements of ASC 820. In addition, the amendments clarify that
materiality is an appropriate consideration of entities when evaluating
disclosure requirements. The ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods therein. Early adoption is
permitted for any eliminated or modified disclosures upon issuance of this ASU.
The Funds have early adopted ASU 2018-13 for these financial statements, which
did not result in a material impact.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the securities in each Fund's
portfolio, managing the Funds' business affairs and providing certain
administrative services necessary for the management of the Funds.
The Trust, on behalf of the Funds, and First Trust have retained EIP, an
affiliate of First Trust, to serve as the Funds' investment sub-advisor. In this
capacity, EIP is responsible for the selection and ongoing monitoring of the
securities in each Fund's investment portfolio. Pursuant to the Investment
Management Agreement between the Trust and the Advisor, First Trust will
supervise EIP and its management of the investment of each Fund's assets and
will pay EIP for its services as the Funds' sub-advisor. First Trust will also
be responsible for each Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, acquired
fund fees and expenses, if any, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses.
Each Fund has agreed to pay First Trust an annual unitary management fee equal
to 0.95% of its average daily net assets. EIP receives a sub-advisory fee for
EMLP from First Trust equal to 45% of any remaining monthly investment
management fee paid to First Trust after the Fund's average Fund expenses
accrued during the most recent twelve months are subtracted from the investment
management fee in a given month. EIP receives a sub-advisory fee for ECLN from
First Trust equal to an annual rate of 0.475% of the Fund's average daily net
assets less one-half of the Fund's expenses, for which EIP is responsible.
First Trust Capital Partners, LLC ("FTCP"), an affiliate of First Trust, owns,
through a wholly-owned subsidiary, a 15% ownership interest in each of EIP and
EIP Partners, LLC, an affiliate of EIP.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the fiscal period ended October 31, 2019, the cost of purchases and proceeds
from sales of investments for each Fund, excluding short-term investments and
in-kind transactions, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
<S> <C> <C>
First Trust North American Energy Infrastructure Fund $ 750,354,945 $ 770,464,085
First Trust EIP Carbon Impact ETF 251,327 53,133
</TABLE>
For the fiscal period ended October 31, 2019, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
<S> <C> <C>
First Trust North American Energy Infrastructure Fund $ 366,577,414 $ 143,042,450
First Trust EIP Carbon Impact ETF 1,675,248 --
</TABLE>
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). In order to purchase Creation Units of each Fund, an
Authorized Participant must deposit (i) a designated portfolio of equity
securities determined by First Trust (the "Deposit Securities") and generally
make or receive a cash payment referred to as the "Cash Component," which is an
amount equal to the difference between the NAV of the Fund Shares (per Creation
Unit Aggregation) and the market value of the Deposit Securities, and/or (ii)
cash in lieu of all or a portion of the Deposit Securities. If the Cash
Component is a positive number (i.e., the NAV per Creation Unit Aggregation
exceeds the Deposit Amount), the Authorized Participant will deliver the Cash
Component. If the Cash Component is a negative number (i.e., the NAV per
Creation Unit Aggregation is less than the Deposit Amount), the Authorized
Participant will receive the Cash Component. Authorized Participants purchasing
Creation Units must pay to BNYM, as transfer agent, a creation transaction fee
(the "Creation Transaction Fee") regardless of the number of Creation Units
purchased in the transaction. The Creation Transaction Fee may vary and is based
on the composition of the securities included in each Fund's portfolio and the
countries in which the transactions are 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 a Fund
permits an Authorized Participant to substitute cash or a different security in
lieu of depositing one or more of the requisite Deposit Securities, the
Authorized Participant may also be assessed an amount to cover the cost of
purchasing the Deposit Securities and/or disposing of the substituted
securities, including operational processing and brokerage costs, transfer fees,
stamp taxes, and part or all of the spread between the expected bid and offer
side of the market related to such Deposit Securities and/or substitute
securities.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may vary and is based on the composition of the
securities included in each Fund's portfolio and the countries in which the
transactions are settled. Each Fund reserves the right to effect redemptions in
cash. An Authorized Participant may request cash redemption in lieu of
securities; however, a Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019
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, 2021 for EMLP,
and August 14, 2021 for ECLN.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statements of assets and liabilities of First
Trust North American Energy Infrastructure Fund and First Trust EIP Carbon
Impact ETF (the "Funds"), each a series of the First Trust Exchange-Traded Fund
IV, including the portfolios of investments, as of October 31, 2019, the related
statements of operations for the year then ended, the statements of changes in
net assets and the financial highlights for the periods indicated in the table
below for the Funds; 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, 2019, and the
results of their operations for the year then ended, and the changes in their
net assets and the financial highlights for the periods listed in the table
below in conformity with accounting principles generally accepted in the United
States of America.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL FUNDS INCLUDED STATEMENTS OF CHANGES FINANCIAL
IN THE TRUST IN NET ASSETS HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Trust North American Energy For the years ended October 31, 2019 and For the years ended October 31, 2019,
Infrastructure Fund 2018 2018, 2017, 2016 and 2015
------------------------------------------------------------------------------------------------------------------------------
First Trust EIP Carbon Impact ETF For the period from August 19, 2019 (commencement of operations) through
October 31, 2019
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on the Funds'
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Funds in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Funds are not
required to have, nor were we engaged to perform, an audit of their internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Funds' internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2019, 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 17, 2019
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
each Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
Each Fund files portfolio holdings information for each month in a fiscal
quarter within 60 days after the end of the relevant fiscal quarter on Form
N-PORT. Portfolio holdings information for the third month of each fiscal
quarter will be publicly available on the SEC's website at www.sec.gov. Each
Fund's complete schedule of portfolio holdings for the second and fourth
quarters of each fiscal year is included in the semi-annual and annual reports
to shareholders, respectively, and is filed with the SEC on Form N-CSR. The
semi-annual and annual report for each Fund is available to investors within 60
days after the period to which it relates. Each Fund's Forms N-PORT and Forms
N-CSR are available on the SEC's website listed above.
FEDERAL TAX INFORMATION
For the taxable period ended October 31, 2019, the following percentages of
income dividend paid by the Funds qualify for the dividends received deduction
available to corporations:
<TABLE>
<CAPTION>
Dividends Received Deduction
----------------------------
<S> <C>
First Trust North American Energy Infrastructure Fund 100.00%
First Trust EIP Carbon Impact ETF 0.00%
</TABLE>
For the taxable period ended October 31, 2019, the following percentages of
income dividend paid by the Funds are hereby designated as qualified dividend
income:
<TABLE>
<CAPTION>
Qualified Dividend Income
----------------------------
<S> <C>
First Trust North American Energy Infrastructure Fund 100.00%
First Trust EIP Carbon Impact ETF 0.00%
</TABLE>
A portion of each of the Funds' 2019 ordinary dividends (including short-term
capital gains) paid to its shareholders during the fiscal year ended October 31,
2019, may be eligible for the Qualified Business Income Deduction (QBI) under
Code Section 199A for the aggregate dividends each Fund received from the
underlying Real Estate Investment Trusts (REITs) these Funds invest in.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AND SUB-ADVISORY AGREEMENTS
FIRST TRUST NORTH AMERICAN ENERGY INFRASTRUCTURE FUND
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Advisory Agreement") with First Trust
Advisors L.P. (the "Advisor") on behalf of the First Trust North American Energy
Infrastructure Fund (the "Fund") and the Investment Sub-Advisory Agreement (the
"Sub-Advisory Agreement" and together with the Advisory Agreement, the
"Agreements") among the Trust on behalf of the Fund, the Advisor and Energy
Income Partners, LLC (the "Sub-Advisor"). The Board approved the continuation of
the Agreements for a one-year period ending June 30, 2020 at a meeting held on
June 2, 2019. The Board determined that the continuation of the Agreements is in
the best interests of the Fund in light of the nature, extent and quality of the
services provided and such other matters as the Board considered to be relevant
in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and the Sub-Advisor responding to requests for information from counsel
to the Independent Trustees, submitted on behalf of the Independent Trustees,
that, among other things, outlined: the services provided by the Advisor and the
Sub-Advisor to the Fund (including the relevant personnel responsible for these
services and their experience); the unitary fee rate payable by the Fund as
compared to fees charged to a peer group of funds (the "Expense Group") and a
broad peer universe of funds (the "Expense Universe"), each assembled by
Broadridge Financial Solutions, Inc. ("Broadridge"), an independent source, and
as compared to fees charged to other clients of the Advisor, including other
exchange-traded funds ("ETFs") managed by the Advisor; the sub-advisory fee rate
as compared to fees charged to other clients of the Sub-Advisor; the expense
ratio of the Fund as compared to expense ratios of the funds in the Fund's
Page 29
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
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 economies of scale, if any; financial data on the Advisor
and the Sub-Advisor; any fall-out benefits to the Advisor and its affiliates,
First Trust Portfolios L.P. ("FTP") and First Trust Capital Partners, LLC
("FTCP"), and the Sub-Advisor; and information on the Advisor's and the
Sub-Advisor's compliance programs. The Board reviewed initial materials with the
Advisor at the meeting held on April 18, 2019, prior to which the Independent
Trustees and their counsel met separately to discuss the information provided by
the Advisor and the Sub-Advisor. Following the April meeting, independent legal
counsel 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 independent legal counsel held prior to the June 2,
2019 meeting, as well as at the meeting held that day. The Board applied its
business judgment to determine whether the arrangements between the Trust and
the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be
reasonable business arrangements from the Fund's perspective. The Board
determined that, given the totality of the information provided with respect to
the Agreements, the Board had received sufficient information to renew the
Agreements. The Board considered that shareholders chose to invest or remain
invested in the Fund knowing that the Advisor and the Sub-Advisor manage the
Fund and knowing the Fund's unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality
of the services provided by the Advisor and the Sub-Advisor under the
Agreements. With respect to the Advisory Agreement, the Board considered that
the Advisor is responsible for the overall management and administration of the
Trust and the Fund and reviewed all of the services provided by the Advisor to
the Fund, including the oversight of the Sub-Advisor, as well as the background
and experience of the persons responsible for such services. The Board noted
that the Advisor oversees the Sub-Advisor's day-to-day management of the Fund's
investments, including portfolio risk monitoring and performance review. In
reviewing the services provided, the Board noted the compliance program that had
been developed by the Advisor and considered that it includes a robust program
for monitoring the Advisor's, the Sub-Advisor's and the Fund's compliance with
the 1940 Act, as well as the Fund's compliance with its investment objective,
policies and restrictions. The Board also considered a report from the Advisor
with respect to its risk management functions related to the operation of the
Fund. Finally, as part of the Board's consideration of the Advisor's services,
the Advisor, in its written materials and at the April 18, 2019 meeting,
described to the Board the scope of its ongoing investment in additional
infrastructure and personnel to maintain and improve the quality of services
provided to the Fund and the other funds in the First Trust Fund Complex. With
respect to the Sub-Advisory Agreement, the Board noted that the Fund is an
actively-managed ETF and the Sub-Advisor actively manages the Fund's
investments. 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 addition to
the written materials provided by the Sub-Advisor, at the June 2, 2019 meeting,
the Board also received a presentation from representatives of the Sub-Advisor
discussing the services that the Sub-Advisor provides to the Fund, including the
Sub-Advisor's day-to-day management of the Fund's investments. In considering
the Sub-Advisor's management of the Fund, the Board noted the background and
experience of the Sub-Advisor's portfolio management team.
In light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of the services provided to the
Trust and the Fund by the Advisor and the Sub-Advisor under the Agreements have
been and are expected to remain satisfactory and that the Sub-Advisor, under the
oversight of the Advisor, has managed the Fund consistent with its investment
objective, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the Advisory
Agreement for the services provided. The Board noted that the sub-advisory fee
is paid by the Advisor from the unitary fee. The Board considered that as part
of the unitary fee the Advisor is responsible for the Fund's expenses, including
the cost of sub-advisory, transfer agency, custody, fund administration, legal,
audit and other services and license fees, if any, but excluding the fee payment
under the 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. The Board received and reviewed information showing the advisory or
unitary fee rates and expense ratios of the peer funds in the Expense Group, as
well as advisory and unitary fee rates charged by the Advisor and the
Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable.
Because the Fund pays a unitary fee, the Board determined that expense ratios
were the most relevant comparative data point. Based on the information
provided, the Board noted that the unitary fee for the Fund was below the median
total (net) expense ratio of the peer funds in the Expense Group. With respect
to the Expense Group, the Board, at the April 18, 2019 meeting, discussed with
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
Broadridge its methodology for assembling peer groups and discussed with the
Advisor limitations in creating peer groups for actively-managed ETFs, including
that there was only one other actively-managed ETF in the Expense Group, and
different business models that may affect the pricing of services among ETF
sponsors. The Board also noted that not all peer funds employ an
advisor/sub-advisor management structure. The Board took these limitations and
differences into account in considering the peer data. With respect to fees
charged to other non-ETF clients, the Board considered differences between the
Fund and other non-ETF clients that limited their comparability. In considering
the unitary fee rate overall, the Board also considered the Advisor's statement
that it seeks to meet investor needs through innovative and value-added
investment solutions and the Advisor's description of its long-term commitment
to the Fund.
The Board considered performance information for the Fund. The Board noted the
process it has established for monitoring the Fund's performance and portfolio
risk on an ongoing basis, which includes quarterly performance reporting from
the Advisor and Sub-Advisor for the Fund. The Board determined that this process
continues to be effective for reviewing the Fund's performance. The Board
received and reviewed information comparing the Fund's performance for periods
ended December 31, 2018 to the performance of the funds in the Performance
Universe and a blended benchmark index. Based on the information provided, the
Board noted that the Fund outperformed the Performance Universe median for the
one-, three- and five-year periods ended December 31, 2018. The Board also noted
that the Fund outperformed the blended benchmark index for the three- and
five-year periods ended December 31, 2018 but underperformed the blended
benchmark for the one--year period ended December 31, 2018.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues
to be reasonable and appropriate in light of the nature, extent and quality of
the services provided by the Advisor and the Sub-Advisor to the Fund under the
Agreements.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. The Board considered the revenues and allocated costs (including the
allocation methodology) of the Advisor in serving as investment advisor to the
Fund for the twelve months ended December 31, 2018 and the estimated
profitability level for the Fund calculated by the Advisor based on such data,
as well as complex-wide and product-line profitability data, for the same
period. The Board noted the inherent limitations in the profitability analysis
and concluded that, based on the information provided, the Advisor's
profitability level for the Fund was not unreasonable. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board noted that FTCP, has an ownership
interest in the Sub-Advisor and considered potential fall-out benefits to the
Advisor from such ownership interest. The Board also considered that the Advisor
had identified as a fall-out benefit to the Advisor and FTP their exposure to
investors and brokers who, absent their exposure to the Fund, may have had no
dealings with the Advisor or FTP. The Board concluded that the character and
amount of potential fall-out benefits to the Advisor were not unreasonable.
The Board considered that the Sub-Advisor's investment services expenses are
primarily fixed in nature, and that the Sub-Advisor has made recent investments
in personnel and infrastructure and anticipates that its expenses will continue
to rise due to additions to personnel and system upgrades. The Board did not
review the profitability of the Sub-Advisor with respect to the Fund. The Board
noted that the Advisor pays the Sub-Advisor from the unitary fee and its
understanding that the Fund's sub-advisory fee rate was the product of an arm's
length negotiation. The Board concluded that the profitability analysis for the
Advisor was more relevant. The Board considered fall-out benefits that may be
realized by the Sub-Advisor from its relationship with the Fund, including
soft-dollar arrangements, and considered a summary of such arrangements. The
Board also considered the potential fall-out benefits to the Sub-Advisor from
FTCP's ownership interest in the Sub-Advisor. The Board concluded that the
character and amount of potential fall-out benefits to the Sub-Advisor were not
unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AND
SUB-ADVISORY AGREEMENTS
FIRST TRUST EIP CARBON IMPACT ETF
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the Investment
Management Agreement (the "Advisory Agreement") with First Trust Advisors L.P.
(the "Advisor"), on behalf of First Trust EIP Carbon Impact 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 Energy Income Partners, LLC (the
"Sub-Advisor"), for an initial two-year term at a meeting held on June 2, 2019.
The Board determined that the Agreements are in the best interests of the Fund
in light of the nature, extent and quality of the services expected to be
provided and such other matters as the Board considered to be relevant in the
exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements for
the Fund, the Independent Trustees received a separate report from each of the
Advisor and the Sub-Advisor in advance of the Board meeting responding to
requests for information provided on behalf of the Independent Trustees that,
among other things, outlined: the services to be provided by the Advisor and the
Sub-Advisor to the Fund (including the relevant personnel responsible for these
services and their experience); the proposed unitary fee rate payable by the
Fund as compared to fees charged to a peer group of funds (the "Expense Group")
and a broad peer universe of funds (the "Expense Universe"), each assembled by
Broadridge Financial Solutions, Inc. ("Broadridge"), an independent source, and
as compared to fees charged to other clients of the Advisor, including other
exchange-traded funds ("ETFs") managed by the Advisor; the proposed sub-advisory
fee rate as compared to fees charged to other clients of the Sub-Advisor; the
estimated expense ratio of the Fund as compared to expense ratios of the funds
in the Fund's Expense Group and Expense Universe; the nature of the expenses to
be incurred in providing services to the Fund and the potential for economies of
scale, if any; financial data on the Advisor and the Sub-Advisor; any fall-out
benefits to the Advisor and its affiliates, First Trust Portfolios L.P. ("FTP")
and First Trust Capital Partners, LLC ("FTCP"), and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs. The
Independent Trustees also met separately with their independent legal counsel to
discuss the information provided by the Advisor and the Sub-Advisor. The Board
applied its business judgment to determine whether the arrangements between the
Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor are
reasonable business arrangements from the Fund's perspective.
In evaluating whether to approve the Agreements for the Fund, the Board
considered the nature, extent and quality of the services to be provided by the
Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory
Agreement, the Board considered that the Advisor will be responsible for the
overall management and administration of the Fund and reviewed all of the
services to be provided by the Advisor to the Fund, including the oversight of
the Sub-Advisor, as well as the background and experience of the persons
responsible for such services. The Board considered that the Fund will be an
actively-managed ETF not designed to track the performance of an index and will
employ an advisor/sub-advisor management structure and considered that the
Advisor manages other ETFs with a similar structure in the First Trust Fund
Complex. The Board noted that the Advisor will oversee the Sub-Advisor's
day-to-day management of the Fund's investments, including portfolio risk
monitoring and performance review. In reviewing the services to be provided, the
Board noted the compliance program that had been developed by the Advisor and
considered that it includes a robust program for monitoring the Advisor's, the
Sub-Advisor's and the Fund's compliance with the 1940 Act, as well as the Fund's
compliance with its investment objective, policies and restrictions. The Board
noted that employees of the Advisor provide management services to other ETFs
and to other funds in the First Trust Fund Complex with diligence and care. With
respect to the Sub-Advisory Agreement, the Board reviewed the materials provided
by the Sub-Advisor and noted the background and experience of the Sub-Advisor's
portfolio management team and the Sub-Advisor's investment style. The Board
noted that the Sub-Advisor manages other comparable funds in the First Trust
Fund Complex. At the meeting, the Trustees received a presentation from
investment personnel from the Sub-Advisor, and were able to ask questions about
the Sub-Advisor and the Sub-Advisor's proposed investment strategies for the
Fund. Since the Fund had yet to commence investment operations, the Board could
not consider the historical investment performance of the Fund. In light of the
information presented and the considerations made, the Board concluded that the
nature, extent and quality of the services to be provided to the Fund by the
Advisor and the Sub-Advisor under the Agreements are expected to be
satisfactory.
Page 32
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
The Board considered the proposed unitary fee rate payable by the Fund under the
Advisory Agreement for the services to be provided. The Board noted that, under
the unitary fee arrangement, the Fund would pay the Advisor a unitary fee equal
to an annual rate of 0.95% of its average daily net assets. The Board considered
that, from the unitary fee for the Fund, the Advisor would pay the Sub-Advisor a
sub-advisory fee equal to 50% of the Fund's unitary fee remaining after the
Fund's expenses are paid. The Board noted that the Advisor would be responsible
for the Fund's ordinary operating 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. The
Board received and reviewed information showing the advisory fee rates and
expense ratios of the peer funds in the Expense Group, as well as advisory and
unitary fee rates charged by the Advisor and the Sub-Advisor to other fund
(including ETF) and non-fund clients, as applicable. Because the Fund will pay a
unitary fee, the Board determined that expense ratios were the most relevant
comparative data point. Based on the information provided, the Board noted that
the unitary fee for the Fund was below the median total (net) expense ratio of
the peer funds in its Expense Group. With respect to the Expense Group, the
Board discussed with representatives of the Advisor how the Expense Group was
assembled and how the Fund compared and differed from the peer funds. The Board
took this information into account in considering the peer data. With respect to
fees charged to other clients, the Board considered differences between the Fund
and other clients that limited their comparability; however, the Board noted
that the Advisor and Sub-Advisor manage a comparable ETF in the First Trust Fund
Complex that also pays a unitary fee equal to an annual rate of 0.95% of its
average daily net assets. In light of the information considered and the nature,
extent and quality of the services expected to be provided to the Fund under the
Agreements, the Board determined that the proposed unitary fee, including the
sub-advisory fee to be paid by the Advisor to the Sub-Advisor from the unitary
fee, was fair and reasonable.
The Board noted that the proposed unitary fee for the Fund was not structured to
pass the benefits of any economies of scale on to shareholders as the Fund's
assets grow. The Board noted that any reduction in fixed costs associated with
the management of the Fund would benefit the Advisor and the Sub-Advisor, but
that the unitary fee structure provides a level of certainty in expenses for the
Fund. The Board noted that the Advisor has continued to hire personnel and build
infrastructure, including technology, to improve the services to the funds in
the First Trust Fund Complex. The Board took the types of costs to be borne by
the Advisor in connection with its services to be performed for the Fund under
the Advisory Agreement into consideration and noted that the Advisor was unable
to estimate the profitability of the Advisory Agreement for the Fund to the
Advisor at this time. The Board also considered the Sub-Advisor's statement that
it was unable to estimate profitability and that the Sub-Advisor would be paid
by the Advisor from the Fund's unitary fee. The Board noted its understanding
that the sub-advisory fee rate was negotiated at arm's length between the
Advisor and the Sub-Advisor. In addition, the Board considered fall-out benefits
described by the Advisor that may be realized from its relationship with the
Fund. The Board noted that FTCP has an ownership interest in the Sub-Advisor and
considered potential fall-out benefits to the Advisor from such ownership
interest. The Board also considered that the Advisor had identified as a
fall-out benefit to the Advisor and FTP their exposure to investors and brokers
who, absent their exposure to the Fund, may have had no dealings with the
Advisor or FTP. The Board also considered fall-out benefits described by the
Sub-Advisor that may be realized from its relationship with the Fund, including
soft-dollar arrangements, and considered a summary of such arrangements. The
Board also considered the potential fall-out benefits to the Sub-Advisor from
FTCP's ownership interest in the Sub-Advisor. The Board concluded that the
character and amount of potential fall-out benefits to the Advisor and the
Sub-Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements are fair and reasonable and that the approval of the
Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 33
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of
certain First Trust 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.
During the year ended December 31, 2018, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Funds is $1,014,310.
This figure is comprised of $44,447 paid (or to be paid) in fixed compensation
and $969,863 paid (or to be paid) in variable compensation. There were a total
of 14 beneficiaries of the remuneration described above. Those amounts include
$644,141 paid (or to be paid) to senior management of First Trust Advisors L.P.
and $370,169 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Funds (collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Funds. The elements of
remuneration are balanced between fixed and variable and the senior management
sets fixed salaries at a level sufficient to ensure that variable remuneration
incentivises and rewards strong individual performance but does not encourage
excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 34
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 162 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 162 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 162 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 162 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services);
President and Chief Executive Officer
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 162 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 35
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present),Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 36
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV
OCTOBER 31, 2019 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 37
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<PAGE>
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<PAGE>
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<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Energy Income Partners, LLC
10 Wright Street
Westport, CT 06880
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Senior Loan Fund (FTSL)
Annual Report
For the Year Ended
October 31, 2019
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2019
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 20
Statement of Operations...................................................... 21
Statements of Changes in Net Assets.......................................... 22
Financial Highlights......................................................... 23
Notes to Financial Statements................................................ 24
Report of Independent Registered Public Accounting Firm...................... 31
Additional Information....................................................... 32
Board of Trustees and Officers............................................... 37
Privacy Policy............................................................... 39
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Senior Loan Fund; hereinafter referred to as the
"Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of investing
in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2019
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Senior Loan Fund (the "Fund"), which contains detailed information about the
Fund for the twelve months ended October 31, 2019, including a market overview
and a performance analysis. We encourage you to read this report carefully and
discuss it with your financial advisor.
One of our responsibilities as asset managers is to be good listeners. Perhaps
the most effective way in which we do this continually is by paying close
attention to mutual fund and exchange-traded fund (ETF) money flows. After all,
investors vote with their dollars, and money flows provide valuable feedback
with respect to their biases. Over the past 12 months, we have learned that
investors, in general, have grown more risk-averse. For the 12-month period
ended October 31, 2019, investors funneled an estimated net $359.56 billion into
bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion
from equity mutual funds and ETFs, according to data from Morningstar. Over the
same period, money market funds took in an estimated net $583.27 billion. Those
figures were more balanced for the full-year 2018. Those estimated net flows
were as follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion
(bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to monitoring fund flows, we watch the performance of all the asset
classes. Market returns can either help validate or invalidate our
interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that
comprise the S&P 500(R) Index back it up. For the 12-month period ended October
31, 2019, as measured by total return, the top performers were Real Estate and
Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P
500(R) Index posted a total return of 14.33% for the period. These two sectors
are defensive in nature. They also tend to distribute cash dividends that are
often well above those sectors that are more cyclical in nature. The higher
dividend distributions likely drew the attention of fixed-income investors
dissatisfied with the current low-yield climate in the bond market, in our
opinion.
The absence of a new trade deal between the U.S. and China has been a bit of a
wet blanket on the global economy. Global growth projections have been trimmed
over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack
of any significant progress in the negotiations between the U.S. and China is a
concern, we believe a remedy will be found. Remember, as uncertain as things may
appear in the current climate, investors with diversified investment portfolios
were most likely rewarded over the past 12 months. Stay the course and stay
engaged!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
The First Trust Senior Loan Fund's (the "Fund") primary investment objective is
to provide high current income. The Fund's secondary investment objective is the
preservation of capital. Under normal market conditions, the Fund seeks to
outperform each of the S&P/LSTA U.S. Leveraged Loan 100 Index (the "Primary
Index") and the Markit iBoxx USD Liquid Leveraged Loan Index (the "Secondary
Index") by investing at least 80% of its net assets (including investment
borrowings) in first lien senior floating rate bank loans ("Senior Loans"). The
Primary Index is a market value-weighted index designed to measure the
performance of the largest segment of the U.S. syndicated leveraged loan market.
The Primary Index consists of 100 loan facilities drawn from a larger benchmark,
the S&P/LSTA Leveraged Loan Index. The Secondary Index selects the 100 most
liquid Senior Loans in the market. The Fund does not seek to track either the
Primary or Secondary Index but rather seeks to outperform each of the indices.
It is anticipated that the Fund, in accordance with its principal investment
strategy, will invest approximately 50% to 75% of its net assets in Senior Loans
that are eligible for inclusion in and meet the liquidity thresholds of the
Primary and/or the Secondary Indices at the time of investment.
A Senior Loan is an advance or commitment of funds made by one or more banks or
similar financial institutions to one or more corporations, partnerships or
other business entities and typically pays interest at a floating or adjusting
rate that is determined periodically at a designated premium above a base
lending rate, most commonly the London Interbank Offered Rate ("LIBOR"). A
Senior Loan is considered senior to all other unsecured claims against the
borrower, senior to or equal with all other secured claims; this means that in
the event of a bankruptcy, the Senior Loan, together with other first lien
claims, is entitled to be the first to be repaid out of proceeds of the assets
securing the loans, before other existing unsecured claims or interests receive
repayment. However, in bankruptcy proceedings, there may be other claims, such
as taxes or additional advances that take precedence.
When identifying prospective investment opportunities in Senior Loans, First
Trust Advisors L.P., the Fund's investment advisor, currently intends to invest
primarily in Senior Loans that are below investment grade quality at the time of
investment, and relies on fundamental credit analysis in an effort to attempt to
minimize the loss of the Fund's capital and to select assets that provide
attractive relative value. Securities rated below investment grade, commonly
referred to as "junk" or "high yield" securities, include securities that are
rated Ba1/BB+/BB+ or below by Moody's Investors Service, Inc. ("Moody's"), Fitch
Inc., or Standard & Poor's, Inc. ("S&P"), respectively. The Fund may invest in
securities of any rating. The Fund may also invest in unrated securities deemed
by the investment advisor to be of comparable quality to those securities rated
below investment grade. In addition the Fund may invest up to 15% of its net
assets in Senior Loans and/or other floating rate loans that are distressed or
in default.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (5/1/13) 5 Years Ended Inception (5/1/13)
10/31/19 10/31/19 to 10/31/19 10/31/19 to 10/31/19
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 3.37% 3.20% 3.05% 17.06% 21.57%
Market Price 3.07% 3.20% 3.02% 17.07% 21.35%
INDEX PERFORMANCE
Markit iBoxx USD Liquid Leveraged
Loan Index 2.60% 2.76% 2.72% 14.58% 19.05%
S&P/LSTA U.S. Leveraged Loan 100 Index 3.44% 3.41% 3.29% 18.28% 23.41%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the period
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint 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 the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
INDUSTRY CLASSIFICATION SECURITIES(1)
-------------------------------------------------------
Health Care Providers & Services 13.5%
Software 12.3
Hotels, Restaurants & Leisure 11.5
Media 10.0
Insurance 8.5
Pharmaceuticals 5.6
Diversified Financial Services 5.2
Life Sciences Tools & Services 3.6
Containers & Packaging 3.2
Capital Markets 2.9
Building Products 2.6
Diversified Telecommunication Services 2.3
Food & Staples Retailing 2.2
Auto Components 2.1
Entertainment 2.1
Diversified Consumer Services 2.0
Health Care Technology 1.6
Commercial Services & Supplies 1.6
Aerospace & Defense 1.4
Technology Hardware, Storage &
Peripherals 0.9
Professional Services 0.8
Electric Utilities 0.6
Chemicals 0.6
Food Products 0.5
Household Durables 0.5
Real Estate Management & Development 0.4
Oil, Gas & Consumable Fuels 0.4
Independent Power and Renewable
Electricity Producers 0.3
Communications Equipment 0.3
Semiconductors & Semiconductor
Equipment 0.3
Trading Companies & Distributors 0.1
Specialty Retail 0.1
Construction & Engineering 0.0*
--------
Total 100.0%
========
* Amount represents less than 0.1%.
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
ASSET CLASSIFICATION SECURITIES(1)
-------------------------------------------------------
Senior Floating-Rate Loan Interests 89.0%
Corporate Bonds and Notes 8.5
Exchange-Traded Funds 2.0
Foreign Corporate Bonds and Notes 0.5
Rights 0.0*
--------
Total 100.0%
========
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
CREDIT QUALITY (S&P RATINGS)(2) DEBT SECURITIES(1)
-------------------------------------------------------
BBB- 7.4%
BB+ 4.4
BB 9.8
BB- 17.0
B+ 22.6
B 26.3
B- 10.4
CCC+ 1.9
CCC 0.2
--------
Total 100.0%
========
-------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
TOP 10 ISSUERS SECURITIES(1)
-------------------------------------------------------
Bausch Health Cos., Inc. (Valeant) 2.9%
AmWINS Group, Inc. 2.7
Nexstar Broadcasting, Inc. 2.6
HUB International Ltd. 2.5
MPH Acquisition Holdings LLC 2.4
Reynolds Group Holdings, Inc. 2.2
Asurion LLC 2.0
AlixPartners LLP 2.0
First Trust Enhanced Short Maturity ETF 2.0
CHG Healthcare Services, Inc. 1.9
--------
Total 23.2%
========
(1) Percentages are based on long-term positions. Money market funds are
excluded.
(2) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. A credit rating is an assessment provided by a
nationally recognized statistical rating organization (NRSRO) of the
creditworthiness of an issuer with respect to debt obligations except for
those debt obligations that are privately rated. Ratings are measured on a
scale that generally ranges from AAA (highest) to D (lowest). Investment
grade is defined as those issuers that have a long-term credit rating of
BBB- or higher. The credit ratings shown relate to the credit worthiness
of the issuers of the underlying securities in the Fund, and not to the
Fund or its shares. Credit ratings are subject to change.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 1, 2013 - OCTOBER 31, 2019
First Trust Senior Markit iBoxx USD Liquid S&P/LSTA U.S. Leveraged
Loan Fund Leveraged Loan Index Loan 100 Index
<S> <C> <C> <C>
5/1/13 $10,000 $10,000 $10,000
10/31/13 10,092 10,103 10,122
4/30/14 10,275 10,323 10,338
10/31/14 10,385 10,389 10,434
4/30/15 10,637 10,594 10,589
10/31/15 10,567 10,280 10,268
4/30/16 10,763 10,484 10,527
10/31/16 11,034 10,826 10,968
4/30/17 11,247 11,026 11,260
10/31/17 11,414 11,161 11,452
4/30/18 11,592 11,404 11,708
10/31/18 11,760 11,602 11,929
4/30/19 12,044 11,877 12,262
10/31/19 12,157 11,905 12,341
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 November 1, 2014 through
October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/1/14 - 10/31/15 180 20 1 0 50 0 0 0
11/1/15 - 10/31/16 185 2 0 0 65 0 0 0
11/1/16 - 10/31/17 231 0 0 0 21 0 0 0
11/1/17 - 10/31/18 242 0 0 0 10 0 0 0
11/1/18 - 10/31/19 114 0 0 0 132 5 0 0
</TABLE>
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
ADVISOR
The First Trust Advisors L.P. ("First Trust") Leveraged Finance Team is
comprised of 15 experienced investment professionals specializing in below
investment grade securities. The team is comprised of portfolio management,
research, trading and operations personnel. As of October 31, 2019, the First
Trust Leveraged Finance Team managed or supervised approximately $4.2 billion in
senior secured bank loans and high-yield bonds. These assets are managed across
various strategies, including two closed-end funds, an open-end fund, four
exchange-traded funds, and a series of unit investment trusts on behalf of
retail and institutional clients.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA - MANAGING DIRECTOR OF FIXED INCOME, SENIOR PORTFOLIO
MANAGER
SCOTT D. FRIES, CFA - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
COMMENTARY
The First Trust Senior Loan Fund (the "Fund") is an actively managed
exchanged-traded fund. The Fund's primary investment objective is to provide
high current income, with a secondary objective of preservation of capital.
MARKET RECAP
Near the end of 2018, concerns surrounding slower global growth, the Federal
Reserve (the "Fed") increasing interest rates too quickly and trade tensions
between the U.S. and China led to risk assets trading lower. Early in 2019, the
Fed signaled that it would wait for economic data to show continued signs of
strength before electing to continue tightening. Investors responded positively
to this news and markets quickly rebounded at the beginning of 2019. In July
2019, the Fed announced that it would cut interest rates as U.S. economic data
started to show signs of weakness. The Fed went on to cut interest rates two
more times during September and October, ostensibly to mitigate any fallout from
U.S.-China trade tensions. The combination of an easing Fed and improving
U.S.-China trade relations propelled the S&P 500(R) Index to new highs during
the year.
Senior Loan Market
Senior loan spreads over 3-month London Interbank Offered Rate ("LIBOR")
increased 126 basis points ("bps") during the 12-month period ended October 31,
2019, to L+515 bps. This is above the pre-credit crisis average spread of L+372
(December 1997 - June 2007) and is in line with the long-term average spread of
L+513 (December 1997 - October 2019). As of October 31, 2019, retail senior loan
funds have experienced 13 consecutive months of outflows, however, this has been
more than offset by institutional demand. On a yield basis, senior loans ended
the 12-month period ended October 31, 2019 yielding more than high-yield bonds
for five consecutive months. The last time senior loans offered more yield than
high-yield bonds in consecutive months was in August and September of 2007.
Higher quality senior loans outperformed lower quality senior loans in the
period covered by this report, a reversal of the trend experienced in the prior
year. BB rated issues returned 4.09%, outperforming the 2.48% return of B rated
issues, and outperforming the -4.30% return of CCC rated issues during the
period. The average price of senior loans in the market decreased from $98.14 in
the beginning of the period to $95.42 at the end of the period.
Default Rates
During the 12-month period ended October 31, 2019, default rates decreased
within the S&P/LSTA Leveraged Loan Index. The last twelve months ("LTM") default
rate within the senior loan market ended the period at 1.43% compared to the
1.92% default rate as of October 31, 2018. Defaults in the senior loan market
remain low by historical standards. We believe the low default rate is
reflective of the relatively sound financial condition of most companies, the
lack of near-term debt maturities, and the strong backdrop of a healthy
macroeconomic environment.
FUND PERFORMANCE
The Fund returned 3.37% on a net asset value ("NAV") basis and 3.07% on a market
price basis over the 12-month period ended October 31, 2019. The S&P/LSTA U.S.
Leveraged Loan 100 Index ("the Index") returned 3.44% over the same period.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
The Fund held 194 individual positions diversified across 33 industries at the
end of the reporting period. Health Care Providers & Services (13.51%), Software
(12.32%), and Hotels, Restaurants & Leisure (11.47%) were the Fund's top three
industry exposures at the end of the period. By comparison, the Fund held 239
individual positions across 39 industries as of October 31, 2018. The Fund
modestly increased its allocation to high-yield bonds from 7.57% to 8.89%
throughout the period, a 132 bps increase. The Fund's duration remained low
throughout the period and declined from 0.47 years at the beginning of the
period to 0.39 years at the end of the period.
During the LTM period, the Fund's performance benefitted from its underweight
position in the energy industry and its asset selection and overweight position
in the radio & television and lodging & casinos industries. The oil & gas
industry was one of the worst performing industries in the Index during the
period. The average weight of the oil & gas industry in the Index during the LTM
period was approximately 2.89%, while the Fund held approximately a 0.12%
allocation in the industry. Within the radio & television industry the Fund's
overweight position in television broadcasting companies was beneficial as the
sector outperformed the broader media industry. The television broadcasters are
expected to benefit heavily from advertising spend during the 2020 election
year. Finally, within the lodging & casinos industry the Fund held an overweight
position in certain casino operators and an online gaming company which
outperformed the broader lodging and casinos industry during the period.
Offsetting these contributors were the Fund's asset selection in the automotive
industry, the healthcare industry, and in the leisure goods/activities/movies
industry. Within the automotive industry, the Fund's holdings in a specialty
automotive lighting company underperformed the broader automotive industry.
Within the healthcare industry, the Fund's holdings in two physician management
services companies and a healthcare cost management solutions company
underperformed the broader healthcare industry. Within the leisure
goods/activities/movies industry, the Fund's holdings in a membership club
operator underperformed the broader goods/activities/movies industry. Lastly, a
theme park operator and a ski resort conglomerate within the industry performed
particularly well during the period, but the Fund held an underweight position
in both of the issuers.
The Fund's most recent monthly distribution of $0.17 per share is the same rate
as the distribution paid in October 2018. Distributions hit a high of $0.1925 in
March 2019. However, as the 3-month LIBOR dropped from its December 2018 high of
2.82% down to 1.90% by the end of October 2019, distributions followed suit. At
the end of the period, the effective yield based on the distributions for the
trailing twelve months was 4.59% based on NAV.
MARKET AND FUND OUTLOOK
In the senior loan market, spreads are in line with the long-term average
spreads over 3-month LIBOR. We believe there is room for tightening for the
senior loan market in this cycle given that spreads remain wide of the lowest
spreads experienced in the last business cycle (L+222 in March 2006) and
fundamentals for senior loan issuers remain sound, in our view. However, we
would expect any spread tightening to come from the lower rated (B and CCC)
areas of the senior loan market given how much those ratings have lagged the
higher quality returns over the past year. Furthermore, the current LTM default
remains low at 1.43% (below the 2.91% long-term average default rate dating back
to March 1999) and we believe it is likely to remain low given the overall
health of the U.S. economy.
We believe that the favorable backdrop for the macro economy will persist for
the near to intermediate term and that we are in a healthy part of the economic
cycle to own high-yield bonds and senior loans. As we evaluate new investment
opportunities, decisions will continue to be rooted in our rigorous bottom-up
credit analysis and our focus will remain on identifying the opportunities that
we believe offer the best risk and reward balance.
Page 6
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2019 (UNAUDITED)
As a shareholder of First Trust Senior Loan Fund (the "Fund"), you incur two
types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service fees, if any, and other Fund
expenses. This Example is intended to help you understand your ongoing costs of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2019.
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 period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2019 OCTOBER 31, 2019 PERIOD (a) PERIOD (a) (b)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST SENIOR LOAN FUND (FTSL)
Actual $1,000.00 $1,009.30 0.85% $4.30
Hypothetical (5% return before expenses) $1,000.00 $1,020.92 0.85% $4.33
</TABLE>
(a) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2019
through October 31, 2019), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS -- 88.3%
AEROSPACE & DEFENSE -- 1.4%
$ 19,164,115 Transdigm, Inc., Term Loan F, 1 Mo. LIBOR + 2.50%, 0.00%
Floor........................................................ 4.29% 06/09/23 $ 19,065,804
2,573,040 Transdigm, Inc., Tranche E Term Loan, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 4.29% 05/30/25 2,551,967
---------------
21,617,771
---------------
ALTERNATIVE CARRIERS -- 0.9%
14,998,972 Level 3 Financing, Inc., Tranche B 2024 Term Loan, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.04% 02/22/24 15,010,222
---------------
APPLICATION SOFTWARE -- 6.4%
10,415,868 CCC Information Services, Inc., Term Loan B, 1 Mo. LIBOR +
2.75%, 1.00% Floor........................................... 4.54% 04/26/24 10,227,966
1,993,231 Go Daddy Operating Company, LLC, Term Loan B, 1 Mo.
LIBOR + 1.75%, 0.00% Floor................................... 3.54% 02/15/24 1,994,367
11,541,614 Hyland Software, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%,
0.75% Floor.................................................. 5.04% 07/01/24 11,455,052
3,390,418 Infor (US), Inc. (fka Lawson Software, Inc.), Term Loan B-6,
3 Mo. LIBOR + 2.75%, 1.00% Floor............................. 4.85% 02/02/22 3,390,418
3,079,442 Informatica Corp., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 5.04% 08/06/22 3,083,846
2,701,081 Micro Focus International (MA Financeco LLC), Miami Escrow
Term Loan B3, 1 Mo. LIBOR + 2.50%, 0.00% Floor............... 4.30% 06/21/24 2,618,374
18,241,064 Micro Focus International (MA Financeco LLC), Seattle Spinco
Term Loan B, 1 Mo. LIBOR + 2.50%, 0.00% Floor................ 4.30% 06/21/24 17,682,522
9,982,431 Micro Focus International (MA Financeco LLC), Term Loan B2,
1 Mo. LIBOR + 2.25%, 0.00% Floor............................. 4.05% 11/19/21 9,895,085
8,437,667 Mitchell International, Inc., Term Loan (First Lien), 1 Mo.
LIBOR + 3.25%, 0.00% Floor................................... 5.04% 11/30/24 7,924,826
6,080,340 NCR Corp., Term Loan B, 1 Mo. LIBOR + 2.50%, 0.00%
Floor........................................................ 4.29% 08/28/26 6,077,786
2,306,400 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
2019 Incremental Term Loan B, 3 Mo. LIBOR + 4.25%, 0.00%
Floor........................................................ 6.24% 04/26/24 2,299,204
10,368,012 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor................ 5.49% 04/26/24 10,121,772
13,943,534 RP Crown Parent, LLC (JDA Software Group), Term Loan B,
1 Mo. LIBOR + 2.75%, 1.00% Floor............................. 4.54% 10/12/23 13,912,161
1,994,924 SolarWinds Holdings, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.54% 02/05/24 1,991,273
307,144 Ultimate Software Group, Inc., Term Loan B, 1 Mo. LIBOR +
3.75%, 0.00% Floor........................................... 5.54% 05/03/26 307,614
---------------
102,982,266
---------------
ASSET MANAGEMENT & CUSTODY BANKS -- 0.2%
2,408,266 Harbourvest Partners L.P., Term Loan B, 1 Mo. LIBOR + 2.25%,
0.00% Floor.................................................. 4.17% 03/01/25 2,403,762
1,210,902 Victory Capital Holdings, Inc., Term Loan B, 3 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.35% 07/01/26 1,214,535
---------------
3,618,297
---------------
AUTO PARTS & EQUIPMENT -- 1.7%
5,265,145 American Axle & Manufacturing Holdings, Inc., Term Loan B,
1 Mo. LIBOR + 2.25%, 0.75% Floor............................. 4.08% 04/06/24 5,001,888
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
AUTO PARTS & EQUIPMENT (CONTINUED)
$ 1,309,047 American Axle & Manufacturing Holdings, Inc., Term Loan B,
3 Mo. LIBOR + 2.25%, 0.75% Floor............................. 4.19% 04/06/24 $ 1,243,594
16,580,550 Gates Global LLC, Initial B-2 Dollar Term Loan, 1 Mo. LIBOR +
2.75%, 1.00% Floor........................................... 4.54% 03/31/24 16,218,597
2,794,557 Lumileds (Bright Bidco B.V.), Term Loan B, 1 Mo. LIBOR +
3.50%, 1.00% Floor........................................... 5.29% 06/30/24 1,439,197
5,766,233 Lumileds (Bright Bidco B.V.), Term Loan B, 3 Mo. LIBOR +
3.50%, 1.00% Floor........................................... 5.60% 06/30/24 2,969,610
---------------
26,872,886
---------------
AUTOMOTIVE RETAIL -- 0.1%
277,672 IAA Spinco, Inc., Term Loan B, 1 Mo. LIBOR + 2.25%, 0.00%
Floor........................................................ 4.06% 06/28/26 278,482
582,537 KAR Auction Services, Inc. (Adesa), Term Loan B-6, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.13% 09/19/26 583,994
---------------
862,476
---------------
BROADCASTING -- 4.1%
3,836,923 Cumulus Media Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.75%, 1.00% Floor........................................... 5.54% 03/31/26 3,852,117
3,865,400 Diamond Sports Group LLC, Term Loan B, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.08% 08/23/26 3,879,895
7,927,693 E.W. Scripps Co., Incremental Term Loan B-1, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 4.54% 05/01/26 7,921,748
6,412,127 Gray Television, Inc., Term Loan C, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 4.51% 01/02/26 6,425,143
11,086,839 IHeartCommunications, Inc., Exit Term Loan, 1 Mo. LIBOR +
4.00%, 0.00% Floor........................................... 6.03% 05/01/26 11,117,993
19,739,130 Nexstar Broadcasting, Inc., Incremental Term Loan B-4, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 4.55% 09/19/26 19,802,098
1,323,266 Nexstar Broadcasting, Inc., Mission Term Loan B-3, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.28% 01/17/24 1,324,510
6,659,437 Nexstar Broadcasting, Inc., Nexstar Term Loan B-3, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.05% 01/17/24 6,665,697
4,327,625 Sinclair Television Group, Inc., Term Loan B-2, 1 Mo. LIBOR +
2.25%, 0.00% Floor........................................... 4.04% 01/03/24 4,316,806
---------------
65,306,007
---------------
BUILDING PRODUCTS -- 2.5%
2,332,861 Beacon Roofing Supply, Inc., Term Loan B, 1 Mo. LIBOR +
2.25%, 0.00% Floor........................................... 4.04% 01/02/25 2,310,862
8,015,865 JELD-WEN, Inc., Term Loan B-4, 3 Mo. LIBOR + 2.00%,
0.00% Floor.................................................. 4.10% 12/14/24 7,993,821
30,679,904 Quikrete Holdings, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.54% 11/15/23 30,536,015
---------------
40,840,698
---------------
CABLE & SATELLITE -- 2.7%
5,263,494 Cablevision (aka CSC Holdings, LLC), March 2017 Term Loan
B-1, 1 Mo. LIBOR + 2.25%, 0.00% Floor........................ 4.17% 07/17/25 5,232,071
11,353,207 Cablevision (aka CSC Holdings, LLC), October 2018 Incremental
Term Loan B-3, 1 Mo. LIBOR + 2.25%, 0.00% Floor.............. 4.17% 01/15/26 11,262,382
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
CABLE & SATELLITE (CONTINUED)
$ 11,260,803 Cablevision (aka CSC Holdings, LLC), Term Loan B-5, 2 Mo.
LIBOR + 2.50%, 0.00% Floor................................... 4.33% 04/15/27 $ 11,240,062
977,613 Mediacom Broadband LLC, Term Loan N, 1 Month LIBOR +
1.75%, 0.00% Floor........................................... 3.57% 02/15/24 975,980
14,521,500 Virgin Media Investment Holdings Ltd., Term Loan N, 1 Mo.
LIBOR + 2.50%, 0.00% Floor................................... 4.42% 01/31/28 14,454,992
---------------
43,165,487
---------------
CASINOS & GAMING -- 8.2%
7,026,575 Aristocrat Technologies, Inc., Term Loan B-3, 3 Mo. LIBOR +
1.75%, 0.00% Floor........................................... 3.72% 10/19/24 7,038,520
24,774,724 Caesars Resort Collection LLC, Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 4.54% 12/22/24 24,390,221
21,573,891 CityCenter Holdings LLC, Term Loan B, 1 Mo. LIBOR + 2.25%,
0.75% Floor.................................................. 4.04% 04/18/24 21,567,203
743,749 Golden Nugget, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.75% Floor.................................................. 4.54% 10/04/23 741,771
12,661,402 Golden Nugget, Inc., Term Loan B, 3 Mo. LIBOR + 2.75%,
0.75% Floor.................................................. 4.68% - 4.72% 10/04/23 12,627,723
2,899,880 MGM Growth Properties Operating Partnership LP, Term Loan B,
1 Mo. LIBOR + 2.00%, 0.00% Floor............................. 3.79% 03/23/25 2,907,130
7,586,683 Scientific Games International, Inc., Term Loan B5, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 4.54% 08/14/24 7,494,201
30,269,377 Stars Group Holdings B.V. (Amaya), Term Loan B, 3 Mo. LIBOR
+ 3.50%, 0.00% Floor......................................... 5.60% 07/10/25 30,380,465
15,073,740 Station Casinos, Inc. (Red Rocks), Term Loan B, 1 Mo. LIBOR +
2.50%, 0.75% Floor........................................... 4.29% 06/08/23 15,080,071
2,239,986 Twin River Worldwide Holdings, Inc., Term Loan B, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 4.79% 05/10/26 2,239,986
6,488,296 VICI Properties 1 LLC (Caesars), Term Loan B, 1 Mo. LIBOR +
2.00%, 0.00% Floor........................................... 3.85% 12/20/24 6,507,437
---------------
130,974,728
---------------
COAL & CONSUMABLE FUELS -- 0.1%
2,984,848 Peabody Energy Corp., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.54% 03/31/25 2,353,046
---------------
COMMUNICATIONS EQUIPMENT -- 0.3%
4,510,660 Commscope, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 5.04% 04/06/26 4,419,048
---------------
CONSTRUCTION & ENGINEERING -- 0.0%
553,399 Pike Corp., 2019 New Term Loans, 1 Mo. LIBOR + 3.25%,
0.00% Floor.................................................. 5.04% 07/24/26 552,972
---------------
ELECTRIC UTILITIES -- 0.6%
9,522,372 Vistra Operations Co. LLC (TEX/TXU), 2018 Incremental Term
Loan B3, 1 Mo. LIBOR + 2.00%, 0.00% Floor.................... 3.79% - 3.89% 12/31/25 9,552,177
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 1.4%
8,414,180 GFL Environmental, Inc., 2018 Incremental Term Loan B, 1 Mo.
LIBOR + 3.00%, 1.00% Floor................................... 4.79% 05/31/25 8,381,112
14,715,205 Packers Holdings LLC, Term Loan B, 3 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 5.57% 12/04/24 14,471,521
---------------
22,852,633
---------------
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
FOOD DISTRIBUTORS -- 0.3%
$ 4,562,191 US Foods, Inc., 2019 Incremental Term Loan B, 1 Mo. LIBOR +
2.00%, 0.00% Floor........................................... 3.79% 08/31/26 $ 4,574,235
---------------
FOOD RETAIL -- 0.7%
10,858,391 Albertson's LLC, Term Loan B-8, 1 Mo. LIBOR + 2.75%, 0.75%
Floor........................................................ 4.54% 08/15/26 10,910,620
---------------
HEALTH CARE FACILITIES -- 0.8%
256,574 Acadia Healthcare Co., Inc., Term Loan B3, 1 Mo. LIBOR +
2.50%, 0.00% Floor........................................... 4.29% 02/11/22 256,774
5,089,179 Acadia Healthcare Co., Inc., Term Loan B4, 1 Mo. LIBOR +
2.50%, 0.00% Floor........................................... 4.29% 02/16/23 5,093,149
2,564,989 Gentiva Health Services, Inc. (Kindred at Home), Term Loan B,
1 Mo. LIBOR + 3.75%, 0.00% Floor............................. 5.56% 06/30/25 2,558,576
4,288 Select Medical Corp., Term Loan B, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 4.33% 03/06/25 4,261
5,247,535 Select Medical Corp., Term Loan B, 6 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 4.58% 03/06/25 5,214,738
---------------
13,127,498
---------------
HEALTH CARE SERVICES -- 7.4%
1,154,489 21st Century Oncology Holdings, Inc., Tranche B Term Loan,
3 Mo. LIBOR + 6.13%, 1.00% Floor............................. 8.14% 01/16/23 1,075,984
1,587,113 Air Medical Group Holdings, Inc. (Global Medical Response),
2018 New Term Loan, 1 Mo. LIBOR + 4.25%, 1.00% Floor......... 6.04% 03/14/25 1,419,339
3,642,102 Air Medical Group Holdings, Inc. (Global Medical Response),
Term Loan B, 1 Mo. LIBOR + 3.25%, 1.00% Floor................ 5.10% 04/28/22 3,263,105
6,964,160 Air Methods Corp. (a/k/a ASP AMC Intermediate Holdings, Inc.),
Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor................ 5.60% 04/21/24 5,548,137
4,828,972 Athenahealth, Inc. (VVC Holding Corp.), Term Loan B, 3 Mo.
LIBOR + 4.50%, 0.00% Floor................................... 6.68% 02/15/26 4,785,222
30,620,542 CHG Healthcare Services, Inc., Term Loan, 1 Mo. LIBOR +
3.00%, 1.00% Floor........................................... 4.79% 06/07/23 30,555,014
17,775,029 DaVita, Inc., Term Loan B, 1 Mo. LIBOR + 2.25%, 0.00%
Floor........................................................ 4.04% 08/12/26 17,814,667
11,654,975 DuPage Medical Group (Midwest Physician Admin. Services
LLC), Term Loan B, 1 Mo. LIBOR + 2.75%, 0.75% Floor.......... 4.54% 08/15/24 11,416,049
23,796,511 Envision Healthcare Corp., Term Loan B, 1 Mo. LIBOR + 3.75%,
0.00% Floor.................................................. 5.54% 10/10/25 19,174,753
8,962,343 Surgery Centers Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.25%, 1.00% Floor........................................... 5.04% 08/31/24 8,641,222
8,251,617 Team Health, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 1.00%
Floor........................................................ 4.54% 02/06/24 6,333,116
5,316,320 U.S. Renal Care, Inc., Term Loan B, 1 Mo. LIBOR + 5.00%,
0.00% Floor.................................................. 6.79% 06/28/26 4,901,435
3,817,637 Verscend Technologies, Inc., Term Loan B, 1 Mo. LIBOR +
4.50%, 0.00% Floor........................................... 6.29% 08/27/25 3,817,637
568,702 Vizient, Inc., Term Loan B-5, 1 Mo. LIBOR + 2.50%, 0.00%
Floor........................................................ 4.29% 04/30/26 568,526
---------------
119,314,206
---------------
HEALTH CARE TECHNOLOGY -- 1.6%
23,579,566 Change Healthcare Holdings, Term Loan B, 1 Mo. LIBOR +
2.50%, 1.00% Floor........................................... 4.29% 03/01/24 23,426,770
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE TECHNOLOGY (CONTINUED)
$ 2,268,939 Press Ganey (Azalea TopCo, Inc.), Term Loan B, 1 Mo. LIBOR
+ 3.50%, 0.00% Floor....................................... 5.29% 07/25/26 $ 2,231,502
---------------
25,658,272
---------------
HOTELS, RESORTS & CRUISE LINES -- 0.2%
3,610,406 Four Seasons Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
2.00%, 0.00% Floor........................................... 3.79% 11/30/23 3,621,923
---------------
HOUSEHOLD APPLIANCES -- 0.5%
9,220,213 Traeger Grills (TGP Holdings III LLC), Term Loan B, 1 Mo.
LIBOR + 4.25%, 1.00% Floor................................... 6.04% 09/25/24 8,597,849
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.6%
9,460,940 Alight, Inc. (fka Tempo Acq.), Term Loan B, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 4.79% 05/01/24 9,458,953
---------------
HYPERMARKETS & SUPER CENTERS -- 1.2%
19,838,350 BJ's Wholesale Club, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.67% 02/03/24 19,834,978
---------------
INSURANCE BROKERS -- 8.0%
1,661,988 Alliant Holdings I, LLC, 2019 New Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.17% 05/10/25 1,632,073
18,520,748 Alliant Holdings I, LLC, Initial Term Loan, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 4.80% 05/09/25 18,026,058
37,939,734 AmWINS Group, Inc., Term Loan B (First Lien), 1 Mo. LIBOR
+ 2.75%, 1.00% Floor......................................... 4.54% - 4.74% 01/25/24 37,856,646
2,898,551 HUB International Ltd., 2019 Incremental Term Loan B2, 3 Mo.
LIBOR + 4.00%, 1.00% Floor................................... 5.90% 04/25/25 2,892,754
94,314 HUB International Ltd., Term Loan B, 2 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 4.90% 04/25/25 92,175
37,159,133 HUB International Ltd., Term Loan B, 3 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 4.94% 04/25/25 36,316,364
10,388,119 National Financial Partners Corp. (NFP), Term Loan B, 1 Mo.
LIBOR + 3.00%, 0.00% Floor................................... 4.79% 01/06/24 10,069,099
22,223,280 USI, Inc. (fka Compass Investors, Inc.), Term Loan B, 3 Mo.
LIBOR + 3.00%, 0.00% Floor................................... 5.10% 05/15/24 21,551,025
---------------
128,436,194
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 1.0%
16,191,163 CenturyLink, Inc. (Qwest), Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.54% 01/31/25 16,015,165
---------------
INVESTMENT BANKING & BROKERAGE -- 0.7%
10,472,203 Citadel Securities LP, Term Loan B, 1 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 5.29% 02/28/26 10,491,891
---------------
LEISURE FACILITIES -- 0.9%
17,088,204 ClubCorp Holdings, Inc., Term Loan B, 3 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.85% 09/18/24 14,973,539
---------------
LIFE SCIENCES TOOLS & SERVICES -- 3.6%
12,773,426 Ortho-Clinical Diagnostics, Inc., Term Loan B, 3 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.31% 05/31/25 12,188,020
12,475,829 Parexel International Corp., Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 4.54% 09/27/24 11,898,822
19,451,638 Pharmaceutical Product Development, Inc. (PPDI), Term Loan B,
1 Mo. LIBOR + 2.50%, 1.00% Floor............................. 4.29% 08/18/22 19,403,009
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
LIFE SCIENCES TOOLS & SERVICES (CONTINUED)
$ 13,919,991 Sotera Health Holdings LLC (Sterigenics), Term Loan B, 3 Mo.
LIBOR + 3.00%, 1.00% Floor................................... 4.93% 05/15/22 $ 13,658,991
---------------
57,148,842
---------------
MANAGED HEALTH CARE -- 2.3%
30,043,286 Multiplan, Inc. (MPH), Term Loan B, 3 Mo. LIBOR + 2.75%,
1.00% Floor.................................................. 4.85% 06/07/23 28,107,597
8,728,550 Versant Health (Wink Holdco, Inc.), Initial Term Loan, 1 Mo.
LIBOR + 3.00%, 1.00% Floor................................... 4.79% 12/02/24 8,519,414
---------------
36,627,011
---------------
METAL & GLASS CONTAINERS -- 1.1%
16,851,931 Berry Global, Inc., Term Loan U, 1 Mo. LIBOR + 2.50%, 0.00%
Floor........................................................ 4.44% 07/01/26 16,901,139
---------------
MOVIES & ENTERTAINMENT -- 2.0%
8,394,815 AMC Entertainment, Inc., Term Loan B, 3 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 5.23% 04/22/26 8,386,672
23,223,414 Cineworld Group PLC (Crown), Term Loan B, 1 Mo. LIBOR +
2.25%, 0.00% Floor........................................... 4.04% 02/05/25 22,893,642
---------------
31,280,314
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES -- 5.1%
32,480,938 AlixPartners LLP, Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 4.54% 04/04/24 32,426,695
28,860,928 Duff & Phelps Corp. (Deerfield Dakota), Initial Term Loan,
1 Mo. LIBOR + 3.25%, 1.00% Floor............................. 5.04% 02/13/25 27,794,228
20,943,723 Refinitiv US Holdings, Inc., Initial Dollar Term Loan, 1 Mo.
LIBOR + 3.75%, 0.00% Floor................................... 5.54% 10/01/25 21,043,206
1,116,619 Wex, Inc., Term Loan B, 1 Mo. LIBOR + 2.25%, 0.00% Floor........ 4.04% 05/17/26 1,120,014
---------------
82,384,143
---------------
PACKAGED FOODS & MEATS -- 0.5%
873,807 B&G Foods, Inc., Term Loan B, 2 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 4.48% 09/30/26 876,542
1,290,817 BellRing Brands, LLC, Term Loan B, 1 Mo. LIBOR + 5.00%,
0.00% Floor.................................................. 6.79% 10/21/24 1,286,790
2,011,864 Hostess Brands, LLC (HB Holdings), Term Loan B, 1 Mo.
LIBOR + 2.25%, 0.75% Floor................................... 4.04% 08/03/25 2,000,557
4,535,893 Hostess Brands, LLC (HB Holdings), Term Loan B, 3 Mo.
LIBOR + 2.25%, 0.75% Floor................................... 4.18% 08/03/25 4,510,401
---------------
8,674,290
---------------
PAPER PACKAGING -- 2.1%
33,424,820 Reynolds Group Holdings, Inc., U.S. Term Loan, 1 Mo. LIBOR
+ 2.75%, 0.00% Floor......................................... 4.54% 02/05/23 33,406,437
---------------
PHARMACEUTICALS -- 5.3%
1,132,480 Akorn, Inc., Loan, 1 Mo. LIBOR + 7.00%, 1.00% Floor............. 8.81% 04/16/21 1,045,846
41,731,143 Bausch Health Cos., Inc. (Valeant), Term Loan B, 1 Mo. LIBOR
+ 3.00%, 0.00% Floor......................................... 4.92% 06/01/25 41,865,935
23,736,879 Endo LLC, Term Loan B, 1 Mo. LIBOR + 4.25%, 0.75% Floor......... 6.06% 04/29/24 21,790,455
11,173,234 GoodRX, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 4.60% 10/15/25 11,136,921
5,547,971 Grifols Worldwide Operations Ltd., Tranche B Term Loan,
1 Month LIBOR + 2.25%, 0.00% Floor........................... 4.09% 01/31/25 5,552,742
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
PHARMACEUTICALS (CONTINUED)
$ 2,275,825 Mallinckrodt International Finance S.A., 2017 Term Loan B,
3 Mo. LIBOR + 2.75%, 0.75% Floor............................. 4.85% 09/24/24 $ 1,778,398
1,632,631 Mallinckrodt International Finance S.A., 2018 Incremental Term
Loan, 3 Mo. LIBOR + 3.00%, 0.75% Floor....................... 5.18% 02/24/25 1,268,358
---------------
84,438,655
---------------
REAL ESTATE SERVICES -- 0.2%
1,955,628 Cushman & Wakefield (DTZ U.S. Borrower LLC), Term Loan,
1 Mo. LIBOR + 3.25%, 0.00% Floor............................. 5.04% 08/21/25 1,957,251
1,919,839 Realogy Corp., Term Loan B, 1 Mo. LIBOR + 2.25%, 0.75%
Floor........................................................ 4.07% 02/08/25 1,816,648
---------------
3,773,899
---------------
RESEARCH & CONSULTING SERVICES -- 0.2%
1,056,217 Clarivate Analytics PLC (Camelot), Term Loan B, 1 Mo. LIBOR
+ 3.25%, 0.00% Floor......................................... 5.03% 10/31/26 1,058,857
1,616,222 TransUnion LLC, Term Loan B4, 1 Mo. LIBOR + 2.00%, 0.00%
Floor........................................................ 4.04% 06/19/25 1,617,741
---------------
2,676,598
---------------
RESTAURANTS -- 1.7%
17,176,584 1011778 B.C. Unlimited Liability Co. (Restaurant Brands) (aka
Burger King/Tim Horton's), Term Loan B-3, 1 Mo. LIBOR +
2.25%, 1.00% Floor........................................... 4.04% 02/15/24 17,189,467
1,888,349 IRB Holding Corp. (Arby's/Inspire Brands), Term Loan B, 3 Mo.
LIBOR + 3.25%, 1.00% Floor................................... 5.19% - 5.22% 01/18/25 1,871,827
8,262,592 Portillo's Holdings LLC, Term B Loan (First Lien), 3 Mo. LIBOR
+ 4.50%, 1.00% Floor......................................... 6.60% 08/02/21 8,262,592
---------------
27,323,886
---------------
SECURITY & ALARM SERVICES -- 0.2%
2,493,450 Garda World Security Corp., Term Loan B, 1 Mo. LIBOR +
4.75%, 0.00% Floor........................................... 6.55% 10/30/26 2,477,866
---------------
SEMICONDUCTORS -- 0.3%
2,007,581 ON Semiconductor Corp., Term Loan B, 1 Mo. LIBOR + 2.00%,
0.00% Floor.................................................. 3.79% 09/19/26 2,015,330
2,083,454 Western Digital Corp., U.S., Term Loan B-4, 1 Mo. LIBOR +
1.75%, 0.00% Floor........................................... 3.75% 04/29/23 2,074,600
---------------
4,089,930
---------------
SPECIALIZED CONSUMER SERVICES -- 2.0%
6,547,400 Asurion LLC, Replacement B-2 Term Loan (Second Lien),
1 Mo. LIBOR + 6.50%, 0.00% Floor............................. 8.29% 08/04/25 6,573,590
1,091,103 Asurion LLC, Term Loan B4, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 4.79% 08/04/22 1,091,299
16,591,686 Asurion LLC, Term Loan B6, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 4.79% 11/03/23 16,609,439
8,171,563 Asurion LLC, Term Loan B7, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 4.79% 11/03/24 8,176,710
---------------
32,451,038
---------------
SPECIALTY CHEMICALS -- 0.6%
9,109,961 H.B. Fuller Co., Term Loan B, 1 Mo. LIBOR + 2.00%,
0.00% Floor.................................................. 3.85% 10/20/24 9,076,709
---------------
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SYSTEMS SOFTWARE -- 5.7%
$ 20,890,485 Applied Systems, Inc., Term Loan (First Lien), 3 Mo. LIBOR +
3.00%, 1.00% Floor........................................... 5.10% 09/13/24 $ 20,752,398
2,331,175 Applied Systems, Inc., Term Loan (Second Lien), 3 Mo. LIBOR
+ 7.00%, 1.00% Floor......................................... 9.10% 09/13/25 2,352,552
2,005,125 Avast Software B.V. (Sybil), Term Loan B, 3 Mo. LIBOR +
2.25%, 1.00% Floor........................................... 4.35% 09/30/23 2,009,938
7,905,469 Dynatrace LLC, Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 4.54% 08/22/25 7,925,232
4,080,552 McAfee, LLC, Term Loan B, 1 Mo. LIBOR + 3.75%, 0.00%
Floor........................................................ 5.55% 09/30/24 4,077,287
10,473,523 Misys Financial Software Ltd. (Almonde, Inc.) (Finastra), Term
Loan B, 6 Mo. LIBOR + 3.50%, 1.00% Floor..................... 5.70% 06/13/24 9,995,721
14,698,472 Riverbed Technology, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 5.04% 04/24/22 11,294,453
8,243,907 SS&C European Holdings, S.A.R.L., Term Loan B-3, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.04% 04/16/25 8,257,675
5,381,442 SS&C European Holdings, S.A.R.L., Term Loan B-4, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.04% 04/16/25 5,390,429
6,263,407 SS&C European Holdings, S.A.R.L., Term Loan B-5, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.04% 04/16/25 6,278,313
4,972,076 SUSE (Marcel Lux IV S.A.R.L.), Facility Term Loan B1 USD,
1 Mo. LIBOR + 3.25%, 0.00% Floor............................. 5.04% 03/15/26 4,829,129
8,840,102 Vertafore, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 5.04% 06/15/25 8,546,523
---------------
91,709,650
---------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 0.9%
14,501,367 Dell International LLC, Term Loan B, 1 Mo. LIBOR + 2.00%,
0.75% Floor.................................................. 3.79% 09/16/25 14,553,427
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................................... 1,414,989,871
(Cost $1,446,433,853) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 8.4%
ALTERNATIVE CARRIERS -- 0.3%
366,000 Level 3 Financing, Inc.......................................... 5.38% 08/15/22 367,464
500,000 Level 3 Financing, Inc.......................................... 5.13% 05/01/23 508,125
4,669,000 Level 3 Parent LLC.............................................. 5.75% 12/01/22 4,692,345
---------------
5,567,934
---------------
APPLICATION SOFTWARE -- 0.1%
1,070,000 Infor US, Inc................................................... 6.50% 05/15/22 1,088,725
---------------
AUTO PARTS & EQUIPMENT -- 0.4%
6,939,000 American Axle & Manufacturing, Inc.............................. 6.63% 10/15/22 6,991,043
---------------
BROADCASTING -- 2.9%
2,541,000 Diamond Sports Group LLC / Diamond Sports Finance Co. (c)....... 5.38% 08/15/26 2,661,698
3,848,000 E.W. Scripps (The) Co. (c)...................................... 5.13% 05/15/25 3,910,530
7,343,000 Gray Television, Inc. (c)....................................... 5.13% 10/15/24 7,627,541
2,148,000 Gray Television, Inc. (c)....................................... 5.88% 07/15/26 2,263,498
2,125,000 Nexstar Broadcasting, Inc....................................... 5.88% 11/15/22 2,162,188
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
BROADCASTING (CONTINUED)
$ 9,889,000 Nexstar Broadcasting, Inc. (c).................................. 5.63% 08/01/24 $ 10,342,707
1,580,000 Nexstar Broadcasting, Inc. (c).................................. 5.63% 07/15/27 1,670,376
14,626,000 Sinclair Television Group, Inc. (c)............................. 5.63% 08/01/24 15,101,345
791,000 Sinclair Television Group, Inc. (c)............................. 5.88% 03/15/26 829,561
---------------
46,569,444
---------------
CABLE & SATELLITE -- 0.1%
125,000 CCO Holdings LLC / CCO Holdings Capital Corp. (c)............... 5.88% 04/01/24 130,625
1,621,000 CSC Holdings LLC (c)............................................ 5.50% 05/15/26 1,712,181
---------------
1,842,806
---------------
CASINOS & GAMING -- 0.3%
949,000 Boyd Gaming Corp................................................ 6.88% 05/15/23 985,774
1,350,000 Eldorado Resorts, Inc........................................... 7.00% 08/01/23 1,412,437
1,906,000 Golden Nugget, Inc. (c)......................................... 6.75% 10/15/24 1,968,136
---------------
4,366,347
---------------
COAL & CONSUMABLE FUELS -- 0.3%
4,900,000 Peabody Energy Corp. (c)........................................ 6.00% 03/31/22 4,557,000
---------------
DIVERSIFIED REAL ESTATE ACTIVITIES -- 0.1%
250,000 KB Home......................................................... 7.00% 12/15/21 269,875
626,000 PulteGroup, Inc................................................. 5.50% 03/01/26 703,624
---------------
973,499
---------------
HEALTH CARE FACILITIES -- 2.0%
3,478,000 Acadia Healthcare Co., Inc...................................... 5.63% 02/15/23 3,547,560
8,080,000 Tenet Healthcare Corp........................................... 8.13% 04/01/22 8,767,204
6,130,000 Tenet Healthcare Corp. (c)...................................... 4.63% 09/01/24 6,294,591
8,764,000 Tenet Healthcare Corp. (c)...................................... 4.88% 01/01/26 9,081,695
5,008,000 Tenet Healthcare Corp. (c)...................................... 5.13% 11/01/27 5,214,580
---------------
32,905,630
---------------
HEALTH CARE SERVICES -- 0.2%
1,608,000 DaVita, Inc..................................................... 5.13% 07/15/24 1,645,418
1,023,000 MEDNAX, Inc. (c)................................................ 5.25% 12/01/23 1,038,345
---------------
2,683,763
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.3%
5,264,000 Calpine Corp.................................................... 5.38% 01/15/23 5,362,437
---------------
INSURANCE BROKERS -- 0.4%
4,717,000 AmWINS Group, Inc. (c).......................................... 7.75% 07/01/26 5,094,360
893,000 HUB International Ltd. (c)...................................... 7.00% 05/01/26 920,906
---------------
6,015,266
---------------
MANAGED HEALTH CARE -- 0.6%
10,000,000 MPH Acquisition Holdings LLC (c)................................ 7.13% 06/01/24 9,300,500
976,000 Polaris Intermediate Corp. (c) (d).............................. 8.50% 12/01/22 822,280
---------------
10,122,780
---------------
MOVIES & ENTERTAINMENT -- 0.1%
1,497,000 AMC Entertainment Holdings, Inc................................. 5.75% 06/15/25 1,427,913
---------------
PAPER PACKAGING -- 0.1%
1,000,000 Reynolds Group Issuer, Inc. / Reynolds Group Issuer LLC /
Reynolds Group Issuer Lu (c)................................. 7.00% 07/15/24 1,036,875
---------------
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
REAL ESTATE SERVICES -- 0.1%
$ 2,140,000 Realogy Group LLC / Realogy Co-Issuer Corp. (c)................. 5.25% 12/01/21 $ 2,150,700
---------------
TRADING COMPANIES & DISTRIBUTORS -- 0.1%
250,000 United Rentals North America, Inc............................... 5.88% 09/15/26 265,792
1,099,000 United Rentals North America, Inc............................... 6.50% 12/15/26 1,193,789
---------------
1,459,581
---------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 135,121,743
(Cost $132,517,919) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
EXCHANGE-TRADED FUNDS -- 2.0%
CAPITAL MARKETS -- 2.0%
533,500 First Trust Enhanced Short Maturity ETF (e).................................................. 32,058,015
---------------
TOTAL EXCHANGE-TRADED FUNDS.................................................................. 32,058,015
(Cost $31,993,995) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES -- 0.5%
CABLE & SATELLITE -- 0.1%
$ 1,500,000 Virgin Media Secured Finance PLC (c)............................ 5.50% 08/15/26 1,580,625
---------------
DIVERSIFIED REAL ESTATE ACTIVITIES -- 0.0%
250,000 Taylor Morrison Communities, Inc. / Taylor Morrison Holdings II,
Inc. (c)..................................................... 5.88% 04/15/23 271,250
---------------
PHARMACEUTICALS -- 0.3%
4,251,000 Bausch Health Cos., Inc. (c).................................... 5.88% 05/15/23 4,330,706
250,000 Mallinckrodt International Finance SA / Mallinckrodt CB
LLC (c)...................................................... 5.63% 10/15/23 91,250
---------------
4,421,956
---------------
RESTAURANTS -- 0.1%
1,000,000 1011778 BC ULC / New Red Finance, Inc. (c)...................... 5.00% 10/15/25 1,027,500
---------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................................... 7,301,331
(Cost $7,231,711) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
RIGHTS -- 0.0%
ELECTRIC UTILITIES -- 0.0%
4,887 Vista Energy Corp. (f) (i)................................................................... 4,325
---------------
LIFE SCIENCES TOOLS & SERVICES -- 0.0%
1 New Millennium Holdco, Inc., Corporate Claim Trust (f) (g) (h) (i)........................... 0
1 New Millennium Holdco, Inc., Corporate Claim Trust (f) (g) (h) (i)........................... 0
---------------
0
---------------
TOTAL RIGHTS................................................................................. 4,325
(Cost $8,491) ---------------
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
MONEY MARKET FUNDS -- 2.2%
35,666,062 Morgan Stanley Institutional Liquidity Funds - Treasury
Portfolio - Institutional Class - 1.68% (j)............................................... $ 35,666,062
(Cost $35,666,062) ---------------
TOTAL INVESTMENTS -- 101.4%.................................................................. 1,625,141,347
(Cost $1,653,852,031) (k)
NET OTHER ASSETS AND LIABILITIES -- (1.4)%................................................... (21,993,414)
---------------
NET ASSETS -- 100.0%......................................................................... $ 1,603,147,933
===============
</TABLE>
-----------------------------
(a) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests generally pay interest at rates which are periodically
predetermined by reference to a base lending rate plus a premium. These
base lending rates are generally (i) the lending rate offered by one or
more major European banks, such as the LIBOR, (ii) the prime rate offered
by one or more United States banks or (iii) the certificate of deposit
rate. Certain Senior Loans are subject to a LIBOR floor that establishes a
minimum LIBOR rate. When a range of rates is disclosed, the Fund holds
more than one contract within the same tranche with identical LIBOR
period, spread and floor, but different LIBOR reset dates.
(b) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(c) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Trust's Board of Trustees, this security has
been determined to be liquid by First Trust Advisors L.P., (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, 2019, securities noted as such
amounted to $101,031,361 or 6.3% of net assets.
(d) Senior Payment-in-kind ("PIK") Toggle Note. The issuer may, at its option,
elect to pay interest on the notes (1) entirely in cash or (2) entirely in
PIK interest. Interest paid in cash will accrue at the rate of 8.50% per
annum ("Cash Interest Rate") and PIK interest will accrue on the notes at
a rate per annum equal to the Cash Interest Rate plus 75 basis points. For
the fiscal year ended October 31, 2019, this security paid all of its
interest in cash.
(e) Investment in an affiliated fund.
(f) Non-income producing security.
(g) This security is fair valued by the Advisor's Pricing Committee in
accordance with procedures adopted by the Trust's Board of Trustees, and
in accordance with provisions of the Investment Company Act of 1940, as
amended. At October 31, 2019, securities noted as such are valued at $0 or
0.0% of net assets.
(h) This security's value was determined using significant unobservable inputs
(see Note 2A - Portfolio Valuation in the Notes to Financial Statements.
(i) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(j) Rate shown reflects yield as of October 31, 2019.
(k) Aggregate cost for federal income tax purposes is $1,655,160,446. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$6,912,435 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$36,931,534. The net unrealized depreciation was $30,019,099.
LIBOR - London Interbank Offered Rate
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2019 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Senior Floating-Rate Loan Interests*.............. $1,414,989,871 $ -- $1,414,989,871 $ --
Corporate Bonds and Notes*........................ 135,121,743 -- 135,121,743 --
Exchange-Traded Funds*............................ 32,058,015 32,058,015 -- --
Foreign Corporate Bonds and Notes*................ 7,301,331 -- 7,301,331 --
Rights
Electric Utilities............................. 4,325 -- 4,325 --
Life Science Tools & Services.................. --** -- -- --**
Money Market Funds................................ 35,666,062 35,666,062 -- --
-------------- -------------- -------------- --------------
Total Investments................................. $1,625,141,347 $ 67,724,077 $1,557,417,270 $ --**
============== ============== ============== ==============
</TABLE>
* See Portfolio of Investments for industry breakout.
** Investment is valued at $0.
Level 3 Rights are fair valued by the Advisor's Pricing Committee and are
footnoted in the Portfolio of Investments. These values are based on
unobservable and non-quantitative inputs.
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value - Unaffiliated...................................... $1,593,083,332
Investments, at value - Affiliated........................................ 32,058,015
--------------
Total investments, at value............................................... 1,625,141,347
Cash...................................................................... 355,318
Receivables:
Interest............................................................... 3,725,375
Investment securities sold............................................. 1,433,381
Dividends.............................................................. 124,859
--------------
Total Assets........................................................ 1,630,780,280
--------------
LIABILITIES:
Payables:
Investment securities purchased........................................ 26,474,832
Investment advisory fees............................................... 1,157,515
--------------
Total Liabilities................................................... 27,632,347
--------------
NET ASSETS................................................................ $1,603,147,933
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $1,659,288,131
Par value................................................................. 340,000
Accumulated distributable earnings (loss)................................. (56,480,198)
--------------
NET ASSETS................................................................ $1,603,147,933
==============
NET ASSET VALUE, per share................................................ $ 47.15
==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................. 34,000,002
==============
Investments, at cost - Unaffiliated....................................... $1,621,858,036
==============
Investments, at cost - Affiliated......................................... $ 31,993,995
==============
Total investments, at cost................................................ $1,653,852,031
==============
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2019
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 86,096,404
Dividends - Unaffiliated.................................................. 1,305,154
Dividends - Affiliated.................................................... 664,271
--------------
Total investment income................................................ 88,065,829
--------------
EXPENSES:
Investment advisory fees.................................................. 13,992,543
--------------
Total expenses......................................................... 13,992,543
--------------
NET INVESTMENT INCOME (LOSS).............................................. 74,073,286
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Unaffiliated............................................ (11,627,556)
Investments - Affiliated.............................................. (246,494)
--------------
Net realized gain (loss).................................................. (11,874,050)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments - Unaffiliated............................................ (16,981,332)
Investments - Affiliated.............................................. 201,520
--------------
Net change in unrealized appreciation (depreciation)...................... (16,779,812)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (28,653,862)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 45,419,424
==============
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/2019 10/31/2018
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 74,073,286 $ 60,462,917
Net realized gain (loss).................................................. (11,874,050) (7,452,518)
Net change in unrealized appreciation (depreciation)...................... (16,779,812) (7,589,605)
-------------- --------------
Net increase (decrease) in net assets resulting from operations........... 45,419,424 45,420,794
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (74,733,494) (62,145,936)
Return of capital......................................................... (385,786) (939,193)
-------------- --------------
Total distributions to shareholders....................................... (75,119,280) (63,085,129)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 157,940,483 559,969,294
Cost of shares redeemed................................................... (408,996,170) --
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................................... (251,055,687) 559,969,294
-------------- --------------
Total increase (decrease) in net assets................................... (280,755,543) 542,304,959
NET ASSETS:
Beginning of period....................................................... 1,883,903,476 1,341,598,517
-------------- --------------
End of period............................................................. $1,603,147,933 $1,883,903,476
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 39,450,002 27,800,002
Shares sold............................................................... 3,300,000 11,650,000
Shares redeemed........................................................... (8,750,000) --
-------------- --------------
Shares outstanding, end of period......................................... 34,000,002 39,450,002
============== ==============
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST SENIOR LOAN FUND (FTSL)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2019 2018 2017 2016 2015
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 47.75 $ 48.26 $ 48.32 $ 48.07 $ 49.09
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 2.13 1.87 1.68 1.80 1.90
Net realized and unrealized gain (loss)............... (0.57) (0.43) (0.04) 0.27 (1.03)
---------- ---------- ---------- ---------- ----------
Total from investment operations...................... 1.56 1.44 1.64 2.07 0.87
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................. (2.15) (1.92) (1.70) (1.82) (1.89)
Return of capital..................................... (0.01) (0.03) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions paid to shareholders.............. (2.16) (1.95) (1.70) (1.82) (1.89)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period........................ $ 47.15 $ 47.75 $ 48.26 $ 48.32 $ 48.07
========== ========== ========== ========== ==========
TOTAL RETURN (a)...................................... 3.37% 3.03% 3.43% 4.43% 1.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................. $1,603,148 $1,883,903 $1,341,599 $ 594,277 $ 362,899
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets (b)..... 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of net investment income (loss) to
average net assets................................. 4.50% 3.94% 3.53% 3.84% 3.97%
Portfolio turnover rate (c)........................... 44% 88% 110% 67% 71%
</TABLE>
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(b) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. This ratio
does not include these indirect fees and expenses.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 23
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Senior Loan Fund (the "Fund"), which trades under the
ticker "FTSL" on The Nasdaq Stock Market LLC ("Nasdaq"). Unlike conventional
mutual funds, the Fund issues and redeems shares on a continuous basis, at net
asset value ("NAV"), only in large specified blocks consisting of 50,000 shares
called a "Creation Unit." Creation Units are generally issued and redeemed for
cash and, in certain circumstances, in-kind for securities in which the Fund
invests. Except when aggregated in Creation Units, the shares are not redeemable
securities of the Fund.
The Fund's primary investment objective is to provide high current income. The
Fund's secondary investment objective is the preservation of capital. Under
normal market conditions, the Fund seeks to outperform each of the S&P/LSTA U.S.
Leveraged Loan 100 Index and the Markit iBoxx USD Liquid Leveraged Loan Index by
investing at least 80% of its net assets (including investment borrowings) in
first lien senior floating rate bank loans ("Senior Loans")(1). The S&P/LSTA
U.S. Leveraged Loan 100 Index (the "Primary Index") is a market value-weighted
index designed to measure the performance of the largest segment of the U.S.
syndicated leveraged loan market. The Primary Index consists of 100 loan
facilities drawn from a larger benchmark, the S&P/LSTA Leveraged Loan Index. The
Markit iBoxx USD Liquid Leveraged Loan Index (the "Secondary Index") selects the
100 most liquid Senior Loans in the market. The Fund does not seek to track
either the Primary or Secondary Index, but rather seeks to outperform each of
the indices. It is anticipated that the Fund, in accordance with its principal
investment strategy, will invest approximately 50% to 75% of its net assets in
Senior Loans that are eligible for inclusion in and meet the liquidity
thresholds of the Primary and/or the Secondary Indices at the time of
investment.
A Senior Loan is an advance or commitment of funds made by one or more banks or
similar financial institutions to one or more corporations, partnerships or
other business entities and typically pays interest at a floating or adjusting
rate that is determined periodically at a designated premium above a base
lending rate, most commonly the London Interbank Offered Rate. The Fund invests
primarily in Senior Loans that are below investment grade quality at the time of
investment. The Fund invests in Senior Loans made predominantly to businesses
operating in North America, but may also invest in Senior Loans made to
businesses operating outside of North America.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. The Fund's investments are valued as
follows:
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019
Senior Loans in which the Fund invests are not listed on any securities
exchange or board of trade. Senior Loans are typically bought and sold by
institutional investors in individually negotiated private transactions
that function in many respects like an over-the-counter secondary market,
although typically no formal market-makers exist. This market, while
having grown substantially since its inception, generally has fewer trades
and less liquidity than the secondary market for other types of
securities. Some Senior Loans have few or no trades, or trade
infrequently, and information regarding a specific Senior Loan may not be
widely available or may be incomplete. Accordingly, determinations of the
market value of Senior Loans may be based on infrequent and dated
information. Because there is less reliable, objective data available,
elements of judgment may play a greater role in valuation of Senior Loans
than for other types of securities. Typically, Senior Loans are valued
using information provided by a third-party pricing service. The
third-party pricing service primarily uses over-the-counter pricing from
dealer runs and broker quotes from indicative sheets to value the Senior
Loans.
Corporate bonds, corporate notes and other debt securities are fair valued
on the basis of valuations provided by dealers who make markets in such
securities or by a third-party pricing service approved by the Trust's
Board of Trustees, which may use the following valuation inputs when
available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Exchange-traded funds and other equity securities listed on any national
or foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Fixed income and other debt securities having a remaining maturity of
sixty days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
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
Page 25
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the fundamental business data relating to the borrower/issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based
on the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
(or equity securities) of the borrower/issuer, or comparable
companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the borrower/issuer, including any
ability to obtain money or resources from a parent or
affiliate and an assessment of the borrower's/issuer's
management;
11) the prospects for the borrower's/issuer's industry, and
multiples (of earnings and/or cash flows) being paid for
similar businesses in that industry;
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
14) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2019, 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-date. Interest income is recorded daily on
the accrual basis. Amortization of premiums and accretion of discounts are
recorded using the effective interest method over the expected life of each
respective borrowing for loans and bonds.
On July 27, 2017, the Financial Conduct Authority ("FCA") announced that it will
no longer persuade or compel banks to submit rates for the calculation of the
London Interbank Offered Rates ("LIBOR") after 2021 (the "FCA Announcement").
Furthermore, in the United States, efforts to identify a set of alternative U.S.
dollar reference interest rates include proposals by the Alternative Reference
Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New
York. On August 24, 2017, the Federal Reserve Board requested public comment on
a proposal by the Federal Reserve Bank of New York, in cooperation with the
Office of Financial Research, to produce three new reference rates intended to
Page 26
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019
serve as alternatives to LIBOR. These alternative rates are based on overnight
repurchase agreement transactions secured by U.S. Treasury Securities. On
December 12, 2017, following consideration of public comments, the Federal
Reserve Board concluded that the public would benefit if the Federal Reserve
Bank of New York published the three proposed reference rates as alternatives to
LIBOR (the "Federal Reserve Board Notice").
At this time, it is not possible to predict the effect of the FCA Announcement,
the Federal Reserve Board Notice, or other regulatory changes or announcements,
any establishment of alternative reference rates or any other reforms to LIBOR
that may be enacted in the United Kingdom, the United States or elsewhere. As
such, the potential effect of any such event on the Fund cannot yet be
determined.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed delivery or forward purchase commitments. The Fund
had no when-issued, delayed-delivery, or forward purchase commitments as of
October 31, 2019.
C. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. The Fund had no unfunded loan commitments as of October
31, 2019.
D. AFFILIATED TRANSACTIONS
The Fund invests in securities of affiliated funds. Dividend income and realized
gains and losses, and change in appreciation (depreciation) from affiliated
funds are presented on the Statement of Operations. The Fund's investment
performance and risks are directly related to the investment performance and
risks of the affiliated funds.
Amounts related to these investments at October 31, 2019, and for the fiscal
year then ended are as follows:
<TABLE>
<CAPTION>
CHANGE IN
UNREALIZED REALIZED
SHARES AT VALUE AT APPRECIATION GAIN VALUE AT DIVIDEND
SECURITY NAME 10/31/2019 10/31/2018 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2019 INCOME
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust Enhanced
Short Maturity ETF 533,500 $ 74,975,000 $ 31,993,995 $(74,866,006) $ 201,520 $ (246,494) $ 32,058,015 $ 664,271
</TABLE>
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker. Distributions from net investment income and
realized capital gains are determined in accordance with federal income tax
regulations, which may differ from U.S. GAAP. Certain capital accounts in the
financial statements are periodically adjusted for permanent differences in
order to reflect their tax character. These permanent differences are primarily
due to the varying treatment of income and gain/loss on portfolio securities
held by the Fund and have no impact on net assets or NAV per share. Temporary
differences, which arise from recognizing certain items of income, expense and
gain/loss in different periods for financial statement and tax purposes, will
reverse at some time in the future.
Page 27
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019
The tax character of distributions paid during the fiscal years ended October
31, 2019 and 2018 was as follows:
Distributions paid from: 2019 2018
Ordinary income................................. $ 74,733,494 $ 62,145,936
Capital gains................................... -- --
Return of capital............................... 385,786 939,193
As of October 31, 2019, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ --
Accumulated capital and other gain (loss)....... (26,461,099)
Net unrealized appreciation (depreciation)...... (30,019,099)
F. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2016,
2017, 2018, and 2019 remain open to federal and state audit. As of October 31,
2019, management has evaluated the application of these standards to the Fund
and has determined that no provision for income tax is required in the Fund's
financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. As of October 31, 2019, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $26,461,099.
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, 2019, 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,
2019, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 647,909 $ (647,909) $ --
G. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
H. NEW ACCOUNTING PRONOUNCEMENTS
On March 30, 2017, the FASB issued Accounting Standards Update ("ASU") 2017-08
"Premium Amortization on Purchased Callable Debt Securities", which amends the
amortization period for certain purchased callable debt securities held at a
premium by shortening such period to the earliest call date. The new guidance
requires an entity to amortize the premium on a callable debt security within
its scope to the earliest call date, unless the guidance for considering
estimated prepayments is applied. If the call option is not exercised at the
earliest call date, the yield is reset to the effective yield using the payment
Page 28
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019
terms of the security. If the security has more than one call date and the
premium was amortized to a call price greater than the next call price, any
excess of the amortized cost basis over the amount repayable at the next call
date will be amortized to that date. If there are no other call dates, any
excess of the amortized cost basis over the paramount will be amortized to
maturity. Discounts on purchased callable debt securities will continue to be
amortized to the security's maturity date. The ASU 2017-08 is effective for
public business entities for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Earlier application is
permitted for all entities, including adoption in an interim period. If an
entity early adopts the ASU in an interim period, any adjustments must be
reflected as of the beginning of the fiscal year that includes that interim
period. Management is still assessing the impact of the adoption of ASU 2017-08
on the financial statements but does not expect it to have a material impact.
On August 28, 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement," which amends the
fair value measurement disclosure requirements of ASC 820. The amendments of ASU
2018-13 include new, eliminated, and modified disclosure requirements of ASC
820. In addition, the amendments clarify that materiality is an appropriate
consideration of entities when evaluating disclosure requirements. The ASU is
effective for fiscal years beginning after December 15, 2019, including interim
periods therein. Early adoption is permitted for any eliminated or modified
disclosures upon issuance of this ASU. The Fund has early adopted ASU 2018-13
for these financial statements, which did not result in a material impact.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, pro rata
share of fees and expenses attributable to investments in other investment
companies ("acquired fund fees and expenses"), brokerage commissions and other
expenses connected with the execution of portfolio transactions, distribution
and service fees payable pursuant to a Rule 12b-1 plan, if any, and
extraordinary expenses. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.85% of its average daily net assets. In addition, the
Fund incurs acquired fund fees and expenses. The total of the unitary management
fee and acquired fund fees and expenses represents the Fund's total annual
operating expenses.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and the Valuation Committee are
paid annual fees to serve in such capacities, with such compensation allocated
pro rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended October 31, 2019, the cost of purchases and proceeds
from sales of investments, excluding short-term investments and in-kind
transactions, were $706,911,756 and $964,698,780, respectively.
For the fiscal year ended October 31, 2019, there were no in-kind transactions.
Page 29
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019
5. BORROWINGS
The Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund
III and First Trust Series Fund have a $385 million Credit Agreement with The
Bank of Nova Scotia ("Scotia") as administrative agent for a group of lenders.
Prior to March 6, 2019, the commitment amount was $360 million. Scotia charges a
commitment fee of 0.25% of the daily amount of the excess of the commitment
amount over the outstanding principal balance of the loans and an agency fee.
First Trust allocates the commitment fee and agency fee amongst the funds that
have access to the credit line. To the extent that the Fund accesses the credit
line, there would also be an interest fee charged. The Fund did not have any
borrowings outstanding during the fiscal year ended October 31, 2019.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may vary and is based on the
composition of the securities included in the Fund's portfolio and/or the
countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share times the number of shares in a Creation
Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When Creation
Units are issued for cash, the Authorized Participant may also be assessed an
amount to cover the cost of purchasing portfolio securities, including
operational processing and brokerage costs, transfer fees, stamp taxes, and part
or all of the spread between the expected bid and offer side of the market
related to such securities. Authorized Participants redeeming Creation Units
must pay to BNYM, as transfer agent, a standard redemption transaction fee (the
"Redemption Transaction Fee"), regardless of the number of Creation Units
redeemed in the transaction. The Redemption Transaction Fee may vary and is
based on the composition of the securities included in the Fund's portfolio
and/or the countries in which the transactions are settled. When shares are
redeemed for cash, the Authorized Participant may also be assessed an amount to
cover other costs, including operational processing and brokerage costs,
transfer fees, stamp taxes and part or all of the spread between the expected
bid and offer side of the market related to portfolio securities sold in
connection with the redemption.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before March 31, 2021.
8. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there was
the following subsequent event:
On November 25, 2019, the commitment amount under the Credit Agreement with
Scotia was increased to $410 million.
Page 30
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Senior Loan Fund (the "Fund"), a series of the First Trust Exchange-Traded
Fund IV, including the portfolio of investments, as of October 31, 2019, 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, 2019, and the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended in conformity with accounting principles generally
accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2019, 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, 2019
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal year ended
October 31, 2019 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, 2019, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
Page 33
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees (the "Board") 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, 2020 at a meeting held on June 2, 2019. The
Board determined that the continuation of the Agreement is in the best interests
of the Fund in light of the nature, extent and quality of the services provided
and such other matters as the Board considered to be relevant in the exercise of
its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor responding to requests for information from counsel to the Independent
Trustees, submitted on behalf of the Independent Trustees, that, among other
things, outlined: the services provided by the Advisor to the Fund (including
the relevant personnel responsible for these services and their experience); the
unitary fee rate payable by the Fund as compared to fees charged to a peer group
of funds (the "Expense Group") and a broad peer universe of funds (the "Expense
Universe"), each assembled by Broadridge Financial Solutions, Inc.
("Broadridge"), an independent source, and as compared to fees charged to other
clients of the Advisor, including other exchange-traded funds ("ETFs") managed
by the Advisor; the expense ratio of the Fund as compared to expense ratios of
the funds in the Fund's Expense Group and Expense Universe; performance
information for the Fund, including comparisons of the Fund's performance to
that of one or more relevant benchmark indexes and to that of a performance
group of funds and a broad performance universe of funds (the "Performance
Universe"), each assembled by Broadridge; the nature of expenses incurred in
providing services to the Fund and the potential for economies of scale, if any;
financial data on the Advisor; any fall-out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P. ("FTP"); and information on the Advisor's
compliance program. The Board reviewed initial materials with the Advisor at the
meeting held on April 18, 2019, prior to which the Independent Trustees and
their counsel met separately to discuss the information provided by the Advisor.
Following the April meeting, independent legal counsel 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
independent legal counsel held prior to the June 2, 2019 meeting, as well as at
the meeting held that day. The Board applied its business judgment to determine
whether the arrangement between the Trust and the Advisor continues to be a
reasonable business arrangement from the Fund's perspective. The Board
determined that, given the totality of the information provided with respect to
the Agreement, the Board had received sufficient information to renew the
Agreement. The Board considered that shareholders chose to invest or remain
invested in the Fund knowing that the Advisor manages the Fund and knowing the
Fund's unitary fee.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
In reviewing the Agreement, the Board considered the nature, extent and quality
of the services provided by the Advisor under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and the Fund, and reviewed all of the services
provided by the Advisor to the Fund, as well as the background and experience of
the persons responsible for such services. The Board noted that the Fund is an
actively-managed ETF and noted that the Advisor's Leveraged Finance Investment
Team is responsible for the day-to-day management of the Fund's investments. The
Board considered the background and experience of the members of the Leveraged
Finance Investment Team and noted the Board's prior meetings with members of the
Team. The Board considered the Advisor's statement that it applies the same
oversight model internally with its Leveraged Finance Investment Team as it uses
for overseeing external sub-advisors, including portfolio risk monitoring and
performance review. In reviewing the services provided, the Board noted the
compliance program that had been developed by the Advisor and considered that it
includes a robust program for monitoring the Advisor's and the Fund's compliance
with the 1940 Act, as well as the Fund's compliance with its investment
objective, policies and restrictions. The Board also considered a report from
the Advisor with respect to its risk management functions related to the
operation of the Fund. Finally, as part of the Board's consideration of the
Advisor's services, the Advisor, in its written materials and at the April 18,
2019 meeting, described to the Board the scope of its ongoing investment in
additional infrastructure and personnel to maintain and improve the quality of
services provided to the Fund and the other funds in the First Trust Fund
Complex. In light of the information presented and the considerations made, the
Board concluded that the nature, extent and quality of the services provided to
the Trust and the Fund by the Advisor under the Agreement have been and are
expected to remain satisfactory and that the Advisor has managed the Fund
consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The
Board received and reviewed information showing the advisory or unitary fee
rates and expense ratios of the peer funds in the Expense Group, as well as
advisory and unitary fee rates charged by the Advisor to other fund (including
ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee,
the Board determined that expense ratios were the most relevant comparative data
point. Based on the information provided, the Board noted that the unitary fee
for the Fund was above the median total (net) expense ratio of the peer funds in
the Expense Group. With respect to the Expense Group, the Board, at the April
18, 2019 meeting, discussed with Broadridge its methodology for assembling peer
groups and discussed with the Advisor limitations in creating peer groups for
actively-managed ETFs, including that there were only two other actively-managed
ETFs in the Expense Group, and different business models that may affect the
pricing of services among ETF sponsors. The Board took these limitations and
differences into account in considering the peer data. With respect to fees
charged to other non-ETF clients, the Board considered differences between the
Fund and other non-ETF clients that limited their comparability. In considering
the unitary fee rate overall, the Board also considered the Advisor's statement
that it seeks to meet investor needs through innovative and value-added
investment solutions and the Advisor's description of its long-term commitment
to the Fund.
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, 2018
to the performance of the funds in the Performance Universe and a blended
benchmark index. Based on the information provided, the Board noted that the
Fund underperformed the Performance Universe median and the blended benchmark
index for the one , three- and five-year periods ended December 31, 2018. The
Board noted information provided by the Advisor on reasons for the Fund's
underperformance.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund continues to be reasonable and appropriate in light of
the nature, extent and quality of the services provided by the Advisor to the
Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. The Board considered the revenues and allocated costs (including the
allocation methodology) of the Advisor in serving as investment advisor to the
Page 35
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
Fund for the twelve months ended December 31, 2018 and the estimated
profitability level for the Fund calculated by the Advisor based on such data,
as well as complex-wide and product-line profitability data, for the same
period. The Board noted the inherent limitations in the profitability analysis
and concluded that, based on the information provided, the Advisor's
profitability level for the Fund was not unreasonable. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out benefit to the Advisor and FTP their exposure to
investors and brokers who, absent their exposure to the Fund, may have had no
dealings with the Advisor or FTP, and noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of
certain funds it manages, including First Trust Senior Loan Fund (the "Fund"),
in certain member states in the European Economic Area in accordance with the
cooperation arrangements in Article 42 of the Alternative Investment Fund
Managers Directive (the "Directive"). First Trust is required under the
Directive to make disclosures in respect of remuneration. The following
disclosures are made in line with First Trust's interpretation of currently
available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2018, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $4,856,836. This
figure is comprised of $571,909 paid (or to be paid) in fixed compensation and
$4,284,927 paid (or to be paid) in variable compensation. There were a total of
21 beneficiaries of the remuneration described above. Those amounts include
$465,926 paid (or to be paid) to senior management of First Trust Advisors L.P.
and $4,390,910 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.
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 162 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 162 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 162 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 162 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services);
President and Chief Executive Officer
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 162 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR LOAN FUND (FTSL)
OCTOBER 31, 2019 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 39
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<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Tactical High
Yield ETF (HYLS)
Annual Report
For the Year Ended
October 31, 2019
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2019
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 8
Portfolio of Investments..................................................... 9
Statement of Assets and Liabilities.......................................... 22
Statement of Operations...................................................... 23
Statements of Changes in Net Assets.......................................... 24
Statement of Cash Flows...................................................... 25
Financial Highlights......................................................... 26
Notes to Financial Statements................................................ 27
Report of Independent Registered Public Accounting Firm...................... 34
Additional Information....................................................... 35
Board of Trustees and Officers............................................... 40
Privacy Policy............................................................... 42
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Tactical High Yield ETF; hereinafter referred to as the
"Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of investing
in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2019
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Tactical High Yield ETF (the "Fund"), which contains detailed information about
the Fund for the twelve months ended October 31, 2019, including a market
overview and a performance analysis. We encourage you to read this report
carefully and discuss it with your financial advisor.
One of our responsibilities as asset managers is to be good listeners. Perhaps
the most effective way in which we do this continually is by paying close
attention to mutual fund and exchange-traded fund (ETF) money flows. After all,
investors vote with their dollars, and money flows provide valuable feedback
with respect to their biases. Over the past 12 months, we have learned that
investors, in general, have grown more risk-averse. For the 12-month period
ended October 31, 2019, investors funneled an estimated net $359.56 billion into
bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion
from equity mutual funds and ETFs, according to data from Morningstar. Over the
same period, money market funds took in an estimated net $583.27 billion. Those
figures were more balanced for the full-year 2018. Those estimated net flows
were as follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion
(bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to monitoring fund flows, we watch the performance of all the asset
classes. Market returns can either help validate or invalidate our
interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that
comprise the S&P 500(R) Index back it up. For the 12-month period ended October
31, 2019, as measured by total return, the top performers were Real Estate and
Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P
500(R) Index posted a total return of 14.33% for the period. These two sectors
are defensive in nature. They also tend to distribute cash dividends that are
often well above those sectors that are more cyclical in nature. The higher
dividend distributions likely drew the attention of fixed-income investors
dissatisfied with the current low-yield climate in the bond market, in our
opinion.
The absence of a new trade deal between the U.S. and China has been a bit of a
wet blanket on the global economy. Global growth projections have been trimmed
over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack
of any significant progress in the negotiations between the U.S. and China is a
concern, we believe a remedy will be found. Remember, as uncertain as things may
appear in the current climate, investors with diversified investment portfolios
were most likely rewarded over the past 12 months. Stay the course and stay
engaged!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
The primary investment objective of the First Trust Tactical High Yield ETF (the
"Fund") is to provide current income. The Fund's secondary investment objective
is to provide capital appreciation. Under normal market conditions, the Fund
invests at least 80% of its net assets (including investment borrowings) in high
yield debt securities that are rated below investment grade at the time of
purchase or unrated securities deemed by the Fund's advisor to be of comparable
quality. Below investment grade securities are those that, at the time of
purchase, are rated lower than "BBB-" by Standard & Poor's Ratings Group, a
division of the McGraw Hill Companies, Inc., or lower than "Baa3" by Moody's
Investors Service, Inc., or comparably rated by another nationally recognized
statistical rating organization. High yield debt securities that are rated below
investment grade are commonly referred to as "junk" debt. Such securities may
include U.S. and non-U.S. corporate debt obligations, bank loans and convertible
bonds. For purposes of determining whether a security is below investment grade,
the lowest available rating will be considered. The Fund may invest up to 10% of
its net assets (including investment borrowings) in non-U.S. securities
denominated in non-U.S. currencies. The Fund may invest in non-income producing
securities including Distressed Securities (defined below) and common stocks.
Companies whose financial condition is troubled or uncertain and that may be
involved in bankruptcy proceedings, reorganizations or financial restructurings
are referred to herein as "Distressed Securities." The Fund invests no more than
15% of its net assets in Distressed Securities, as determined at the time of the
investment. The Fund may also invest in investment grade corporate debt
obligations and government securities to manage overall credit and duration
risk. The Fund does not have any portfolio maturity limitation and may invest
its assets in securities with short-term, medium-term or long-term maturities.
The Fund may, under normal market conditions, invest up to 40% of its net assets
(including investment borrowings) in bank loans; however the Fund invests no
more than 15% of its net assets (including investment borrowings) in junior
loans, and all other bank loans in which the Fund invests are first lien senior
secured floating rate bank loans. The Fund may, under normal market conditions,
invest up to 30% of its net assets (including investment borrowings) in U.S.
exchange-traded options on futures contracts and U.S. exchange-traded futures
contracts. There can be no assurance that the Fund's investment objective will
be achieved. The Fund may not be appropriate for all investors.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (2/25/13) 5 Years Ended Inception (2/25/13)
10/31/19 10/31/19 to 10/31/19 10/31/19 to 10/31/19
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 7.90% 4.36% 5.13% 23.78% 39.70%
Market Price 7.99% 4.40% 5.13% 24.05% 39.66%
INDEX PERFORMANCE
ICE BofAML US High Yield
Constrained Index 8.32% 5.18% 5.44% 28.72% 42.49%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative Annual
Total Returns" represent the total change in value of an investment over the
periods indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint 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 the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of the shares of
the Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
-----------------------------------------------------------
% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS(1)
-----------------------------------------------------------
Media 16.5%
Health Care Providers & Services 14.1
Hotels, Restaurants & Leisure 12.5
Insurance 8.3
Software 7.2
Pharmaceuticals 5.5
Diversified Financial Services 3.7
Diversified Telecommunication
Services 3.2
Real Estate Management &
Development 2.9
Building Products 2.4
Containers & Packaging 2.4
Technology Hardware, Storage &
Peripherals 1.7
Food Products 1.7
Diversified Consumer Services 1.7
Food & Staples Retailing 1.6
Life Sciences Tools & Services 1.6
Auto Components 1.5
Health Care Technology 1.2
Commercial Services & Supplies 1.2
Oil, Gas & Consumable Fuels 1.2
Aerospace & Defense 1.1
Entertainment 1.0
Capital Markets 1.0
Professional Services 0.9
Wireless Telecommunication Services 0.7
Household Durables 0.6
Trading Companies & Distributors 0.4
Consumer Finance 0.4
Specialty Retail 0.4
Equity Real Estate Investment Trusts
(REITs) 0.3
Independent Power and Renewable
Electricity Producers 0.3
Electric Utilities 0.2
IT Services 0.2
Metals & Mining 0.2
Communications Equipment 0.1
Electronic Equipment, Instruments &
Components 0.1
Semiconductors Equipment & Products 0.0*
Health Care Equipment & Supplies 0.0*
Chemicals 0.0*
Industrial Conglomerates 0.0*
--------
Total 100.0%
========
* Amount is less than 0.1%.
-----------------------------------------------------------
% OF TOTAL LONG-TERM
ASSET CLASSIFICATION INVESTMENTS(1)
-----------------------------------------------------------
Corporate Bonds 57.8%
Senior Floating-Rate Loan Interests 35.8
Foreign Corporate Bonds 6.4
Rights 0.0*
--------
Total 100.0%
========
-----------------------------------------------------------
% OF SENIOR LOANS
AND OTHER
CREDIT QUALITY (S&P RATINGS)(2) DEBT SECURITIES(1)
-----------------------------------------------------------
BBB- 2.5%
BB+ 2.3
BB 11.2
BB- 14.8
B+ 17.2
B 23.9
B- 19.2
CCC+ 7.8
CCC 1.1
D 0.0*
--------
Total 100.0%
========
-----------------------------------------------------------
% OF TOTAL LONG-TERM
TOP 10 ISSUERS INVESTMENTS(1)
-----------------------------------------------------------
Bausch Health Cos., Inc. (Valeant) 3.2%
Tenet Healthcare Corp. 3.1
HUB International Ltd. 3.0
Cablevision (aka CSC Holdings, LLC) 2.8
Sinclair Television Group, Inc. 2.6
Gray Television, Inc. 2.4
AmWINS Group, Inc. 2.3
Nexstar Broadcasting, Inc. 2.0
MPH Acquisition Holdings, LLC 1.8
Stars Group Holdings B.V. (Amaya) 1.8
--------
Total 25.0%
========
(1) Percentages are based on the long positions only. Money market funds and
short positions are excluded.
(2) The ratings are by Standard & Poor's Rating Group, a division of the
McGraw-Hill Companies, Inc. A credit rating is an assessment provided by a
nationally recognized statistical rating organization (NRSRO) of the
creditworthiness of an issuer with respect to debt obligations except for
those debt obligations that are only privately rated. Ratings are measured
on a scale that generally ranges from AAA (highest) to D (lowest).
Investment grade is defined as those issuers that have a long-term credit
rating of BBB- or higher. The credit ratings shown relate to the
creditworthiness of the issuers of the underlying securities in the Fund,
and not to the Fund or its shares. Credit ratings are subject to change.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 25, 2013 - OCTOBER 31, 2019
First Trust Tactical ICE BofAML US High
High Yield ETF Yield Constrained Index
<S> <C> <C>
2/25/13 $10,000 $10,000
4/30/13 10,403 10,308
10/31/13 10,676 10,458
4/30/14 11,167 10,956
10/31/14 11,285 11,070
4/30/15 11,493 11,238
10/31/15 11,376 10,845
4/30/16 11,519 11,089
10/31/16 11,933 11,950
4/30/17 12,431 12,602
10/31/17 12,744 13,042
4/30/18 12,748 13,012
10/31/18 12,948 13,154
4/30/19 13,650 13,885
10/31/19 13,970 14,249
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 November 1, 2014 through
October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/1/14 - 10/31/15 177 8 2 0 60 4 0 0
11/1/15 - 10/31/16 201 7 0 0 42 2 0 0
11/1/16 - 10/31/17 197 1 0 0 53 1 0 0
11/1/17 - 10/31/18 133 1 0 0 118 0 0 0
11/1/18 - 10/31/19 165 1 0 0 81 4 0 0
</TABLE>
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
ADVISOR
The First Trust Advisors L.P. ("First Trust") Leveraged Finance Team is
comprised of 15 experienced investment professionals specializing in below
investment grade securities. The team is comprised of portfolio management,
research, trading and operations personnel. As of October 31, 2019, the First
Trust Leveraged Finance Team managed or supervised approximately $4.2 billion in
senior secured bank loans and high-yield bonds. These assets are managed across
various strategies, including two closed-end funds, an open-end fund, four
exchange-traded funds, and a series of unit investment trusts on behalf of
retail and institutional clients.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA - MANAGING DIRECTOR OF FIXED INCOME, SENIOR PORTFOLIO
MANAGER
SCOTT D. FRIES, CFA - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
ORLANDO PURPURA, CFA, CMT - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
COMMENTARY
The First Trust Tactical High Yield ETF (the "Fund") is an actively managed
exchanged-traded fund ("ETF"). The Fund's primary investment objective is to
provide current income, with a secondary objective of capital appreciation.
MARKET RECAP
Near the end of 2018, concerns surrounding slower global growth, the Federal
Reserve (the "Fed") increasing interest rates too quickly and trade tensions
between the U.S. and China led to risk assets trading lower. Early in 2019, the
Fed signaled that it would wait for economic data to show continued signs of
strength before electing to continue tightening. Investors responded positively
to this news and markets quickly rebounded at the beginning of 2019. In July
2019, the Fed announced that it would cut interest rates as U.S. economic data
started to show signs of weakness. The Fed went on to cut interest rates two
more times during September and October, ostensibly to mitigate any fallout from
U.S.-China trade tensions. The combination of an easing Fed and improving
U.S.-China trade relations propelled the S&P 500(R) Index to new highs in the
year.
High-Yield Bond Market
High-yield bond spreads over U.S. Treasuries increased 34 basis points ("bps")
to end the period at T+415 bps as of October 31, 2019. The spread is inside the
long-term average spread over U.S. Treasuries of T+566 bps (December 1997 -
October 2019).
Higher quality high-yield bonds (BB rated) outperformed lower quality high-yield
bonds (B rated or below) in the period, which was a reversal of the trend from
the prior year period. High-yield bond issues rated BB returned 11.79%,
outperforming the 7.57% return of B rated issues, and outperforming the -1.94%
return of issues rated CCC in the period. The average price of high-yield bonds
in the market at the beginning of the period was $96.40. The price dropped to
$92.31 at the end of December 2018 driven by the broader market sell off, and
subsequently increased steadily for the better part of the year to end the
period with an average price of $99.09.
Senior Loan Market
Senior loan spreads over 3-month London Interbank Offered Rate ("LIBOR")
increased 126 bps during the 12-month period ended October 31, 2019 to L+515
bps. This is above the pre-credit crisis average spread of L+372 (December 1997
- June 2007) and is in-line with the long-term average spread of L+513 (December
1997 - October 2019). As of October 31, 2019, retail senior loan funds have
experienced 13 consecutive months of outflows, however this has been more than
offset by institutional demand. On a yield basis, senior loans ended the
12-month period yielding more than high-yield bonds for five consecutive months.
The last time senior loans offered more yield than high-yield bonds in
consecutive months was in August and September of 2007.
Higher quality senior loans outperformed lower quality senior loans for the
12-month period ended October 31, 2019, a reversal of the trend experienced in
the prior 12-month period. BB rated issues returned 4.09%, outperforming the
2.48% return of B rated issues, and outperforming the -4.30% return of CCC rated
issues in the period. The average price of senior loans in the market decreased
from $98.14 in the beginning of the period to $95.42 at the end of the period.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
Default Rates
During the 12-month period ended October 31, 2019, default rates increased
marginally within the high-yield bond universe but decreased within the S&P/LSTA
Leveraged Loan Index. The last twelve months ("LTM") default rate within the
high-yield bond market ended the period at 2.54% compared to the 2.02% default
rate as of October 31, 2018. The senior loan market ended the period at 1.43%
compared to the 1.92% default rate as of October 31, 2018. Despite the increase
in default rates in high-yield bonds, defaults in both the senior loan market
and high-yield bond market remain low by historical standards. We believe the
low default rate is reflective of the relatively sound financial condition of
most companies, the lack of near-term debt maturities, and the strong backdrop
of a healthy macroeconomic environment.
FUND PERFORMANCE
The Fund returned 7.90% on a net asset value ("NAV") basis and 7.99% on a market
price basis over the 12-month period ended October 31, 2019. The ICE BofAML US
High Yield Constrained Index (the "Index") returned 8.32% over the same period.
The Fund held 277 individual positions diversified across 40 industries at the
end of the reporting period. Media (16.50%), Health Care Providers & Services
(14.15%), and Hotels, Restaurants & Leisure (12.49%) were the Fund's top three
industry exposures at the end of the period. By comparison, the Fund held 286
individual positions across 41 industries as of October 31, 2018. The Fund's
duration as of October 31, 2019 was 1.77 years.
During the period the Fund's performance benefitted from its underweight
position in the energy industry, its asset selection and overweight position in
the media industry and the Fund's use of leverage. The energy industry was one
of the worst performing industry in the Index during the period. The average
weight to the energy industry in the Index during the period was approximately
14%, while the Fund had an approximately 2% allocation to the energy industry.
Within the media industry the Fund's overweight position in several television
broadcasting companies outperformed the broader media industry. The television
broadcasters are expected to benefit heavily from advertising spend during the
2020 election year. Finally, the Fund utilized a modest amount of leverage
throughout the period, which was a tailwind to performance relative to the Index
given that high-yield bond returns outpaced the cost of borrowing.
Offsetting these contributors were the Fund's position in senior loans and its
asset selection within the healthcare and technology & electronics industries.
Senior loans underperformed high-yield bonds during the period by 565 bps
(senior loans returned 2.67% as measured by the S&P/LSTA Leveraged Loan Index).
The Fund increased its position in senior loans from 33.69% as of October 31,
2018 to 35.86% as of October 31, 2019, close to the Fund's maximum 40%
allocation cap for senior loans. We believe that senior loans provide compelling
value given their current yields relative to high-yield bonds, their senior
secured position in the capital structure, and the low default rate environment
relative to the historical average default rate. Within the healthcare industry
the Fund's holdings in a physician management services company, a healthcare
cost management solutions company, and drug manufacturer underperformed the
broader healthcare industry during the period. Within the technology &
electronics industry, the Fund's holdings in three software companies
underperformed the broad technology & electronics industry.
The Fund's most recent monthly distribution of $0.195 per share is $0.02 per
share lower than the monthly distribution paid in October 2018. At the end of
the period, the effective yield based on the distributions for the trailing
twelve months was 5.36% based on NAV and 5.37% based on market price.
MARKET AND FUND OUTLOOK
Within the high-yield bond market, spreads are tight relative to the long-term
average spread over U.S. Treasuries, however, we believe that the highest
quality (BB rated) high-yield bonds are the most expensive today, trading near
their richest levels in a decade. We believe there is room for further
tightening in this cycle for the high-yield market given that spreads remain
wide of the lowest spreads experienced in the last business cycle (T+245 in May
2007) and fundamentals for high-yield issuers remain sound, in our view. We
would expect any spread tightening to come from the lower rated (B and CCC)
areas of the high-yield market given how much those areas have lagged the higher
quality returns over the past year. We believe there is better value in secured
Page 6
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
loans relative to the BB segment of the high-yield bond market and have tilted
our exposure higher to senior loans, as a result. Moreover, even though the
default rate within the high-yield bond market has marginally increased during
the period, the default rate is reflective of the relatively sound financial
condition of most companies and the strong backdrop of a healthy macroeconomic
environment, in our opinion.
We believe that the favorable backdrop for the macro economy will persist for
the near to intermediate term and that we are in a healthy part of the economic
cycle to own high-yield bonds and senior loans. As we evaluate new investment
opportunities, decisions will continue to be rooted in our rigorous bottom-up
credit analysis and our focus will remain on identifying the opportunities that
we believe offer the best risk and reward balance.
Page 7
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2019 (UNAUDITED)
As a shareholder of First Trust Tactical High Yield ETF (the "Fund"), you incur
two types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service fees, if any, and other Fund
expenses. This Example is intended to help you understand your ongoing costs of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2019.
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 period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO
BEGINNING ENDING BASED ON THE EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE
MAY 1, 2019 OCTOBER 31, 2019 PERIOD SIX-MONTH PERIOD (a)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
Actual $1,000.00 $1,023.50 1.11% $5.66
Hypothetical (5% return before expenses) $1,000.00 $1,019.61 1.11% $5.65
</TABLE>
(a) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2019
through October 31, 2019), multiplied by 184/365 (to reflect the six-month
period).
Page 8
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS -- 57.6%
ALTERNATIVE CARRIERS -- 0.9%
$ 420,000 Level 3 Financing, Inc.......................................... 5.38% 08/15/22 $ 421,680
500,000 Level 3 Financing, Inc.......................................... 5.13% 05/01/23 508,125
2,000,000 Level 3 Financing, Inc.......................................... 5.38% 01/15/24 2,045,000
3,000,000 Level 3 Financing, Inc. (a)..................................... 4.63% 09/15/27 3,060,000
7,437,000 Level 3 Parent LLC.............................................. 5.75% 12/01/22 7,474,185
---------------
13,508,990
---------------
APPLICATION SOFTWARE -- 0.7%
9,320,000 Infor US, Inc................................................... 6.50% 05/15/22 9,483,100
---------------
AUTO PARTS & EQUIPMENT -- 0.7%
7,061,000 American Axle & Manufacturing, Inc.............................. 6.63% 10/15/22 7,113,957
2,723,000 American Axle & Manufacturing, Inc.............................. 6.25% 04/01/25 2,634,503
---------------
9,748,460
---------------
AUTOMOTIVE RETAIL -- 0.4%
1,092,000 IAA, Inc. (a)................................................... 5.50% 06/15/27 1,172,699
3,819,000 KAR Auction Services, Inc. (a).................................. 5.13% 06/01/25 4,005,176
---------------
5,177,875
---------------
BROADCASTING -- 10.0%
5,000,000 Cumulus Media New Holdings, Inc. (a)............................ 6.75% 07/01/26 5,312,500
2,090,000 Diamond Sports Group LLC / Diamond Sports Finance Co. (a)....... 5.38% 08/15/26 2,189,275
7,879,000 Diamond Sports Group LLC / Diamond Sports Finance Co. (a)....... 6.63% 08/15/27 8,135,067
5,580,000 EW Scripps (The) Co. (a)........................................ 5.13% 05/15/25 5,670,675
26,086,000 Gray Television, Inc. (a)....................................... 5.88% 07/15/26 27,488,644
5,500,000 Gray Television, Inc. (a)....................................... 7.00% 05/15/27 6,036,250
1,600,000 iHeartCommunications, Inc. (a).................................. 5.25% 08/15/27 1,654,720
4,200,000 Nexstar Broadcasting, Inc. (a).................................. 6.13% 02/15/22 4,268,250
1,375,000 Nexstar Broadcasting, Inc....................................... 5.88% 11/15/22 1,399,063
16,392,000 Nexstar Broadcasting, Inc. (a).................................. 5.63% 08/01/24 17,144,065
5,187,000 Nexstar Broadcasting, Inc. (a).................................. 5.63% 07/15/27 5,483,696
12,355,000 Scripps Escrow, Inc. (a)........................................ 5.88% 07/15/27 12,691,056
19,421,000 Sinclair Television Group, Inc. (a)............................. 5.63% 08/01/24 20,052,183
10,599,000 Sinclair Television Group, Inc. (a)............................. 5.88% 03/15/26 11,115,701
5,394,000 Sinclair Television Group, Inc. (a)............................. 5.13% 02/15/27 5,488,395
1,500,000 Sirius XM Radio, Inc. (a)....................................... 4.63% 07/15/24 1,571,250
8,000,000 TEGNA, Inc. (a)................................................. 5.00% 09/15/29 8,120,000
---------------
143,820,790
---------------
BUILDING PRODUCTS -- 1.3%
1,000,000 American Builders & Contractors Supply Co., Inc. (a)............ 4.00% 01/15/28 1,000,000
3,789,000 CEMEX Finance LLC (a)........................................... 6.00% 04/01/24 3,892,440
235,000 Jeld-Wen, Inc. (a).............................................. 4.63% 12/15/25 233,237
2,085,000 Jeld-Wen, Inc. (a).............................................. 4.88% 12/15/27 2,048,513
6,785,000 Lennar Corp..................................................... 5.25% 06/01/26 7,488,944
2,500,000 Standard Industries, Inc. (a)................................... 5.50% 02/15/23 2,561,750
417,000 Standard Industries, Inc. (a)................................... 5.38% 11/15/24 430,052
295,000 Standard Industries, Inc. (a)................................... 6.00% 10/15/25 311,225
892,000 Standard Industries, Inc. (a)................................... 5.00% 02/15/27 933,255
---------------
18,899,416
---------------
CABLE & SATELLITE -- 3.9%
2,133,000 Cablevision Systems Corp........................................ 8.00% 04/15/20 2,191,657
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
CABLE & SATELLITE (CONTINUED)
$ 1,500,000 CCO Holdings LLC / CCO Holdings Capital Corp.................... 5.75% 01/15/24 $ 1,540,800
2,175,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.88% 04/01/24 2,272,875
5,076,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.75% 02/15/26 5,372,946
1,500,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.50% 05/01/26 1,584,375
2,828,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.13% 05/01/27 2,987,075
500,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.38% 06/01/29 535,000
2,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.75% 03/01/30 2,044,400
12,107,000 CSC Holdings LLC (a)............................................ 7.75% 07/15/25 13,015,025
9,183,000 CSC Holdings LLC (a)............................................ 5.50% 05/15/26 9,699,544
819,000 CSC Holdings LLC (a)............................................ 5.50% 04/15/27 870,196
1,800,000 CSC Holdings LLC (a)............................................ 5.38% 02/01/28 1,908,000
800,000 CSC Holdings LLC (a)............................................ 7.50% 04/01/28 906,000
10,200,000 CSC Holdings LLC (a)............................................ 5.75% 01/15/30 10,735,500
26,000 Mediacom Broadband LLC / Mediacom Broadband Corp................ 5.50% 04/15/21 26,097
---------------
55,689,490
---------------
CASINOS & GAMING -- 6.0%
2,955,000 Boyd Gaming Corp................................................ 6.38% 04/01/26 3,150,769
17,488,000 Caesars Resort Collection LLC / CRC Finco, Inc. (a)............. 5.25% 10/15/25 17,947,060
3,863,000 Eldorado Resorts, Inc........................................... 6.00% 04/01/25 4,080,294
426,000 Eldorado Resorts, Inc........................................... 6.00% 09/15/26 469,132
4,430,000 Golden Nugget, Inc. (a)......................................... 6.75% 10/15/24 4,574,418
3,000,000 Golden Nugget, Inc. (a)......................................... 8.75% 10/01/25 3,165,000
1,500,000 MGM Growth Properties Operating Partnership LP / MGP
Finance Co-Issuer, Inc. (a).................................. 5.75% 02/01/27 1,696,875
8,600,000 MGM Resorts International....................................... 7.75% 03/15/22 9,632,000
5,100,000 MGM Resorts International....................................... 6.00% 03/15/23 5,637,132
6,950,000 MGM Resorts International....................................... 5.75% 06/15/25 7,740,562
1,000,000 MGM Resorts International....................................... 5.50% 04/15/27 1,102,500
4,439,000 Penn National Gaming, Inc. (a).................................. 5.63% 01/15/27 4,594,365
10,045,000 Station Casinos LLC (a)......................................... 5.00% 10/01/25 10,208,231
4,000,000 Twin River Worldwide Holdings, Inc. (a)......................... 6.75% 06/01/27 4,221,200
5,500,000 Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. (a)........... 5.50% 03/01/25 5,857,500
2,410,000 Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. (a)........... 5.25% 05/15/27 2,515,438
---------------
86,592,476
---------------
COAL & CONSUMABLE FUELS -- 0.1%
483,000 Peabody Energy Corp. (a)........................................ 6.00% 03/31/22 449,190
967,000 Peabody Energy Corp. (a)........................................ 6.38% 03/31/25 798,984
---------------
1,248,174
---------------
CONSUMER FINANCE -- 0.4%
5,406,000 FirstCash, Inc. (a)............................................. 5.38% 06/01/24 5,622,240
---------------
DIVERSIFIED METALS & MINING -- 0.2%
2,500,000 Freeport-McMoRan, Inc........................................... 5.00% 09/01/27 2,559,375
---------------
DIVERSIFIED REAL ESTATE ACTIVITIES -- 1.8%
5,810,000 KB Home......................................................... 7.00% 12/15/21 6,271,895
1,883,000 KB Home......................................................... 7.63% 05/15/23 2,148,974
1,000,000 Meritage Homes Corp............................................. 7.00% 04/01/22 1,096,250
4,302,000 PulteGroup, Inc................................................. 5.50% 03/01/26 4,835,448
500,000 Taylor Morrison Communities, Inc. (a)........................... 5.75% 01/15/28 555,000
290,000 TRI Pointe Group, Inc........................................... 5.25% 06/01/27 301,600
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
DIVERSIFIED REAL ESTATE ACTIVITIES (CONTINUED)
$ 9,914,000 TRI Pointe Group, Inc. / TRI Pointe Homes, Inc.................. 5.88% 06/15/24 $ 10,707,120
---------------
25,916,287
---------------
ELECTRIC UTILITIES -- 0.2%
3,000,000 Vistra Operations Co. LLC (a)................................... 5.63% 02/15/27 3,191,250
---------------
FERTILIZERS & AGRICULTURAL CHEMICALS -- 0.0%
250,000 Scotts Miracle-Gro (The) Co. (a)................................ 4.50% 10/15/29 251,875
---------------
FOOD RETAIL -- 0.2%
3,000,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP /
Albertsons LLC (a)........................................... 5.88% 02/15/28 3,210,000
---------------
HEALTH CARE EQUIPMENT -- 0.0%
250,000 Hill-Rom Holdings, Inc. (a)..................................... 4.38% 09/15/27 258,125
---------------
HEALTH CARE FACILITIES -- 5.7%
3,000,000 Acadia Healthcare Co., Inc...................................... 5.63% 02/15/23 3,060,000
2,318,000 Acadia Healthcare Co., Inc...................................... 6.50% 03/01/24 2,410,720
250,000 Encompass Health Corp........................................... 5.13% 03/15/23 255,625
13,111,000 Encompass Health Corp........................................... 5.75% 11/01/24 13,283,082
250,000 Encompass Health Corp........................................... 5.75% 09/15/25 262,187
200,000 Encompass Health Corp........................................... 4.50% 02/01/28 205,000
200,000 Encompass Health Corp........................................... 4.75% 02/01/30 206,750
1,000,000 HCA, Inc........................................................ 5.38% 02/01/25 1,101,250
6,530,000 HCA, Inc........................................................ 5.88% 02/15/26 7,362,575
7,000,000 Select Medical Corp. (a)........................................ 6.25% 08/15/26 7,472,500
29,514,000 Tenet Healthcare Corp........................................... 8.13% 04/01/22 32,024,166
7,492,000 Tenet Healthcare Corp. (a)...................................... 4.88% 01/01/26 7,763,585
4,281,000 Tenet Healthcare Corp. (a)...................................... 5.13% 11/01/27 4,457,591
1,000,000 Universal Health Services, Inc. (a)............................. 5.00% 06/01/26 1,053,750
---------------
80,918,781
---------------
HEALTH CARE SERVICES -- 2.2%
6,800,000 DaVita, Inc..................................................... 5.13% 07/15/24 6,958,236
1,976,000 DaVita, Inc..................................................... 5.00% 05/01/25 2,003,565
11,225,000 MEDNAX, Inc. (a)................................................ 5.25% 12/01/23 11,393,375
8,821,000 MEDNAX, Inc. (a)................................................ 6.25% 01/15/27 8,754,843
1,751,000 Vizient, Inc. (a)............................................... 6.25% 05/15/27 1,892,708
---------------
31,002,727
---------------
HEALTH CARE TECHNOLOGY -- 1.1%
14,663,000 Change Healthcare Holdings LLC / Change Healthcare Finance,
Inc. (a)..................................................... 5.75% 03/01/25 15,058,168
---------------
HOTELS, RESORTS & CRUISE LINES -- 0.3%
4,000,000 Hilton Worldwide Finance LLC / Hilton Worldwide Finance
Corp......................................................... 4.63% 04/01/25 4,120,000
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.4%
5,000,000 Tempo Acquisition LLC / Tempo Acquisition Finance Corp. (a)..... 6.75% 06/01/25 5,168,750
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.3%
4,016,000 Calpine Corp.................................................... 5.38% 01/15/23 4,091,099
---------------
INDUSTRIAL CONGLOMERATES -- 0.0%
235,000 RBS Global, Inc. / Rexnord LLC (a).............................. 4.88% 12/15/25 243,519
---------------
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INSURANCE BROKERS -- 3.8%
$ 5,000,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (a)................................................ 6.75% 10/15/27 $ 5,213,050
21,319,000 AmWINS Group, Inc. (a).......................................... 7.75% 07/01/26 23,024,520
12,724,000 HUB International Ltd. (a)...................................... 7.00% 05/01/26 13,121,625
13,205,000 USI, Inc. (a)................................................... 6.88% 05/01/25 13,469,100
---------------
54,828,295
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 1.3%
4,820,000 CenturyLink, Inc................................................ 5.80% 03/15/22 5,115,225
12,851,000 Zayo Group LLC / Zayo Capital, Inc. (a)......................... 5.75% 01/15/27 13,093,627
---------------
18,208,852
---------------
INVESTMENT BANKING & BROKERAGE -- 0.4%
5,740,000 LPL Holdings, Inc. (a).......................................... 5.75% 09/15/25 5,969,600
---------------
IT CONSULTING & OTHER SERVICES -- 0.2%
725,000 CDK Global, Inc................................................. 5.88% 06/15/26 778,469
2,000,000 CDK Global, Inc................................................. 4.88% 06/01/27 2,117,500
---------------
2,895,969
---------------
LEISURE FACILITIES -- 2.3%
250,000 Cedar Fair LP (a)............................................... 5.25% 07/15/29 269,375
1,850,000 Cedar Fair LP / Canada's Wonderland Co. / Magnum
Management Corp. / Millennium Op............................. 5.38% 04/15/27 1,979,500
12,320,000 Constellation Merger Sub, Inc. (a).............................. 8.50% 09/15/25 8,716,400
20,250,000 Six Flags Entertainment Corp. (a)............................... 4.88% 07/31/24 20,958,750
1,000,000 Six Flags Entertainment Corp. (a)............................... 5.50% 04/15/27 1,050,000
---------------
32,974,025
---------------
LIFE SCIENCES TOOLS & SERVICES -- 0.6%
800,000 IQVIA, Inc. (a)................................................. 5.00% 10/15/26 847,000
7,683,000 Jaguar Holding Co. II / Pharmaceutical Product Development
LLC (a)...................................................... 6.38% 08/01/23 7,971,113
---------------
8,818,113
---------------
MANAGED HEALTH CARE -- 2.5%
2,667,000 Centene Corp.................................................... 6.13% 02/15/24 2,776,187
27,702,000 MPH Acquisition Holdings LLC (a)................................ 7.13% 06/01/24 25,764,245
8,124,000 Polaris Intermediate Corp. (a) (b).............................. 8.50% 12/01/22 6,844,470
---------------
35,384,902
---------------
METAL & GLASS CONTAINERS -- 0.6%
2,000,000 Berry Global, Inc............................................... 5.50% 05/15/22 2,035,000
5,550,000 Owens-Brockway Glass Container, Inc. (a)........................ 6.38% 08/15/25 5,876,062
---------------
7,911,062
---------------
MOVIES & ENTERTAINMENT -- 0.8%
5,603,000 AMC Entertainment Holdings, Inc................................. 5.75% 06/15/25 5,344,422
4,254,000 Cinemark USA, Inc............................................... 4.88% 06/01/23 4,328,445
828,000 Live Nation Entertainment, Inc. (a)............................. 5.63% 03/15/26 883,890
1,000,000 Live Nation Entertainment, Inc. (a)............................. 4.75% 10/15/27 1,045,100
---------------
11,601,857
---------------
OIL & GAS EXPLORATION & PRODUCTION -- 0.0%
3,250,000 Sanchez Energy Corp. (c) (d) (e)................................ 7.75% 06/15/21 162,500
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
OIL & GAS EXPLORATION & PRODUCTION (CONTINUED)
$ 3,125,000 Sanchez Energy Corp. (c) (d) (e)................................ 6.13% 01/15/23 $ 156,250
---------------
318,750
---------------
OIL & GAS REFINING & MARKETING -- 0.0%
415,000 Murphy Oil USA, Inc............................................. 5.63% 05/01/27 447,460
---------------
OIL & GAS STORAGE & TRANSPORTATION -- 1.0%
14,533,000 Crestwood Midstream Partners LP / Crestwood Midstream
Finance Corp................................................. 6.25% 04/01/23 14,855,633
---------------
PACKAGED FOODS & MEATS -- 1.6%
2,190,000 B&G Foods, Inc.................................................. 5.25% 04/01/25 2,244,750
250,000 Performance Food Group, Inc. (a)................................ 5.50% 10/15/27 265,625
6,315,000 Post Holdings, Inc. (a)......................................... 5.50% 03/01/25 6,639,275
8,996,000 Post Holdings, Inc. (a)......................................... 5.00% 08/15/26 9,390,475
3,240,000 Post Holdings, Inc. (a)......................................... 5.75% 03/01/27 3,465,601
1,000,000 Post Holdings, Inc. (a)......................................... 5.50% 12/15/29 1,056,700
---------------
23,062,426
---------------
PAPER PACKAGING -- 1.2%
16,543,000 Reynolds Group Issuer, Inc. / Reynolds Group Issuer LLC /
Reynolds Group Issuer Lu (a)................................. 7.00% 07/15/24 17,153,023
---------------
PHARMACEUTICALS -- 0.9%
500,000 Catalent Pharma Solutions, Inc. (a)............................. 5.00% 07/15/27 523,750
250,000 Charles River Laboratories International, Inc. (a).............. 4.25% 05/01/28 255,337
4,028,000 Eagle Holding Co. II LLC (a) (f)................................ 7.63% 05/15/22 4,073,315
1,000,000 Eagle Holding Co. II LLC (a) (g)................................ 7.75% 05/15/22 1,017,500
6,500,000 Horizon Pharma USA, Inc. (a).................................... 5.50% 08/01/27 6,800,625
---------------
12,670,527
---------------
REAL ESTATE SERVICES -- 0.1%
1,738,000 Realogy Group LLC / Realogy Co-Issuer Corp. (a)................. 5.25% 12/01/21 1,746,690
---------------
RESTAURANTS -- 0.0%
661,000 Brinker International, Inc. (a)................................. 5.00% 10/01/24 704,378
---------------
SECURITY & ALARM SERVICES -- 0.1%
2,061,000 Brink's (The) Co. (a)........................................... 4.63% 10/15/27 2,091,915
---------------
SEMICONDUCTORS -- 0.0%
350,000 Qorvo, Inc. (a)................................................. 4.38% 10/15/29 352,625
---------------
SPECIALIZED CONSUMER SERVICES -- 0.2%
2,000,000 Aramark Services, Inc........................................... 4.75% 06/01/26 2,057,500
481,000 Aramark Services, Inc. (a)...................................... 5.00% 02/01/28 503,847
---------------
2,561,347
---------------
SYSTEMS SOFTWARE -- 0.2%
2,000,000 SS&C Technologies, Inc. (a)..................................... 5.50% 09/30/27 2,143,750
---------------
TECHNOLOGY DISTRIBUTORS -- 0.1%
1,000,000 CDW LLC / CDW Finance Corp...................................... 4.25% 04/01/28 1,037,600
---------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 1.7%
1,222,000 Dell International LLC / EMC Corp. (a).......................... 5.88% 06/15/21 1,242,322
15,150,000 Dell International LLC / EMC Corp. (a).......................... 7.13% 06/15/24 16,081,725
6,440,000 Dell International LLC / EMC Corp. (a).......................... 6.02% 06/15/26 7,355,990
---------------
24,680,037
---------------
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS -- 0.5%
$ 940,000 Ashtead Capital, Inc. (a)....................................... 4.13% 08/15/25 $ 963,500
250,000 Ashtead Capital, Inc. (a)....................................... 4.00% 05/01/28 251,562
250,000 United Rentals North America, Inc............................... 5.50% 07/15/25 260,613
2,948,000 United Rentals North America, Inc............................... 5.88% 09/15/26 3,134,225
764,000 United Rentals North America, Inc............................... 6.50% 12/15/26 829,895
945,000 United Rentals North America, Inc............................... 5.50% 05/15/27 1,001,700
---------------
6,441,495
---------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.7%
7,769,000 SBA Communications Corp......................................... 4.88% 09/01/24 8,099,183
1,180,000 T-Mobile USA, Inc............................................... 5.13% 04/15/25 1,230,504
416,000 T-Mobile USA, Inc............................................... 4.50% 02/01/26 430,560
---------------
9,760,247
---------------
TOTAL CORPORATE BONDS........................................................................ 824,401,545
(Cost $808,364,203) ---------------
FOREIGN CORPORATE BONDS -- 6.3%
APPLICATION SOFTWARE -- 0.1%
1,000,000 Open Text Corp. (a)............................................. 5.88% 06/01/26 1,068,750
---------------
BUILDING PRODUCTS -- 0.8%
9,000,000 Cemex SAB de C.V. (a)........................................... 7.75% 04/16/26 9,731,340
100,000 Masonite International Corp. (a)................................ 5.75% 09/15/26 106,500
1,000,000 Masonite International Corp. (a)................................ 5.38% 02/01/28 1,061,250
---------------
10,899,090
---------------
CABLE & SATELLITE -- 1.2%
6,183,000 Virgin Media Finance PLC (a).................................... 6.00% 10/15/24 6,399,405
1,654,000 Virgin Media Finance PLC (a).................................... 5.75% 01/15/25 1,709,822
7,073,000 Virgin Media Secured Finance PLC (a)............................ 5.50% 08/15/26 7,453,174
2,000,000 Virgin Media Secured Finance PLC (a)............................ 5.50% 05/15/29 2,130,000
---------------
17,692,401
---------------
CASINOS & GAMING -- 0.0%
300,000 International Game Technology PLC (a)........................... 6.25% 02/15/22 317,250
200,000 International Game Technology PLC (a)........................... 6.25% 01/15/27 224,250
---------------
541,500
---------------
DIVERSIFIED REAL ESTATE ACTIVITIES -- 0.5%
5,346,000 Taylor Morrison Communities, Inc. / Taylor Morrison Holdings II,
Inc. (a)..................................................... 5.88% 04/15/23 5,800,410
804,000 Taylor Morrison Communities, Inc. / Taylor Morrison Holdings II,
Inc. (a)..................................................... 5.63% 03/01/24 871,335
---------------
6,671,745
---------------
DIVERSIFIED SUPPORT SERVICES -- 0.1%
950,000 Ritchie Bros Auctioneers, Inc. (a).............................. 5.38% 01/15/25 995,125
---------------
METAL & GLASS CONTAINERS -- 0.2%
3,200,000 Trivium Packaging Finance B.V. (a).............................. 5.50% 08/15/26 3,360,000
---------------
PHARMACEUTICALS -- 2.6%
4,895,000 Bausch Health Cos., Inc. (a).................................... 5.88% 05/15/23 4,986,782
29,000,000 Bausch Health Cos., Inc. (a).................................... 6.13% 04/15/25 30,178,125
4,250,000 Mallinckrodt International Finance SA/Mallinckrodt CB
LLC (a)...................................................... 5.75% 08/01/22 1,700,000
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS (CONTINUED)
PHARMACEUTICALS (CONTINUED)
$ 1,000,000 Mallinckrodt International Finance SA/Mallinckrodt CB
LLC (a)...................................................... 5.63% 10/15/23 $ 365,000
1,750,000 Mallinckrodt International Finance SA/Mallinckrodt CB
LLC (a)...................................................... 5.50% 04/15/25 590,625
---------------
37,820,532
---------------
RESEARCH & CONSULTING SERVICES -- 0.1%
1,000,000 Camelot Finance SA (a).......................................... 4.50% 11/01/26 1,012,900
---------------
RESTAURANTS -- 0.7%
10,458,000 1011778 BC ULC / New Red Finance, Inc. (a)...................... 5.00% 10/15/25 10,745,595
---------------
TOTAL FOREIGN CORPORATE BONDS................................................................ 90,807,638
(Cost $90,782,783) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (h) MATURITY (i) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS -- 35.7%
AEROSPACE & DEFENSE -- 1.1%
8,334,408 Transdigm, Inc., Term Loan F, 1 Mo. LIBOR + 2.50%, 0.00%
Floor........................................................ 4.29% 06/09/23 8,291,653
7,118,741 Transdigm, Inc., Tranche E Term Loan, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 4.29% 05/30/25 7,060,438
---------------
15,352,091
---------------
APPLICATION SOFTWARE -- 4.0%
1,197,860 CCC Information Services, Inc., Term Loan B, 1 Mo. LIBOR +
2.75%, 1.00% Floor........................................... 4.54% 04/26/24 1,176,251
6,365,943 Hyland Software, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%,
0.75% Floor.................................................. 5.04% 07/01/24 6,318,198
3,341,073 Hyland Software, Inc., Term Loan (Second Lien), 1 Mo. LIBOR
+ 7.00%, 0.75% Floor......................................... 8.79% 07/10/25 3,345,249
4,351,381 Informatica Corp., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 5.04% 08/06/22 4,357,604
2,077,729 Micro Focus International (MA Financeco, LLC), Miami Escrow
Term Loan B3, 1 Mo. LIBOR + 2.50%, 0.00% Floor............... 4.30% 06/21/24 2,014,109
14,031,417 Micro Focus International (MA Financeco, LLC), Seattle Spinco
Term Loan B, 1 Mo. LIBOR + 2.50%, 0.00% Floor................ 4.30% 06/21/24 13,601,775
8,591,176 Micro Focus International (MA Financeco, LLC), Term Loan B2,
1 Mo. LIBOR + 2.25%, 0.00% Floor............................. 4.05% 11/19/21 8,516,003
7,395,219 Mitchell International, Inc., 1st Lien Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.04% 11/30/24 6,945,738
9,230,505 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor................ 5.49% 04/26/24 9,011,280
1,865,400 Qlik Technologies (Project Alpha Intermediate Holding, Inc.),
2019 Incremental Term Loan B, 3 Mo. LIBOR + 4.25%, 0.00%
Floor........................................................ 6.24% 04/26/24 1,859,580
455,798 RP Crown Parent LLC (JDA Software Group), Term Loan B,
1 Mo. LIBOR + 2.75%, 1.00% Floor............................. 4.54% 10/12/23 454,772
---------------
57,600,559
---------------
ASSET MANAGEMENT & CUSTODY BANKS -- 0.1%
977,060 Victory Capital Holdings, Inc., Term Loan B, 3 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.35% 07/01/26 979,991
---------------
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (h) MATURITY (i) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
AUTO PARTS & EQUIPMENT -- 0.8%
$ 7,705,309 Gates Global LLC, Initial B-2 Dollar Term Loan, 1 Mo. LIBOR +
2.75%, 1.00% Floor........................................... 4.54% 03/31/24 $ 7,537,102
2,259,427 Lumileds (Bright Bidco B.V.), Term Loan B, 1 Mo. LIBOR +
3.50%, 1.00% Floor........................................... 5.29% 06/30/24 1,163,605
4,662,055 Lumileds (Bright Bidco B.V.), Term Loan B, 3 Mo. LIBOR +
3.50%, 1.00% Floor........................................... 5.60% 06/30/24 2,400,958
---------------
11,101,665
---------------
BROADCASTING -- 1.3%
3,281,519 Cumulus Media Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.75%, 1.00% Floor........................................... 5.54% 03/31/26 3,294,514
3,179,400 Diamond Sports Group, LLC, Term Loan B, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.08% 08/23/26 3,191,323
741,286 Gray Television, Inc., Term Loan C, 1 Mo. LIBOR + 2.50%,
0.00% Floor.................................................. 4.51% 01/02/26 742,791
10,856,043 iHeartCommunications, Inc., Exit Term Loan, 1 Mo. LIBOR +
4.00%, 0.00% Floor........................................... 6.03% 05/01/26 10,886,548
---------------
18,115,176
---------------
BUILDING PRODUCTS -- 0.3%
4,321,726 Quikrete Holdings, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.54% 11/15/23 4,301,457
---------------
CASINOS & GAMING -- 2.5%
840,750 Caesars Resort Collection LLC, Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 4.54% 12/22/24 827,702
256,889 Golden Nugget, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.75% Floor.................................................. 4.54% 10/04/23 256,206
4,373,211 Golden Nugget, Inc., Term Loan B, 3 Mo. LIBOR + 2.75%,
0.75% Floor.................................................. 4.68% - 4.72% 10/04/23 4,361,578
4,403,088 Scientific Games International, Inc., Term Loan B5, 1 Mo.
LIBOR + 2.75%, 0.00% Floor................................... 4.54% 08/14/24 4,349,415
25,437,845 Stars Group Holdings B.V. (Amaya), Term Loan B, 3 Mo. LIBOR
+ 3.50%, 0.00% Floor......................................... 5.60% 07/10/25 25,531,202
---------------
35,326,103
---------------
COMMUNICATIONS EQUIPMENT -- 0.1%
1,314,710 Commscope, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 5.04% 04/06/26 1,288,008
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.8%
6,467,254 GFL Environmental, Inc., 2018 Incremental Term Loan B, 1 Mo.
LIBOR + 3.00%, 1.00% Floor................................... 4.79% 05/31/25 6,441,838
5,299,883 Packers Holdings, LLC, Term Loan B, 3 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 5.57% 12/04/24 5,212,117
---------------
11,653,955
---------------
FOOD RETAIL -- 0.5%
7,753,341 Albertson's LLC, Term Loan B-8, 1 Mo. LIBOR + 2.75%, 0.75%
Floor........................................................ 4.54% 08/15/26 7,790,635
---------------
HEALTH CARE FACILITIES -- 0.4%
939,669 Acadia Healthcare Co., Inc., Term Loan B4, 1 Mo. LIBOR +
2.50%, 0.00% Floor........................................... 4.29% 02/16/23 940,401
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (h) MATURITY (i) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE FACILITIES (CONTINUED)
$ 4,590,552 Gentiva Health Services, Inc. (Kindred at Home), Term Loan B,
1 Mo. LIBOR + 3.75%, 0.00% Floor............................. 5.56% 06/30/25 $ 4,579,076
---------------
5,519,477
---------------
HEALTH CARE SERVICES -- 3.2%
2,170,883 21st Century Oncology Holdings, Inc., Tranche B Term Loan,
3 Mo. LIBOR + 6.13%, 1.00% Floor............................. 8.14% 01/16/23 2,023,263
1,061,840 Air Medical Group Holdings, Inc. (Global Medical Response),
2018 New Term Loan, 1 Mo. LIBOR + 4.25%, 1.00% Floor......... 6.04% 03/14/25 949,593
3,047,823 Air Medical Group Holdings, Inc. (Global Medical Response),
Term Loan B, 1 Mo. LIBOR + 3.25%, 1.00% Floor................ 5.10% 04/28/22 2,730,666
2,456,076 Air Methods Corp. (a/k/a ASP AMC Intermediate Holdings, Inc.),
Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00% Floor................ 5.60% 04/21/24 1,956,682
1,162,243 athenahealth, Inc. (VVC Holding Corp.), Term Loan B, 3 Mo.
LIBOR + 4.50%, 0.00% Floor................................... 6.68% 02/15/26 1,151,713
14,239,571 CHG Healthcare Services, Inc., Term Loan, 1 Mo. LIBOR +
3.00%, 1.00% Floor........................................... 4.79% 06/07/23 14,209,099
1,787,058 DuPage Medical Group (Midwest Physician Admin. Services,
LLC), Term Loan B, 1 Mo. LIBOR + 2.75%, 0.75% Floor.......... 4.54% 08/15/24 1,750,423
12,855,854 Envision Healthcare Corp., Initial Term Loan, 1 Mo. LIBOR +
3.75%, 0.00% Floor........................................... 5.54% 10/10/25 10,358,990
240,741 Exam Works (Gold Merger Co., Inc.), Term Loan B, 1 Mo.
LIBOR + 3.25%, 1.00% Floor................................... 5.04% 07/27/23 240,640
4,807,065 Surgery Centers Holdings, Inc., Term Loan B, 1 Mo. LIBOR +
3.25%, 1.00% Floor........................................... 5.04% 08/31/24 4,634,828
3,492,762 Team Health, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 1.00%
Floor........................................................ 4.54% 02/06/24 2,680,695
3,516,306 U.S. Renal Care, Inc., Term Loan B, 1 Mo. LIBOR + 5.00%,
0.00% Floor.................................................. 6.79% 06/28/26 3,241,893
---------------
45,928,485
---------------
HEALTH CARE TECHNOLOGY -- 0.1%
1,972,693 Change Healthcare Holdings, Term Loan B, 1 Mo. LIBOR +
2.50%, 0.00% Floor........................................... 4.29% 03/01/24 1,959,910
---------------
HOUSEHOLD APPLIANCES -- 0.6%
8,712,970 Traeger Grills (TGP Holdings III LLC), Term Loan B, 1 Mo.
LIBOR + 4.25%, 1.00% Floor................................... 6.04% 09/25/24 8,124,844
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.5%
7,046,258 Alight, Inc. (fka Tempo Acq.), Term Loan B, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 4.79% 05/01/24 7,044,778
---------------
HYPERMARKETS & SUPER CENTERS -- 0.8%
12,112,275 BJ's Wholesale Club, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.67% 02/03/24 12,110,216
---------------
INSURANCE BROKERS -- 4.4%
2,723,942 Alliant Holdings I, LLC, 2019 New Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.17% 05/10/25 2,674,911
15,672,270 Alliant Holdings I, LLC, Initial Term Loan, 1 Mo. LIBOR +
3.00%, 0.00% Floor........................................... 4.80% 05/09/25 15,253,663
10,249,309 Amwins Group, Inc., Term Loan B (First Lien), 1 Mo. LIBOR +
2.75%, 1.00% Floor........................................... 4.54% - 4.74% 01/25/24 10,226,863
5,108,696 HUB International Ltd., 2019 Incremental Term Loan, 3 Mo.
LIBOR + 4.00%, 1.00% Floor................................... 5.90% 04/25/25 5,098,478
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (h) MATURITY (i) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
INSURANCE BROKERS (CONTINUED)
$ 63,602 HUB International Ltd., Term Loan B, 2 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 4.90% 04/25/25 $ 6,138,176
25,058,880 HUB International Ltd., Term Loan B, 3 Mo. LIBOR + 3.00%,
0.00% Floor.................................................. 4.94% 04/25/25 18,414,528
5,781,793 USI, Inc. (fka Compass Investors, Inc.), Term Loan B, 3 Mo.
LIBOR + 3.00%, 0.00% Floor................................... 5.10% 05/15/24 5,606,894
---------------
63,413,513
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 1.0%
14,457,563 Century Link (Qwest), Term Loan B, 1 Mo. LIBOR + 2.75%,
0.00% Floor.................................................. 4.54% 01/31/25 14,300,409
---------------
INVESTMENT BANKING & BROKERAGE -- 0.5%
7,105,793 Citadel Securities LP, Term Loan B, 1 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 5.29% 02/28/26 7,119,151
---------------
LIFE SCIENCES TOOLS & SERVICES -- 1.0%
1,673,140 Ortho-Clinical Diagnostics, Inc., Term Loan B, 3 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 5.31% 05/31/25 1,596,460
10,189,716 Parexel International Corp., Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 4.54% 09/27/24 9,718,442
2,977,099 Sotera Health Holdings, LLC (Sterigenics), Term Loan B, 3 Mo.
LIBOR + 3.00%, 1.00% Floor................................... 4.93% 05/15/22 2,921,279
---------------
14,236,181
---------------
MANAGED HEALTH CARE -- 0.2%
374,870 Multiplan, Inc. (MPH), Term Loan B, 3 Mo. LIBOR + 2.75%,
1.00% Floor.................................................. 4.85% 06/07/23 350,718
2,862,867 Versant Health (Wink Holdco, Inc.), Initial Term Loan, 1 Mo.
LIBOR + 3.00%, 1.00% Floor................................... 4.79% 12/02/24 2,794,272
---------------
3,144,990
---------------
MOVIES & ENTERTAINMENT -- 0.2%
2,669,012 Cineworld Group PLC (Crown), Initial Term Loan B, 1 Mo.
LIBOR + 2.25%, 0.00% Floor................................... 4.04% 02/05/25 2,631,112
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES -- 3.7%
14,030,006 AlixPartners LLP, Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 4.54% 04/04/24 14,006,576
18,859,311 Duff & Phelps Corp. (Deerfield Dakota), Initial Term Loan, 1 Mo.
LIBOR + 3.25%, 1.00% Floor................................... 5.04% 02/13/25 18,162,271
20,351,764 Refinitiv US Holdings, Inc., Initial Dollar Term Loan, 1 Mo.
LIBOR + 3.75%, 0.00% Floor................................... 5.54% 10/01/25 20,448,435
---------------
52,617,282
---------------
PACKAGED FOODS & MEATS -- 0.1%
1,129,893 BellRing Brands, LLC, Term Loan B, 1 Mo. LIBOR + 5.00%,
0.00% Floor.................................................. 6.79% 10/21/24 1,126,368
---------------
PAPER PACKAGING -- 0.4%
5,658,799 Reynolds Group Holdings, Inc., U.S. Term Loan, 1 Mo. LIBOR
+ 2.75%, 0.00% Floor......................................... 4.54% 02/05/23 5,655,687
---------------
PHARMACEUTICALS -- 2.0%
10,959,614 Bausch Health Cos., Inc. (Valeant), Term Loan B, 1 Mo. LIBOR
+ 3.00%, 0.00% Floor......................................... 4.92% 06/01/25 10,995,013
11,036,240 Endo LLC, Term Loan B, 1 Mo. LIBOR + 4.25%, 0.75% Floor......... 6.06% 04/29/24 10,131,268
7,333,868 GoodRX, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 4.60% 10/15/25 7,310,033
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED
VALUE DESCRIPTION RATE (h) MATURITY (i) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
PHARMACEUTICALS (CONTINUED)
$ 273,099 Mallinckrodt International Finance S.A., 2017 Term Loan B,
3 Mo. LIBOR + 2.75%, 0.75% Floor............................. 4.85% 09/24/24 $ 213,408
195,916 Mallinckrodt International Finance S.A., 2018 Incremental Term
Loan, 3 Mo. LIBOR + 3.00%, 0.75% Floor....................... 5.18% 02/24/25 152,203
---------------
28,801,925
---------------
REAL ESTATE SERVICES -- 0.5%
1,564,502 Cushman & Wakefield (DTZ U.S. Borrower, LLC), Term Loan,
1 Mo. LIBOR + 3.25%, 0.00% Floor............................. 5.04% 08/21/25 1,565,801
5,411,186 Realogy Corp., Term Loan B, 1 Mo. LIBOR + 2.25%, 0.75%
Floor........................................................ 4.07% 02/08/25 5,120,334
---------------
6,686,135
---------------
RESTAURANTS -- 0.5%
7,083,254 Portillo's Holdings LLC, Term B Loan (First Lien), 3 Mo. LIBOR
+ 4.50%, 1.00% Floor......................................... 6.60% 08/02/21 7,083,254
---------------
RETAIL REIT'S -- 0.3%
4,428,487 Capital Automotive L.P., 2nd Lien Term Loan, 1 Mo. LIBOR +
6.00%, 1.00% Floor........................................... 7.79% 03/15/25 4,428,487
---------------
SECURITY & ALARM SERVICES -- 0.1%
2,208,692 Garda World Security Corp., Initial Term Loan, 1 Mo. LIBOR +
4.75%, 0.00% Floor........................................... 6.55% 10/30/26 2,194,888
---------------
SPECIALIZED CONSUMER SERVICES -- 1.5%
10,184,000 Asurion, LLC, Second Lien Replacement B-2 Term Loan, 1 Mo.
LIBOR + 6.50%, 0.00% Floor................................... 8.29% 08/04/25 10,224,736
1,094,769 Asurion, LLC, Term Loan B4, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 4.79% 08/04/22 1,094,966
4,906,776 Asurion, LLC, Term Loan B6, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 4.79% 11/03/23 4,912,026
4,949,875 Asurion, LLC, Term Loan B7, 1 Mo. LIBOR + 3.00%, 0.00%
Floor........................................................ 4.79% 11/03/24 4,952,993
---------------
21,184,721
---------------
SYSTEMS SOFTWARE -- 2.2%
5,760,013 Applied Systems, Inc., Term Loan (First Lien), 3 Mo. LIBOR +
3.00%, 1.00% Floor........................................... 5.10% 09/13/24 5,721,939
1,262,391 Applied Systems, Inc., Term Loan (Second Lien), 3 Mo. LIBOR
+ 7.00%, 1.00% Floor......................................... 9.10% 09/13/25 1,273,967
1,065,839 Dynatrace LLC, Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00%
Floor........................................................ 4.54% 08/22/25 1,068,504
14,311,470 Misys Financial Software Ltd. (Almonde, Inc.) (Finastra), Term
Loan B, 6 Mo. LIBOR + 3.50%, 1.00% Floor..................... 5.70% 06/13/24 13,658,581
9,219,053 Riverbed Technology, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%,
1.00% Floor.................................................. 5.04% 04/24/22 7,084,012
1,553,070 SUSE (Marcel Lux IV S.A.R.L.), Facility B1 USD, 1 Mo. LIBOR
+ 3.25%, 0.00% Floor......................................... 5.04% 03/15/26 1,508,419
1,977,589 Vertafore, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00%
Floor........................................................ 5.04% 06/15/25 1,911,913
---------------
32,227,335
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................................... 511,048,788
(Cost $525,150,390) ---------------
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
RIGHTS -- 0.0%
ELECTRIC UTILITIES -- 0.0%
1,629 Vistra Energy Corp. (c) (j).................................................................. $ 1,442
(Cost $2,831) ---------------
MONEY MARKET FUNDS -- 1.6%
23,037,230 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio -
Institutional Class - 1.68% (k)........................................................... 23,037,230
(Cost $23,037,230) ---------------
TOTAL INVESTMENTS -- 101.2%.................................................................. 1,449,296,643
(Cost $1,447,337,437) (l)
BORROWINGS -- (0.3)%......................................................................... (4,697,696)
NET OTHER ASSETS AND LIABILITIES -- (0.9)%................................................... (12,510,966)
---------------
NET ASSETS -- 100.0%......................................................................... $ 1,432,087,981
===============
</TABLE>
-----------------------------
(a) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Trust's Board of Trustees, this security has
been determined to be liquid by First Trust Advisors L.P. ("First Trust"
or the "Advisor"). Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is
determined based on security-specific factors and assumptions, which
require subjective judgment. At October 31, 2019, securities noted as such
amounted to $675,381,645 or 47.2% of net assets.
(b) These notes are Senior Payment-In-Kind ("PIK") Toggle Notes whereby the
issuer may, at its option, elect to pay interest on the notes (1) entirely
in cash or (2) entirely in PIK interest. Interest paid in cash will accrue
at the rate of 8.50% per annum ("Cash Interest Rate") and PIK interest
will accrue on the notes at a rate per annum equal to the Cash Interest
Rate plus 75 basis points. For the fiscal year ended October 31, 2019,
this security paid all of its interest in cash.
(c) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(d) The issuer is in default and interest is not being accrued by the Fund nor
paid by the issuer.
(e) The issuer has filed for protection in bankruptcy court.
(f) These notes are Senior PIK Toggle Notes whereby the issuer may, at its
option, elect to pay interest on the notes (1) entirely in cash or (2)
entirely in PIK interest. Interest paid in cash will accrue at the rate of
7.63% per annum ("Cash Interest Rate") and PIK interest will accrue on the
notes at a rate per annum equal to the Cash Interest Rate plus 75 basis
points. For the fiscal year ended October 31, 2019, this security paid all
of its interest in cash.
(g) These notes are Senior PIK Toggle Notes whereby the issuer may, at its
option, elect to pay interest on the notes (1) entirely in cash or (2)
entirely in PIK interest. Interest paid in cash will accrue at the rate of
7.75% per annum ("Cash Interest Rate") and PIK interest will accrue on the
notes at a rate per annum equal to the Cash Interest Rate plus 75 basis
points. The first interest payment is scheduled for November 15, 2019.
(h) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests generally pay interest at rates which are periodically
predetermined by reference to a base lending rate plus a premium. These
base lending rates are generally (i) the lending rate offered by one or
more major European banks, such as the LIBOR, (ii) the prime rate offered
by one or more United States banks or (iii) the certificate of deposit
rate. Certain Senior Loans are subject to a LIBOR floor that establishes a
minimum LIBOR rate. When a range of rates is disclosed, the Fund holds
more than one contract within the same tranche with identical LIBOR
period, spread and floor, but different LIBOR reset dates.
(i) 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.
(j) Non-income producing security.
(k) Rate shown reflects yield as of October 31, 2019.
(l) Aggregate cost for federal income tax purposes is $1,451,544,691. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$32,812,009 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$35,060,057. The net unrealized depreciation was $2,248,048.
LIBOR - London Interbank Offered Rate
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2019 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Corporate Bonds*.................................. $ 824,401,545 $ -- $ 824,401,545 $ --
Foreign Corporate Bonds*.......................... 90,807,638 -- 90,807,638 --
Senior Floating-Rate Loan Interests*.............. 511,048,788 -- 511,048,788 --
Rights*........................................... 1,442 -- 1,442 --
Money Market Funds................................ 23,037,230 23,037,230 -- --
--------------- --------------- --------------- ---------------
Total Investments................................. $ 1,449,296,643 $ 23,037,230 $ 1,426,259,413 $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $ 1,449,296,643
Cash...................................................................... 252,990
Receivables:
Interest............................................................... 14,150,023
Investment securities sold............................................. 755,795
Dividends.............................................................. 19,094
Margin interest rebate................................................. 1,186
---------------
Total Assets........................................................ 1,464,475,731
---------------
LIABILITIES:
Borrowings................................................................ 4,697,696
Payables:
Investment securities purchased........................................ 26,550,784
Investment advisory fees............................................... 1,135,247
Margin interest expense................................................ 4,023
---------------
Total Liabilities................................................... 32,387,750
---------------
NET ASSETS................................................................ $ 1,432,087,981
===============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $ 1,456,797,354
Par value................................................................. 298,000
Accumulated distributable earnings (loss)................................. (25,007,373)
---------------
NET ASSETS................................................................ $ 1,432,087,981
===============
NET ASSET VALUE, per share................................................ $ 48.06
===============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................. 29,800,002
===============
Investments, at cost...................................................... $ 1,447,337,437
===============
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2019
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 77,845,758
Margin interest rebate.................................................... 2,092,236
Dividends................................................................. 156,678
---------------
Total investment income................................................ 80,094,672
---------------
EXPENSES:
Investment advisory fees.................................................. 11,797,769
Margin interest expense................................................... 3,441,263
Interest on investments sold short........................................ 87,606
---------------
Total expenses......................................................... 15,326,638
---------------
NET INVESTMENT INCOME (LOSS).............................................. 64,768,034
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................ (1,854,783)
Investments sold short................................................. 583,453
---------------
Net realized gain (loss).................................................. (1,271,330)
---------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ 24,386,474
Investments sold short................................................. (997,623)
---------------
Net change in unrealized appreciation (depreciation)...................... 23,388,851
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... 22,117,521
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 86,885,555
===============
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2019 10/31/2018
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 64,768,034 $ 64,170,585
Net realized gain (loss).................................................. (1,271,330) (8,990,764)
Net change in unrealized appreciation (depreciation)...................... 23,388,851 (36,753,553)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........... 86,885,555 18,426,268
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (66,781,356) (68,615,288)
Return of capital......................................................... (495,649) (7,218)
--------------- ---------------
Total distributions to shareholders....................................... (67,277,005) (68,622,506)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 378,687,649 117,296,114
Cost of shares redeemed................................................... (219,243,496) (64,629,748)
--------------- ---------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................................... 159,444,153 52,666,366
--------------- ---------------
Total increase (decrease) in net assets................................... 179,052,703 2,470,128
NET ASSETS:
Beginning of period....................................................... 1,253,035,278 1,250,565,150
--------------- ---------------
End of period............................................................. $ 1,432,087,981 $ 1,253,035,278
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 26,650,002 25,550,002
Shares sold............................................................... 7,900,000 2,450,000
Shares redeemed........................................................... (4,750,000) (1,350,000)
--------------- ---------------
Shares outstanding, end of period......................................... 29,800,002 26,650,002
=============== ===============
</TABLE>
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2019
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net increase (decrease) in net assets resulting from operations........... $ 86,885,555
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash used in operating activities:
Purchases of investments............................................ (1,222,130,277)
Borrowed investments sold short..................................... 2,124,841,225
Cost to cover short positions....................................... (2,202,871,648)
Sales, maturities and paydowns of investments....................... 1,128,978,202
Net amortization/accretion of premiums/discounts on investments..... 4,350,833
Net realized gain/loss on investments............................... 1,854,783
Net realized gain/loss on investments sold short.................... (583,453)
Net change in unrealized appreciation/depreciation on investments... (24,386,474)
Net change in unrealized appreciation/depreciation on investments
sold short....................................................... 997,623
CHANGES IN ASSETS AND LIABILITIES
Decrease in interest receivable..................................... 868,240
Increase in dividends receivable.................................... (7,102)
Decrease in margin interest rebate receivable....................... 33,906
Decrease in interest payable on investments sold short.............. (48,260)
Decrease in margin interest expense payable......................... (42,551)
Increase in investment advisory fees payable........................ 123,058
---------------
CASH USED IN OPERATING ACTIVITIES......................................... $ (101,136,340)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares sold........................................... 378,687,649
Cost of shares redeemed............................................. (219,243,496)
Distributions to shareholders from investment operations............ (66,781,356)
Distributions to shareholders from return of capital................ (495,649)
Net proceeds from borrowings........................................ 4,697,696
---------------
CASH PROVIDED BY FINANCING ACTIVITIES..................................... 96,864,844
---------------
Decrease in cash and restricted cash...................................... (4,271,496)
Cash and restricted cash at beginning of period........................... 4,524,486
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD................................. $ 252,990
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................................. $ 3,483,814
===============
CASH AND RESTRICTED CASH RECONCILIATION:
Cash................................................................ $ 252,990
Restricted cash..................................................... --
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD................................. $ 252,990
===============
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2019 2018 2017 2016 2015
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 47.02 $ 48.95 $ 48.31 $ 48.69 $ 51.30
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 2.49 2.52 2.56 2.41 2.64
Net realized and unrealized gain (loss) 1.13 (1.76) 0.66 (0.14) (2.23) (a)
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.62 0.76 3.22 2.27 0.41
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (2.56) (2.69) (2.58) (2.48) (2.84)
Net realized gain -- -- -- -- (0.14)
Return of capital (0.02) (0.00)(b) -- (0.17) (0.04)
---------- ---------- ---------- ---------- ----------
Total distributions (2.58) (2.69) (2.58) (2.65) (3.02)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 48.06 $ 47.02 $ 48.95 $ 48.31 $ 48.69
========== ========== ========== ========== ==========
TOTAL RETURN (c) 7.90% 1.60% 6.79% 4.89% 0.80% (a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,432,088 $1,253,035 $1,250,565 $1,077,297 $ 520,954
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.23% 1.16% 1.10% 1.11% 1.23%
Ratio of total expenses to average net assets
excluding interest expense 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income (loss) to average
net assets 5.22% 5.26% 5.25% 5.04% 5.49%
Portfolio turnover rate (d) 50% 52% 75% 45% 34%
</TABLE>
(a) The Fund received a payment from the advisor in the amount of $24,541 in
connection with a trade error. The payment from the advisor represents
less than $0.01 per share and had no effect on the Fund's total return.
(b) Amount represents less than $0.01 per share.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The 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.
(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 26 See Notes to Financial Statements
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Tactical High Yield ETF (the "Fund"), a diversified
series of the Trust which trades under the ticker "HYLS" on The Nasdaq Stock
Market LLC ("Nasdaq"). Unlike conventional mutual funds, the Fund issues and
redeems shares on a continuous basis, at net asset value ("NAV"), only in large
specified blocks consisting of 50,000 shares called a "Creation Unit." Creation
Units are generally issued and redeemed for cash and, in certain circumstances,
in-kind for securities in which the Fund invests. Except when aggregated in
Creation Units, the Fund's shares are not redeemable securities.
The primary investment objective of the Fund is to provide current income. The
Fund's secondary investment objective is to provide capital appreciation. Under
normal market conditions, the Fund invests at least 80% of its net assets
(including investment borrowings) in high yield debt securities that are rated
below investment grade at the time of purchase or unrated securities deemed by
the Fund's advisor to be of comparable quality. Below investment grade
securities are those that, at the time of purchase, are rated lower than "BBB-"
by Standard & Poor's Ratings Group, a division of the McGraw Hill Companies,
Inc., or lower than "Baa3" by Moody's Investors Service, Inc., or comparably
rated by another nationally recognized statistical rating organization. High
yield debt securities that are rated below investment grade are commonly
referred to as "junk" debt. Such securities may include U.S. and non-U.S.
corporate debt obligations, bank loans and convertible bonds. For purposes of
determining whether a security is below investment grade, the lowest available
rating will be considered.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Advisor's Pricing Committee of the
Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the
"Advisor"), in accordance with valuation procedures adopted by the Trust's Board
of Trustees, and in accordance with provisions of the 1940 Act. Investments
valued by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. The Fund's investments are valued as
follows:
Corporate bonds, corporate notes, U.S. government securities and other
debt securities are fair valued on the basis of valuations provided by
dealers who make markets in such securities or by a third-party pricing
service approved by the Trust's Board of Trustees, which may use the
following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Page 27
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Senior Floating-Rate Loan Interests ("Senior Loans")(1) are not listed on
any securities exchange or board of trade. Senior Loans are typically
bought and sold by institutional investors in individually negotiated
private transactions that function in many respects like an
over-the-counter secondary market, although typically no formal
market-makers exist. This market, while having grown substantially since
its inception, generally has fewer trades and less liquidity than the
secondary market for other types of securities. Some Senior Loans have few
or no trades, or trade infrequently, and information regarding a specific
Senior Loan may not be widely available or may be incomplete. Accordingly,
determinations of the market value of Senior Loans may be based on
infrequent and dated information. Because there is less reliable,
objective data available, elements of judgment may play a greater role in
valuation of Senior Loans than for other types of securities. Typically,
Senior Loans are fair valued using information provided by a third-party
pricing service. The third-party pricing service primarily uses
over-the-counter pricing from dealer runs and broker quotes from
indicative sheets to value the Senior Loans.
Fixed income and other debt securities having a remaining maturity of
sixty days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the fundamental business data relating to the borrower/issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based
on the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the borrower/issuer, including any
ability to obtain money or resources from a parent or
affiliate and an assessment of the issuer's management;
11) the prospects for the borrower's/issuer's industry, and
multiples (of earnings and/or cash flows) being paid for
similar businesses in that industry;
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 28
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
14) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2019, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis. Amortization of premiums and accretion of discounts
are recorded using the effective interest method over the expected life of each
respective borrowing for loans and bonds.
On July 27, 2017, the Financial Conduct Authority ("FCA") announced that it will
no longer persuade or compel banks to submit rates for the calculation of the
London Interbank Offered Rates ("LIBOR") after 2021 (the "FCA Announcement").
Furthermore, in the United States, efforts to identify a set of alternative U.S.
dollar reference interest rates include proposals by the Alternative Reference
Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New
York. On August 24, 2017, the Federal Reserve Board requested public comment on
a proposal by the Federal Reserve Bank of New York, in cooperation with the
Office of Financial Research, to produce three new reference rates intended to
serve as alternatives to LIBOR. These alternative rates are based on overnight
repurchase agreement transactions secured by U.S. Treasury Securities. On
December 12, 2017, following consideration of public comments, the Federal
Reserve Board concluded that the public would benefit if the Federal Reserve
Bank of New York published the three proposed reference rates as alternatives to
LIBOR (the "Federal Reserve Board Notice").
At this time, it is not possible to predict the effect of the FCA Announcement,
the Federal Reserve Board Notice, or other regulatory changes or announcements,
any establishment of alternative reference rates or any other reforms to LIBOR
that may be enacted in the United Kingdom, the United States or elsewhere. As
such, the potential effect of any such event on the Fund cannot yet be
determined.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Fund maintains liquid assets with current value at least equal to the amount of
its when-issued, delayed-delivery or forward purchase commitments. The Fund had
no when-issued, delayed-delivery, or forward purchase commitments as of October
31, 2019.
C. SHORT SALES
Short sales are utilized for investment and risk management purposes and are
transactions in which securities or other instruments (such as options,
forwards, futures or other derivative contracts) are sold that are not currently
owned in the Fund's portfolio. When the Fund engages in a short sale, the Fund
must borrow the security sold short and deliver the security to the
counterparty. Short selling allows the Fund to profit from a decline in a market
price to the extent such decline exceeds the transaction costs and the costs of
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019
borrowing the securities. The Fund is charged a fee or premium to borrow the
securities sold short and is obligated to repay the lenders of the securities.
Any dividends or interest that accrues on the securities during the period of
the loan are due to the lenders. A gain, limited to the price at which the
security was sold short, or a loss, unlimited in size, will be recognized upon
the termination of the short sale; which is effected by the Fund purchasing the
security sold short and delivering the security to the lender. Any such gain or
loss may be offset, completely or in part, by the change in the value of the
long portion of the Fund's portfolio. The Fund is subject to the risk it may be
unable to reacquire a security to terminate a short position except at a price
substantially in excess of the last quoted price. Also, there is the risk that
the counterparty to a short sale may fail to honor its contractual terms,
causing a loss to the Fund.
The Fund has established an account with Pershing, LLC for the purpose of
purchasing or borrowing securities on margin. The Fund pays interest on any
margin balance, which is calculated as the daily margin account balance times
the broker's margin interest rate. At October 31, 2019, the Fund had $4,697,696
in borrowings, which approximates fair value, associated with investments sold
short as shown in "Borrowings" on the Statement of Assets and Liabilities. The
borrowings are categorized as Level 2 within the fair value hierarchy. At
October 31, 2019, the Fund had no investments sold short. The Fund is charged
interest on debit margin balance at a rate equal to the Overnight Bank Funding
Rate plus 75 basis points. With regard to securities held short, the Fund is
credited a rebate equal to the market value of its short positions at a rate
equal to the Overnight Bank Funding Rate less 35 basis points. This rebate rate
applies to easy to borrow securities. Securities that are hard to borrow may
earn a rebate that is less than the foregoing or may be subject to a premium
charge on a security by security basis. The different rebate rate is determined
at the time of a short sale request. At October 31, 2019, the Fund had a debit
margin balance of $4,697,696 with an interest rate of 2.55%. For the fiscal year
ended October 31, 2019, the Fund had margin interest rebate of $2,092,236 and
margin interest expense of $3,441,263, as shown on the Statement of Operations.
For the fiscal year ended October 31, 2019, the average margin balance and
interest rates were $109,485,010 and 3.01%, respectively.
D. RESTRICTED CASH
Restricted cash includes cash on deposit with other banks or brokers that is
legally restricted as to the withdrawal and primarily serves as collateral for
investments sold short. The Fund presents restricted cash activity within
"Decrease in cash and restricted cash" and as part of "Cash and restricted cash
at beginning of period" and "Cash and restricted cash at end of period" in the
Statement of Cash Flows, along with a reconciliation of those balances in the
Statement of Assets and Liabilities.
E. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. The Fund had no unfunded loan commitments as of October
31, 2019.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on significantly modified portfolio securities
held by the Fund and have no impact on net assets or NAV per share. Temporary
differences, which arise from recognizing certain items of income, expense and
gain/loss in different periods for financial statement and tax purposes, will
reverse at some time in the future.
The tax character of distributions paid during the fiscal years ended October
31, 2019 and 2018 was as follows:
Distributions paid from: 2019 2018
Ordinary income................................. $ 66,781,356 $ 68,615,288
Capital gains................................... -- --
Return of capital............................... 495,649 7,218
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019
As of October 31, 2019, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ --
Accumulated capital and other gain (loss)....... (22,759,325)
Net unrealized appreciation (depreciation)...... (2,248,048)
G. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2016,
2017, 2018, and 2019 remain open to federal and state audit. As of October 31,
2019, management has evaluated the application of these standards to the Fund
and has determined that no provision for income tax is required in the Fund's
financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. As of October 31, 2019, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $22,759,325.
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, 2019, 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,
2019, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 2,013,322 $ (2,013,322) $ --
H. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3). The Fund is subject to an interest expense
due to the costs associated with the Fund's short positions in securities.
I. NEW ACCOUNTING PRONOUNCEMENTS
On November 17, 2016, the FASB issued Accounting Standards Update ("ASU")
2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which requires
that the Statement of Cash Flows explain the change during the period in the
total of cash and amounts generally described as restricted cash. Therefore,
amounts generally described as restricted cash should be included with cash when
reconciling the beginning-of-period and end-of-period total amounts shown on the
Statement of Cash Flows. The Fund adopted this guidance during the year, using a
retrospective transition method. The adoption of this standard did not have a
material impact on the Fund's financial statements.
On March 30, 2017, the FASB issued ASU 2017-08 "Premium Amortization on
Purchased Callable Debt Securities," which amends the amortization period for
certain purchased callable debt securities held at a premium by shortening such
period to the earliest call date. The new guidance requires an entity to
amortize the premium on a callable debt security within its scope to the
earliest call date, unless the guidance for considering estimated prepayments is
applied. If the call option is not exercised at the earliest call date, the
yield is reset to the effective yield using the payment terms of the security.
If the security has more than one call date and the premium was amortized to a
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019
call price greater than the next call price, any excess of the amortized cost
basis over the amount repayable at the next call date will be amortized to that
date. If there are no other call dates, any excess of the amortized cost basis
over the par amount will be amortized to maturity. Discounts on purchased
callable debt securities will continue to be amortized to the security's
maturity date. The ASU 2017-08 is effective for public business entities for
fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Earlier application is permitted for all entities, including
adoption in an interim period. If an entity early adopts the ASU in an interim
period, any adjustments must be reflected as of the beginning of the fiscal year
that includes that interim period. Management is still assessing the impact of
the adoption of ASU 2017-08 on the financial statements but does not expect it
to have a material impact.
On August 28, 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement," which amends the
fair value measurement disclosure requirements of ASC 820. The amendments of ASU
2018-13 include new, eliminated, and modified disclosure requirements of ASC
820. In addition, the amendments clarify that materiality is an appropriate
consideration of entities when evaluating disclosure requirements. The ASU is
effective for fiscal years beginning after December 15, 2019, including interim
periods therein. Early adoption is permitted for any eliminated or modified
disclosures upon issuance of this ASU. The Fund has early adopted ASU 2018-13
for these financial statements, which did not result in a material impact.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, brokerage
commissions and other expenses connected with the execution of portfolio
transactions, expenses associated with short sale transactions, distribution and
service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary
expenses. The Fund has agreed to pay First Trust an annual unitary management
fee equal to 0.95% of its average daily net assets.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended October 31, 2019, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, investments sold
short and in-kind transactions, were $720,919,683 and $636,393,423,
respectively. The cost of purchases to cover short sales and the proceeds of
short sales were $61,562,422 and $41,193,750, respectively.
For the fiscal year ended October 31, 2019, there were no in-kind transactions.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019
5. BORROWINGS
The Trust, on behalf of the Fund, along with the First Trust Series Fund and
First Trust Variable Insurance Trust, entered into a $200 million Credit
Agreement ("Line of Credit") with BNYM, to be a liquidity backstop during
periods of high redemption volume. A commitment fee of 0.15% of the daily amount
of the excess of the commitment amount over the outstanding principal balance of
the loans will be charged by BNYM, which First Trust allocates amongst the funds
that had access to the Line of Credit. To the extent that the Fund accesses the
Line of Credit, there would also be an interest fee charged. The Fund did not
have any borrowings outstanding during the fiscal year ended October 31, 2019.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may vary and is based on the
composition of the securities included in the Fund's portfolio and/or the
countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share times the number of shares in a Creation
Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When Creation
Units are issued for cash, the Authorized Participant may also be assessed an
amount to cover the cost of purchasing portfolio securities, including
operational processing and brokerage costs, transfer fees, stamp taxes, and part
or all of the spread between the expected bid and offer side of the market
related to such securities. Authorized Participants redeeming Creation Units
must pay to BNYM, as transfer agent, a standard redemption transaction fee (the
"Redemption Transaction Fee"), regardless of the number of Creation Units
redeemed in the transaction. The Redemption Transaction Fee may vary and is
based on the composition of the securities included in the Fund's portfolio
and/or the countries in which the transactions are settled. When shares are
redeemed for cash, the Authorized Participant may also be assessed an amount to
cover other costs, including operational processing and brokerage costs,
transfer fees, stamp taxes and part or all of the spread between the expected
bid and offer side of the market related to portfolio securities sold in
connection with the redemption.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before March 31, 2021.
8. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Tactical High Yield ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2019, the related statement of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, the financial highlights for each of the five years in the
period then ended, and the related notes. In our opinion, the financial
statements and financial highlights present fairly, in all material respects,
the financial position of the Fund as of October 31, 2019, and the results of
its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended in conformity
with accounting principles generally accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2019, 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, 2019
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to the foreign shareholders during the Fund's fiscal year
ended October 31, 2019 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, 2019, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
Non-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
Page 36
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (UNAUDITED)
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees (the "Board") 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, 2020 at a meeting held on June 2, 2019. The
Board determined that the continuation of the Agreement is in the best interests
of the Fund in light of the nature, extent and quality of the services provided
and such other matters as the Board considered to be relevant in the exercise of
its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor responding to requests for information from counsel to the Independent
Trustees, submitted on behalf of the Independent Trustees, that, among other
things, outlined: the services provided by the Advisor to the Fund (including
the relevant personnel responsible for these services and their experience); the
unitary fee rate payable by the Fund as compared to fees charged to a peer group
of funds (the "Expense Group") and a broad peer universe of funds (the "Expense
Universe"), each assembled by Broadridge Financial Solutions, Inc.
("Broadridge"), an independent source, and as compared to fees charged to other
clients of the Advisor, including other exchange-traded funds ("ETFs") managed
by the Advisor; the expense ratio of the Fund as compared to expense ratios of
the funds in the Fund's Expense Group and Expense Universe; performance
information for the Fund, including comparisons of the Fund's performance to
that of one or more relevant benchmark indexes and to that of a performance
group of funds and a broad performance universe of funds (the "Performance
Universe"), each assembled by Broadridge; the nature of expenses incurred in
providing services to the Fund and the potential for economies of scale, if any;
financial data on the Advisor; any fall-out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P. ("FTP"); and information on the Advisor's
compliance program. The Board reviewed initial materials with the Advisor at a
special meeting held on April 18, 2019, prior to which the Independent Trustees
and their counsel met separately to discuss the information provided by the
Advisor. Following the April meeting, independent legal counsel 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
independent legal counsel held prior to the June 2, 2019 meeting, as well as at
the meeting held that day. 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
Page 37
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (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
objective, policies and restrictions. The Board also considered a report from
the Advisor with respect to its risk management functions related to the
operation of the Fund. Finally, as part of the Board's consideration of the
Advisor's services, the Advisor, in its written materials and at the April 18,
2019 meeting, described to the Board the scope of its ongoing investment in
additional infrastructure and personnel to maintain and improve the quality of
services provided to the Fund and the other funds in the First Trust Fund
Complex. In light of the information presented and the considerations made, the
Board concluded that the nature, extent and quality of the services provided to
the Trust and the Fund by the Advisor under the Agreement have been and are
expected to remain satisfactory and that the Advisor has managed the Fund
consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The
Board received and reviewed information showing the advisory or unitary fee
rates and expense ratios of the peer funds in the Expense Group, as well as
advisory and unitary fee rates charged by the Advisor to other fund (including
ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee,
the Board determined that expense ratios were the most relevant comparative data
point. Based on the information provided, the Board noted that the unitary fee
for the Fund was above the median total (net) expense ratio of the peer funds in
the Expense Group. With respect to the Expense Group, the Board, at the April
18, 2019 meeting, discussed with Broadridge its methodology for assembling peer
groups and discussed with the Advisor limitations in creating peer groups for
actively-managed ETFs, including that there were only two other actively-managed
ETFs in the Expense Group, and different business models that may affect the
pricing of services among ETF sponsors. The Board took these limitations and
differences into account in considering the peer data. With respect to fees
charged to other non-ETF clients, the Board considered differences between the
Fund and other non-ETF clients that limited their comparability. In considering
the unitary fee rate overall, the Board also considered the Advisor's statement
that it seeks to meet investor needs through innovative and value-added
investment solutions and the Advisor's description of its long-term commitment
to the Fund.
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, 2018
to the performance of the funds in the Performance Universe and to a benchmark
index. Based on the information provided, the Board noted that the Fund
outperformed the Performance Universe median for the one- and five-year periods
ended December 31, 2018 but underperformed the Performance Universe median for
the three-year period ended December 31, 2018. The Board also noted that the
Fund outperformed the benchmark index for the one-year period ended December 31,
2018 but underperformed the benchmark index for the three- and five-year periods
ended December 31, 2018.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund continues to be reasonable and appropriate in light of
the nature, extent and quality of the services provided by the Advisor to the
Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve services to
the Fund. The Board noted that any reduction in fixed costs associated with the
management of the Fund would benefit the Advisor, but that the unitary fee
structure provides a level of certainty in expenses for the Fund. The Board
considered the revenues and allocated costs (including the allocation
methodology) of the Advisor in serving as investment advisor to the Fund for the
twelve months ended December 31, 2018 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data, for the same period. The Board noted the
inherent limitations in the profitability analysis and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered fall-out benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered that the Advisor had identified as a fall-out benefit to the Advisor
Page 38
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (UNAUDITED)
and FTP their exposure to investors and brokers who, absent their exposure to
the Fund, may have had no dealings with the Advisor or FTP, and noted that the
Advisor does not utilize soft dollars in connection with the Fund. The Board
concluded that the character and amount of potential fall-out benefits to the
Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of
certain funds it manages, including First Trust Tactical High Yield ETF (the
"Fund"), in certain member states in the European Economic Area in accordance
with the cooperation arrangements in Article 42 of the Alternative Investment
Fund Managers Directive (the "Directive"). First Trust is required under the
Directive to make disclosures in respect of remuneration. The following
disclosures are made in line with First Trust's interpretation of currently
available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2018, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $3,681,727. This
figure is comprised of $433,536 paid (or to be paid) in fixed compensation and
$3,248,191 paid (or to be paid) in variable compensation. There were a total of
21 beneficiaries of the remuneration described above. Those amounts include
$353,196 paid (or to be paid) to senior management of First Trust and $3,328,531
paid (or to be paid) to other employees whose professional activities have a
material impact on the risk profiles of First Trust or the Fund (collectively,
"Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 39
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 162 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 162 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 162 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 162 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services);
President and Chief Executive Officer
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 162 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 40
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 41
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2019 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 42
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<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Enhanced Short
Maturity ETF (FTSM)
Annual Report
For the Year Ended
October 31, 2019
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2019
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 32
Statement of Operations...................................................... 33
Statements of Changes in Net Assets.......................................... 34
Financial Highlights......................................................... 35
Notes to Financial Statements................................................ 36
Report of Independent Registered Public Accounting Firm...................... 42
Additional Information....................................................... 43
Board of Trustees and Officers............................................... 48
Privacy Policy............................................................... 50
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Enhanced Short Maturity ETF; hereinafter referred to as
the "Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of investing
in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
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SHAREHOLDER LETTER
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2019
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Enhanced Short Maturity ETF (the "Fund"), which contains detailed information
about the Fund for the twelve months ended October 31, 2019, including a market
overview and a performance analysis. We encourage you to read this report
carefully and discuss it with your financial advisor.
One of our responsibilities as asset managers is to be good listeners. Perhaps
the most effective way in which we do this continually is by paying close
attention to mutual fund and exchange-traded fund (ETF) money flows. After all,
investors vote with their dollars, and money flows provide valuable feedback
with respect to their biases. Over the past 12 months, we have learned that
investors, in general, have grown more risk-averse. For the 12-month period
ended October 31, 2019, investors funneled an estimated net $359.56 billion into
bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion
from equity mutual funds and ETFs, according to data from Morningstar. Over the
same period, money market funds took in an estimated net $583.27 billion. Those
figures were more balanced for the full-year 2018. Those estimated net flows
were as follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion
(bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to monitoring fund flows, we watch the performance of all the asset
classes. Market returns can either help validate or invalidate our
interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that
comprise the S&P 500(R) Index back it up. For the 12-month period ended October
31, 2019, as measured by total return, the top performers were Real Estate and
Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P
500(R) Index posted a total return of 14.33% for the period. These two sectors
are defensive in nature. They also tend to distribute cash dividends that are
often well above those sectors that are more cyclical in nature. The higher
dividend distributions likely drew the attention of fixed-income investors
dissatisfied with the current low-yield climate in the bond market, in our
opinion.
The absence of a new trade deal between the U.S. and China has been a bit of a
wet blanket on the global economy. Global growth projections have been trimmed
over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack
of any significant progress in the negotiations between the U.S. and China is a
concern, we believe a remedy will be found. Remember, as uncertain as things may
appear in the current climate, investors with diversified investment portfolios
were most likely rewarded over the past 12 months. Stay the course and stay
engaged!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
The investment objective of First Trust Enhanced Short Maturity ETF (the "Fund")
is to seek current income, consistent with preservation of capital and daily
liquidity. Under normal market conditions, the Fund intends to achieve its
investment objective by investing at least 80% of its net assets in a portfolio
of U.S. dollar-denominated fixed- and variable-rate debt securities, including
securities issued or guaranteed by the U.S. government or its agencies,
instrumentalities or U.S. government-sponsored entities, residential and
commercial mortgage-backed securities, asset-backed securities, U.S. corporate
bonds, fixed income securities issued by non-U.S. corporations and governments,
municipal obligations, privately issued securities and other debt securities
bearing fixed or floating interest rates. The Fund may also invest in money
market securities. Shares of the Fund are listed on The Nasdaq Stock Market LLC
under the ticker symbol "FTSM."
The Fund's investment advisor, First Trust Advisors L.P. (the "Advisor"),
selects securities for the portfolio by evaluating fixed income sectors and
macro market trends while completing bottom-up analysis of individual
securities. Portfolio securities are selected based upon relative value in the
context of overall portfolio duration. Key inputs for the screens in the
securities selection process include, but are not limited to, credit quality,
yield, interest rate sensitivity and liquidity. The Fund's holdings are
systematically monitored for meaningful changes in performance and risk
measures. A security will generally be sold when the Advisor believes that a
security can be substituted for a similar investment that represents better
relative value; it lacks adequate compensation for embedded credit risk; or when
rebalancing the portfolio to maintain diversification. Under normal market
conditions, the Fund's average duration is expected to be less than one year and
the average maturity of the Fund's portfolio is expected to be less than three
years.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (8/5/14) 5 Years Ended Inception (8/5/14)
10/31/19 10/31/19 to 10/31/19 10/31/19 to 10/31/19
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 2.68% 1.46% 1.42% 7.50% 7.67%
Market Price 2.67% 1.46% 1.42% 7.52% 7.69%
INDEX PERFORMANCE
ICE BofAML 0-1 Year U.S. Treasury Index 2.75% 1.16% 1.11% 5.93% 5.94%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the period
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint 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 the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
--------------------------------------------------------
% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS & CASH
--------------------------------------------------------
Corporate Bonds and Notes 38.62%
Commercial Paper 26.39
Foreign Corporate Bonds and Notes 14.42
Asset-Backed Securities 11.69
U.S. Government Notes 3.79
U.S. Government Agency Mortgage-
Backed Securities 3.46
Certificate of Deposit 1.53
Mortgage-Backed Securities 0.09
Cash 0.01
-------
Total 100.00%
=======
--------------------------------------------------------
% OF TOTAL
CREDIT QUALITY(1) INVESTMENTS & CASH
--------------------------------------------------------
Government and Agency 7.25%
AAA 5.62
AA+ 0.92
AA 0.20
AA- 3.55
A+ 7.35
A 6.74
A- 9.76
BBB+ 11.87
BBB 11.75
BBB- 1.18
A-1 ( Short Term) 1.17
A-2 ( Short Term) 16.03
A-3 ( Short Term) 9.19
Not Rated 7.41
Cash 0.01
-------
Total 100.00%
=======
--------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
--------------------------------------------------------
U.S. Treasury Note 1.13%, 4/30/2020 1.27%
U.S. Treasury Note 1.50%, 6/15/2020 0.78
U.S. Treasury Note 1.50%, 8/31/2021 0.78
Towd Point Mortgage Trust,
Series 2015-5, Class A1B 0.67
U.S. Treasury Note 1.50%, 9/30/21 0.59
OSCAR US Funding Trust V, Series
2016-2A, Class A4 0.55
Towd Point Mortgage Trust,
Series 2015-6, Class A1B 0.53
Verizon Communications, Inc., 3 Mo.
LIBOR + 1.00% 0.50
BPCE S.A., Medium-Term Note, 3 Mo.
LIBOR + 0.88% 0.49
Broadcom, Inc. 0.49
-------
Total 6.65%
=======
-----------------------------
(1) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. A credit rating is an assessment provided by a
nationally recognized statistical rating organization (NRSRO) of the
creditworthiness of an issuer with respect to debt obligations. Ratings
are measured highest to lowest on a scale that generally ranges from AAA
to D for long-term ratings and A-1+ to C for short-term ratings.
Investment grade is defined as those issuers that have a long-term credit
rating of BBB- or higher or a short-term credit rating of A-3 or higher.
The credit ratings shown relate to the credit worthiness of the issuers of
the underlying securities in the Fund, and not to the Fund or its shares.
U.S. Treasury and U.S. Agency mortgage-backed securities appear under
"Government". Credit ratings are subject to change.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 5, 2014 - OCTOBER 31, 2019
First Trust Enhanced ICE BofAML 0-1 Year
Short Maturity ETF U.S. Treasury Index
<S> <C> <C>
8/5/14 $10,000 $10,000
10/31/14 10,016 10,002
4/30/15 10,047 10,011
10/31/15 10,045 10,020
4/30/16 10,079 10,045
10/31/16 10,139 10,073
4/30/17 10,206 10,096
10/31/17 10,289 10,147
4/30/18 10,371 10,207
10/31/18 10,486 10,311
4/30/19 10,624 10,449
10/31/19 10,767 10,594
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 November 1, 2014 through
October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/1/14 - 10/31/15 54 0 0 0 197 0 0 0
11/1/15 - 10/31/16 101 0 0 0 151 0 0 0
11/1/16 - 10/31/17 173 0 0 0 79 0 0 0
11/1/17 - 10/31/18 179 0 0 0 73 0 0 0
11/1/18 - 10/31/19 160 0 0 0 91 0 0 0
</TABLE>
Page 4
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PORTFOLIO COMMENTARY
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust") is the investment advisor to the First
Trust Enhanced Short Maturity ETF (the "Fund" or "FTSM"). In this capacity,
First Trust is responsible for the selection and ongoing monitoring of the
investments in the Fund's portfolio and certain other services necessary for the
management of the portfolio.
PORTFOLIO MANAGEMENT TEAM
TODD LARSON, CFA - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
JEREMIAH CHARLES - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
JAMES SNYDER - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
ERIC MAISEL, CFA - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
CHRISTINA L. FLETCHER - PORTFOLIO MANAGER
COMMENTARY
The Fund is an actively-managed exchange-traded fund ("ETF"). Its investment
objective is to seek current income, consistent with preservation of capital and
daily liquidity.
MARKET RECAP
The front-end of the U.S. bond market improved over the 12-month period ended
October 31, 2019. The ICE BofAML 0-1 Year U.S. Treasury Index and the ICE BofAML
0-1 Year U.S. Corporate Index, two broad measures of market performance, had
returns of 2.75% and 3.28%, respectively, for the period. The positive return
was primarily due to steady, albeit slower, economic growth and falling interest
rates. Driven in part by the negative effects on business investment from the
trade conflict between the U.S. and China, the U.S. economy grew by 2% for the
period, a slowdown from the 3.1% pace of one year ago. Business investment
subtracted from gross domestic product in the second and third quarters of 2019
led by sharp declines in structures. This was offset, however, by consumer
spending which grew at a 2.5% rate over the last four quarters. Consumer
spending has been buoyed by employment growth of over 2 million jobs added in
the last 12 months and average hourly earnings growth of 3.0%.
A dimmer growth outlook coupled with market volatility and lower inflation
prompted the Federal Reserve (the "Fed") to abruptly change course in monetary
policy beginning last January. When raising its target policy rate to the range
of 2.25% - 2.50% in December, policymakers expected that further balance sheet
normalization and additional hikes would follow in the year ahead. This Fed
hawkishness, along with ongoing trade policy uncertainty, triggered a dramatic
selloff in risk assets. This caused policymakers to backtrack on those
expectations and by the second quarter the FOMC was signaling a bias toward
cutting rates. The Fed followed through with three rate cuts at consecutive FOMC
meetings beginning in July. Fed Chairman Jerome Powell characterized the cuts as
a "mid-cycle adjustment" and justified the change in strategy as a prudent
response to low inflation, economic weakness overseas, and trade tensions.
Interest rates fell in response to the shift in policy. Long-term rates fell the
most, partly reflecting fear of a severe economic slowdown. For example, the
yield of the 2-Year Treasury dropped to 1.52% from 2.87%, during the 12-month
period ended October 31, 2019 and the 10-Year Treasury dropped to 1.69% from
3.16% for the same period. While the Treasury curve ended the period relatively
flat from the 3-month maturity out to 5-years, inversion was characteristic of
the yield curve during much of the reporting period.
Falling interest rates had the most significant return impact on longer maturity
bonds, which typically have greater sensitivity to interest rate changes
compared with those with shorter maturities. Additionally, improving credit
spreads on corporate and securitized assets helped to boost returns in those
market sectors. This was particularly true during the first two quarters of 2019
as credit spreads recovered from the selloff in the closing weeks of 2018.
PERFORMANCE ANALYSIS
As noted, short-term bonds posted a positive return for the 12-month period
ended October 31, 2019. While bond prices generally increased in the wake of
three rate cuts by the Fed, shortest-term bonds are the least sensitive to
interest rate changes. In addition, the Fund is designed to exhibit little share
price volatility in most interest rate environments.
Page 5
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
For the 12-month period ended October 31, 2019, the Fund's net asset value
("NAV") and market price total returns were 2.68% and 2.67%, respectively. The
Fund performed in-line relative to the ICE BofAML 0-1 Year U.S. Treasury Index.
Performance relative to its benchmark benefited from allocations to corporate
credit and securitized products, including asset-backed securities ("ABS") and
Agency collateralized mortgage obligations ("CMO"). Commercial paper had a
positive contribution to return but detracted from performance relative to the
benchmark due to falling interest rates that had a more positive impact on
longer maturity Treasuries.
The largest contributor to the Fund's return came from its allocation to
corporate bonds. Corporate debt benefited from steady economic growth, healthy
earnings, and resilient household spending. In addition, high demand from
yield-seeking buyers boosted corporate bonds. Within the corporate sector, banks
were the largest contributors to the Fund's return. These issuers made up 21% of
the Fund on average during the period. Despite falling rates and a flattening
yield curve, banks generally improved owing in part to relatively low amount of
new debt issuance alongside improving credit quality. Bonds issued by companies
in the consumer non-cyclical and energy industries also contributed to the
Fund's performance and were supported by demand for consumer products and a
relatively stable outlook for crude oil prices. In the securitized product
sector, positions in auto ABS and CMOs benefited the Fund as investors seeking
yield drove demand for these products. In addition, agency-backed mortgage
product remained more insulated from the adverse economic effects of trade
tensions, and auto-ABS benefited from the strong household sector.
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 maturity was kept around one year and
weighted average effective duration between one-quarter and one-half of a year.
MARKET AND FUND OUTLOOK
While global central banks have turned dovish to ease financial conditions and
combat global growth and inflation concerns, the trade spat between the U.S. and
China remains top of mind. Despite these headwinds, we continue to expect global
growth to slow yet remain positive in the face of tariffs and trade frictions
that stand to be an ongoing drag on investor and business confidence unless a
sustainable truce can be achieved. Fortunately, the U.S. household sector
appears firm, in our view, even as the manufacturing sectors of the U.S. and
European economies wrestle with headwinds from trade. This backdrop should
provide adequate support for credit, in our opinion. We expect the U.S. economy
will grow at an above-trend pace in 2019 and 2020 although at a sequentially
slower pace. We see inflationary pressures staying below the Fed's 2% objective
this year but wage and employment growth, combined with the impact of tariffs,
should drive inflation higher in 2020, in our opinion.
Our base case is that the Fed will be on hold for an extended period after
cutting rates by 0.75% over the last four months and that policymakers will
monitor incoming data for signs that the economy is responding well to the rate
cuts. Our current "on-hold" view contrasts with market pricing which implies one
additional cut over the next 12 months. As such, we believe further improvement
in sentiment could lead to a backup in yields and offer more attractive entry
points. Our constructive outlook on credit is supported by our expectations for
earnings growth and adequate free cash flow in addition to positive supply and
demand conditions. Given our outlook, we are comfortable maintaining credit
spread duration while keeping interest rate duration low. Select domestic banks,
consumer non-cyclicals and mid-stream companies are among the sectors where we
see value currently. On the back of resilience in U.S. consumer data, we
continue to see prime quality auto ABS and agency-backed mortgages as offering
relatively attractive valuation and a more defensive source of credit risk.
As we evaluate new investment opportunities, our research will seek to identify
opportunities that we believe offer the best risk/reward balance, and decisions
will continue to be based on the analysis of data that results in sound,
evidence-based conclusions.
Page 6
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2019 (UNAUDITED)
As a shareholder of First Trust Enhanced Short Maturity ETF (the "Fund"), you
incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service (12b-1) fees, if any, and
other Fund expenses. This Example is intended to help you understand your
ongoing costs of investing in the Fund and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2019.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2019 OCTOBER 31, 2019 PERIOD (a) PERIOD (b)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
Actual $1,000.00 $1,013.50 0.40% $2.03
Hypothetical (5% return before expenses) $1,000.00 $1,023.19 0.40% $2.04
</TABLE>
(a) These expense ratios reflect expense waivers. See Note 3 in the Notes to
the Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2019
through October 31, 2019), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 39.0%
AEROSPACE/DEFENSE -- 1.1%
$ 1,630,000 L3Harris Technologies, Inc...................................... 2.70% 04/27/20 $ 1,632,834
1,300,000 L3Harris Technologies, Inc., 3 Mo. LIBOR + 0.48% (a)............ 2.42% 04/30/20 1,300,512
1,058,000 Lockheed Martin Corp............................................ 4.25% 11/15/19 1,058,739
6,150,000 Lockheed Martin Corp............................................ 2.50% 11/23/20 6,183,610
11,914,000 Northrop Grumman Corp........................................... 2.08% 10/15/20 11,931,815
715,000 United Technologies Corp., 3 Mo. LIBOR + 0.35% (a).............. 2.60% 11/01/19 715,000
11,470,000 United Technologies Corp........................................ 4.50% 04/15/20 11,607,819
20,000,000 United Technologies Corp., 3 Mo. LIBOR + 0.65% (a).............. 2.82% 08/16/21 20,003,961
----------------
54,434,290
----------------
AGRICULTURE -- 0.3%
13,029,000 BAT Capital Corp., 3 Mo. LIBOR + 0.59% (a)...................... 2.77% 08/14/20 13,056,964
----------------
AIRLINES -- 0.1%
4,430,000 Southwest Airlines Co........................................... 2.75% 11/06/19 4,430,122
----------------
AUTO MANUFACTURERS -- 3.7%
6,000,000 American Honda Finance Corp., 3 Mo. LIBOR +
0.26% (a).................................................... 2.38% 06/16/20 6,008,891
2,000,000 American Honda Finance Corp., Medium-Term Note,
3 Mo. LIBOR + 0.15% (a)...................................... 2.33% 11/13/19 2,000,171
1,000,000 American Honda Finance Corp., Medium-Term Note,
3 Mo. LIBOR + 0.34% (a)...................................... 2.52% 02/14/20 1,001,133
3,800,000 American Honda Finance Corp., Medium-Term Note,
3 Mo. LIBOR + 0.47% (a)...................................... 2.50% 01/08/21 3,813,080
3,000,000 American Honda Finance Corp., Medium-Term Note,
3 Mo. LIBOR + 0.35% (a)...................................... 2.49% 06/11/21 3,007,861
1,000,000 BMW US Capital LLC, 3 Mo. LIBOR + 0.37% (a) (b)................. 2.55% 08/14/20 1,001,785
10,000,000 BMW US Capital LLC, 3 Mo. LIBOR + 0.41% (a) (b)................. 2.41% 04/12/21 10,018,262
4,400,000 BMW US Capital LLC, 3 Mo. LIBOR + 0.50% (a) (b)................. 2.68% 08/13/21 4,409,541
5,000,000 Daimler Finance North America LLC (b)........................... 2.25% 03/02/20 5,004,885
10,000,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.39% (a) (b)................................................ 2.29% 05/04/20 10,006,771
1,500,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.53% (a) (b)................................................ 2.42% 05/05/20 1,501,708
5,730,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.43% (a) (b)................................................ 2.61% 02/12/21 5,730,535
5,000,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.67% (a) (b)................................................ 2.56% 11/05/21 5,009,529
2,000,000 Daimler Finance North America LLC, 3 Mo. LIBOR +
0.90% (a) (b)................................................ 3.06% 02/15/22 2,013,485
14,742,000 General Motors Co., 3 Mo. LIBOR + 0.80% (a)..................... 3.01% 08/07/20 14,765,783
7,811,000 General Motors Financial Co., Inc............................... 2.65% 04/13/20 7,822,617
15,588,000 General Motors Financial Co., Inc., 3 Mo. LIBOR +
0.93% (a).................................................... 2.92% 04/13/20 15,621,763
6,000,000 General Motors Financial Co., Inc............................... 3.20% 07/13/20 6,038,253
3,000,000 General Motors Financial Co., Inc., 3 Mo. LIBOR +
0.54% (a).................................................... 2.45% 11/06/20 2,992,775
8,000,000 General Motors Financial Co., Inc., 3 Mo. LIBOR +
1.10% (a).................................................... 3.01% 11/06/21 8,020,377
2,700,000 Nissan Motor Acceptance Corp., 3 Mo. LIBOR +
0.39% (a) (b)................................................ 2.49% 09/28/20 2,701,480
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
AUTO MANUFACTURERS (CONTINUED)
$ 3,000,000 Nissan Motor Acceptance Corp., 3 Mo. LIBOR +
0.69% (a) (b)................................................ 2.79% 09/28/22 $ 2,994,638
2,000,000 PACCAR Financial Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.26% (a)............................................ 2.44% 05/10/21 2,000,845
500,000 Toyota Motor Credit Corp., 3 Mo. LIBOR + 0.26% (a).............. 2.26% 04/17/20 500,572
4,000,000 Toyota Motor Credit Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.28% (a)............................................ 2.28% 04/13/21 4,005,815
9,677,000 Toyota Motor Credit Corp., Medium-Term Note..................... 1.80% 10/07/21 9,686,384
15,000,000 Toyota Motor Credit Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.29% (a)............................................ 2.33% 10/07/21 15,012,259
17,370,000 Volkswagen Group of America Finance LLC, 3 Mo.
LIBOR + 0.77% (a) (b)........................................ 2.95% 11/13/20 17,444,224
7,000,000 Volkswagen Group of America Finance LLC (b)..................... 2.50% 09/24/21 7,050,303
10,000,000 Volkswagen Group of America Finance LLC, 3 Mo. LIBOR
+ 0.86% (a) (b).............................................. 2.97% 09/24/21 10,054,032
----------------
187,239,757
----------------
BANKS -- 10.6%
6,239,000 Bank of America Corp., 3 Mo. LIBOR + 0.38% (a).................. 2.31% 01/23/22 6,241,580
5,000,000 Bank of America Corp., Global Medium-Term Note, 3 Mo.
LIBOR + 1.42% (a)............................................ 3.39% 04/19/21 5,087,943
6,642,000 Bank of America Corp., Global Medium-Term Note (c).............. 2.37% 07/21/21 6,658,470
4,000,000 Bank of America Corp., Global Medium-Term Note, 3 Mo.
LIBOR + 0.66% (a)............................................ 2.63% 07/21/21 4,012,547
5,000,000 Bank of America Corp., Medium-Term Note......................... 2.63% 10/19/20 5,034,257
18,560,000 Bank of America Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.65% (a)............................................ 2.76% 06/25/22 18,654,314
3,000,000 Bank of America N.A., 3 Mo. LIBOR + 0.35% (a)................... 2.48% 05/24/21 3,003,106
15,000,000 Bank of America N.A., 3 Mo. LIBOR + 0.32% (a)................... 2.26% 07/26/21 15,013,983
4,000,000 Bank of New York Mellon (The), 3 Mo. LIBOR +
0.30% (a).................................................... 2.43% 12/04/20 4,001,642
5,000,000 Bank of New York Mellon (The), Medium-Term Note,
3 Mo. LIBOR + 0.28% (a)...................................... 2.41% 06/04/21 5,007,084
5,000,000 BB&T Corp., Medium-Term Note.................................... 2.45% 01/15/20 5,003,222
1,031,000 BB&T Corp., Medium-Term Note, 3 Mo. LIBOR +
0.57% (a).................................................... 2.69% 06/15/20 1,034,321
8,661,000 BB&T Corp., Medium-Term Note, 3 Mo. LIBOR +
0.22% (a).................................................... 2.13% 02/01/21 8,660,741
260,000 Branch Banking & Trust Co., 3 Mo. LIBOR + 0.22% (a)............. 2.35% 06/01/20 260,218
7,000,000 Capital One N.A................................................. 2.35% 01/31/20 7,004,275
3,385,000 Capital One N.A., 3 Mo. LIBOR + 0.82% (a)....................... 3.01% 08/08/22 3,396,634
3,000,000 Citibank N.A., 3 Mo. LIBOR + 0.30% (a).......................... 2.27% 10/20/20 3,004,064
10,760,000 Citibank N.A., 3 Mo. LIBOR + 0.35% (a).......................... 2.53% 02/12/21 10,778,636
8,998,000 Citibank N.A., 3 Mo. LIBOR + 0.57% (a).......................... 2.50% 07/23/21 9,035,575
15,000,000 Citibank N.A., 3 Mo. LIBOR + 0.60% (a).......................... 2.74% 05/20/22 15,046,858
1,000,000 Citigroup, Inc., 3 Mo. LIBOR + 1.19% (a)........................ 3.09% 08/02/21 1,014,736
2,000,000 Citigroup, Inc., 3 Mo. LIBOR + 1.07% (a)........................ 3.17% 12/08/21 2,028,934
15,338,000 Citigroup, Inc., 3 Mo. LIBOR + 0.96% (a)........................ 2.90% 04/25/22 15,532,640
5,000,000 Citigroup, Inc. (c)............................................. 2.31% 11/04/22 5,015,863
5,000,000 Citigroup, Inc., SOFR + 0.87% (a)............................... 2.45% 11/04/22 5,022,492
9,233,000 Citizens Bank N.A./Providence RI................................ 2.25% 03/02/20 9,239,396
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 1,000,000 Citizens Bank N.A./Providence RI, 3 Mo. LIBOR +
0.54% (a).................................................... 2.68% 03/02/20 $ 1,001,253
6,425,000 Citizens Bank N.A./Providence RI, 3 Mo. LIBOR +
0.57% (a).................................................... 2.70% 05/26/20 6,441,113
2,013,000 Citizens Bank N.A./Providence RI................................ 2.25% 10/30/20 2,019,011
1,500,000 Citizens Bank N.A./Providence RI, Medium-Term Note.............. 2.55% 05/13/21 1,512,510
8,000,000 Comerica Bank................................................... 2.50% 06/02/20 8,026,102
14,535,000 Discover Bank................................................... 3.10% 06/04/20 14,618,346
7,725,000 Fifth Third Bank/Cincinnati OH, 3 Mo. LIBOR +
0.44% (a).................................................... 2.38% 07/26/21 7,757,875
5,194,000 Goldman Sachs Bank USA/New York NY, SOFR +
0.60% (a).................................................... 2.54% 05/24/21 5,199,467
5,000,000 Goldman Sachs Group, (The), Inc., 3 Mo. LIBOR +
1.11% (a).................................................... 3.05% 04/26/22 5,052,639
6,000,000 Goldman Sachs Group, (The), Inc................................. 2.60% 04/23/20 6,017,310
6,500,000 Goldman Sachs Group, (The), Inc., 3 Mo. LIBOR +
1.16% (a).................................................... 3.09% 04/23/20 6,526,332
7,000,000 Goldman Sachs Group, (The), Inc., 3 Mo. LIBOR +
1.20% (a).................................................... 3.32% 09/15/20 7,055,248
3,000,000 Goldman Sachs Group, (The), Inc., 3 Mo. LIBOR +
0.73% (a).................................................... 2.83% 12/27/20 3,002,892
10,308,000 Goldman Sachs Group, (The), Inc., 3 Mo. LIBOR +
1.17% (a).................................................... 3.33% 11/15/21 10,394,163
6,710,000 Huntington National Bank (The).................................. 2.38% 03/10/20 6,718,734
5,000,000 JPMorgan Chase & Co............................................. 2.25% 01/23/20 5,002,303
15,470,000 JPMorgan Chase & Co., 3 Mo. LIBOR + 0.55% (a)................... 2.65% 03/09/21 15,494,689
5,000,000 JPMorgan Chase & Co., 3 Mo. LIBOR + 0.68% (a)................... 2.82% 06/01/21 5,014,700
3,000,000 JPMorgan Chase & Co., 3 Mo. LIBOR + 0.61% (a)................... 2.76% 06/18/22 3,010,928
2,500,000 JPMorgan Chase & Co. (c)........................................ 3.51% 06/18/22 2,556,755
2,562,000 JPMorgan Chase Bank N.A., 3 Mo. LIBOR + 0.29% (a)............... 2.20% 02/01/21 2,562,730
5,000,000 JPMorgan Chase Bank N.A., 3 Mo. LIBOR + 0.37% (a)............... 2.49% 02/19/21 5,004,330
10,000,000 JPMorgan Chase Bank N.A., 3 Mo. LIBOR + 0.34% (a)............... 2.28% 04/26/21 10,006,537
5,000,000 JPMorgan Chase Bank N.A. (c).................................... 3.09% 04/26/21 5,025,373
6,000,000 KeyBank N.A./Cleveland OH....................................... 2.50% 12/15/19 6,003,343
3,300,000 KeyBank N.A./Cleveland OH, 3 Mo. LIBOR + 0.81% (a).............. 2.96% 11/22/21 3,335,130
14,406,000 KeyCorp., Medium-Term Note...................................... 2.90% 09/15/20 14,527,217
7,057,000 Morgan Stanley, 3 Mo. LIBOR + 1.14% (a)......................... 3.08% 01/27/20 7,073,326
15,784,000 Morgan Stanley, 3 Mo. LIBOR + 1.18% (a)......................... 3.15% 01/20/22 15,950,066
18,224,000 Morgan Stanley, Global Medium-Term Note, 3 Mo.
LIBOR + 0.55% (a)............................................ 2.73% 02/10/21 18,241,536
11,000,000 Morgan Stanley, Global Medium-Term Note, 3 Mo.
LIBOR + 1.40% (a)............................................ 3.37% 04/21/21 11,179,698
6,000,000 Morgan Stanley, Global Medium-Term Note......................... 2.50% 04/21/21 6,045,285
7,750,000 PNC Bank N.A., 3 Mo. LIBOR + 0.36% (a).......................... 2.48% 05/19/20 7,764,471
20,000,000 PNC Bank N.A., 3 Mo. LIBOR + 0.35% (a).......................... 2.48% 03/12/21 20,027,134
12,050,000 Regions Bank/Birmingham AL, 3 Mo. LIBOR +
0.38% (a).................................................... 2.48% 04/01/21 12,049,538
7,000,000 Regions Bank/Birmingham AL, 3 Mo. LIBOR +
0.50% (a).................................................... 2.68% 08/13/21 7,007,094
5,916,000 SunTrust Bank/Atlanta GA........................................ 2.25% 01/31/20 5,918,895
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 11,347,000 SunTrust Bank/Atlanta GA (c).................................... 2.59% 01/29/21 $ 11,358,388
7,000,000 SunTrust Bank/Atlanta GA, 3 Mo. LIBOR + 0.50% (a)............... 2.44% 10/26/21 7,011,936
10,000,000 SunTrust Bank/Atlanta GA, 3 Mo. LIBOR + 0.59% (a)............... 2.71% 05/17/22 10,040,257
5,000,000 US Bank N.A./Cincinnati OH, 3 Mo. LIBOR +
0.25% (a).................................................... 2.19% 07/24/20 5,004,611
2,000,000 US Bank N.A./Cincinnati OH, 3 Mo. LIBOR +
0.32% (a).................................................... 2.26% 04/26/21 2,005,641
3,000,000 Wells Fargo & Co., 3 Mo. LIBOR + 0.93% (a)...................... 3.11% 02/11/22 3,020,277
2,500,000 Wells Fargo & Co., Medium-Term Note, Series N, 3 Mo.
LIBOR + 0.68% (a)............................................ 2.62% 01/30/20 2,504,040
5,000,000 Wells Fargo & Co., Medium-Term Note............................. 3.00% 01/22/21 5,068,698
1,735,000 Wells Fargo & Co., Medium-Term Note, Series N................... 2.15% 01/30/20 1,736,154
3,793,000 Wells Fargo Bank N.A., 3 Mo. LIBOR + 0.50% (a).................. 2.43% 07/23/21 3,799,425
12,087,000 Wells Fargo Bank N.A., 3 Mo. LIBOR + 0.51% (a).................. 2.46% 10/22/21 12,134,579
7,000,000 Wells Fargo Bank N.A., 3 Mo. LIBOR + 0.62% (a).................. 2.75% 05/27/22 7,023,868
10,000,000 Wells Fargo Bank N.A., Medium-Term Note, 3 Mo.
LIBOR + 0.38% (a)............................................ 2.53% 05/21/21 10,006,947
----------------
534,652,425
----------------
BEVERAGES -- 0.2%
3,000,000 Constellation Brands, Inc....................................... 2.00% 11/07/19 2,999,936
7,689,000 Constellation Brands, Inc., 3 Mo. LIBOR + 0.70% (a)............. 2.86% 11/15/21 7,689,608
----------------
10,689,544
----------------
BIOTECHNOLOGY -- 0.6%
15,500,000 Amgen, Inc., 3 Mo. LIBOR + 0.45% (a)............................ 2.63% 05/11/20 15,527,586
15,060,000 Celgene Corp.................................................... 2.88% 08/15/20 15,158,565
----------------
30,686,151
----------------
BUILDING MATERIALS -- 0.1%
2,000,000 Martin Marietta Materials, Inc., 3 Mo. LIBOR +
0.50% (a).................................................... 2.66% 12/20/19 2,000,454
2,000,000 Vulcan Materials Co., 3 Mo. LIBOR + 0.60% (a)................... 2.72% 06/15/20 2,002,051
----------------
4,002,505
----------------
CHEMICALS -- 0.2%
2,000,000 Chevron Phillips Chemical Co. LLC / Chevron Phillips
Chemical Co., L.P., 3 Mo. LIBOR + 0.75% (a) (b).............. 2.66% 05/01/20 2,004,743
5,934,000 DuPont de Nemours, Inc., 3 Mo. LIBOR + 0.71% (a)................ 2.87% 11/15/20 5,962,676
----------------
7,967,419
----------------
COMMERCIAL SERVICES -- 0.1%
3,849,000 ERAC USA Finance LLC (b)........................................ 5.25% 10/01/20 3,965,903
----------------
COMPUTERS -- 0.4%
8,340,000 Hewlett Packard Enterprise Co................................... 3.60% 10/15/20 8,453,135
3,905,000 Hewlett Packard Enterprise Co., 3 Mo. LIBOR +
0.68% (a).................................................... 2.81% 03/12/21 3,920,679
10,000,000 International Business Machines Corp., 3 Mo. LIBOR +
0.40% (a).................................................... 2.58% 05/13/21 10,048,710
----------------
22,422,524
----------------
DIVERSIFIED FINANCIAL SERVICES -- 2.1%
4,100,000 AIG Global Funding, 3 Mo. LIBOR + 0.65% (a) (b)................. 2.60% 01/22/21 4,115,117
15,226,000 Air Lease Corp.................................................. 2.13% 01/15/20 15,224,316
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
$ 3,940,000 Air Lease Corp.................................................. 4.75% 03/01/20 $ 3,973,037
8,111,000 American Express Co., 3 Mo. LIBOR + 0.33% (a)................... 2.27% 10/30/20 8,125,836
6,000,000 American Express Co., 3 Mo. LIBOR + 0.53% (a)................... 2.65% 05/17/21 6,017,590
11,000,000 American Express Co., 3 Mo. LIBOR + 0.60% (a)................... 2.89% 11/05/21 11,061,296
14,495,000 American Express Co., 3 Mo. LIBOR + 0.62% (a)................... 2.76% 05/20/22 14,567,721
3,000,000 American Express Co., 3 Mo. LIBOR + 0.75% (a)................... 2.65% 08/03/23 3,024,027
17,000,000 Capital One Financial Corp., 3 Mo. LIBOR + 0.76% (a)............ 2.94% 05/12/20 17,047,311
2,870,000 Capital One Financial Corp., 3 Mo. LIBOR + 0.45% (a)............ 2.39% 10/30/20 2,875,575
2,905,000 Capital One Financial Corp...................................... 3.45% 04/30/21 2,965,883
9,480,000 Charles Schwab (The) Corp., 3 Mo. LIBOR + 0.32% (a)............. 2.47% 05/21/21 9,493,110
6,633,000 TD Ameritrade Holding Corp., 3 Mo. LIBOR +
0.43% (a).................................................... 2.34% 11/01/21 6,644,444
----------------
105,135,263
----------------
ELECTRIC -- 2.5%
2,080,000 Appalachian Power Co............................................ 4.60% 03/30/21 2,139,658
11,000,000 Consolidated Edison Co. of New York, Inc., Series C,
3 Mo. LIBOR + 0.40% (a)...................................... 2.51% 06/25/21 11,044,402
10,000,000 Consolidated Edison, Inc........................................ 2.00% 05/15/21 10,009,351
5,000,000 Duke Energy Corp., 3 Mo. LIBOR + 0.50% (a) (b).................. 2.68% 05/14/21 5,018,739
5,900,000 Duke Energy Corp., 3 Mo. LIBOR + 0.65% (a)...................... 2.79% 03/11/22 5,930,280
64,750 Duke Energy Florida LLC......................................... 2.10% 12/15/19 64,756
8,950,000 Exelon Corp..................................................... 2.85% 06/15/20 8,991,201
13,339,000 Exelon Generation Co. LLC....................................... 2.95% 01/15/20 13,347,363
13,000,000 Florida Power & Light Co., 3 Mo. LIBOR + 0.40% (a).............. 2.64% 05/06/22 13,000,781
7,425,000 NextEra Energy Capital Holdings, Inc............................ 2.40% 09/01/21 7,485,004
4,520,000 NextEra Energy Capital Holdings, Inc., 3 Mo. LIBOR +
0.72% (a).................................................... 2.85% 02/25/22 4,558,653
10,000,000 Progress Energy, Inc............................................ 4.88% 12/01/19 10,021,570
13,155,000 Public Service Enterprise Group, Inc............................ 1.60% 11/15/19 13,152,910
7,686,000 Southern Power Co., Series 15B.................................. 2.38% 06/01/20 7,701,711
16,000,000 WEC Energy Group, Inc........................................... 2.45% 06/15/20 16,038,692
----------------
128,505,071
----------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.1%
7,226,000 Molex Electronic Technologies LLC (b)........................... 2.88% 04/15/20 7,241,855
----------------
ELECTRONICS -- 0.0%
2,000,000 Honeywell International, Inc., 3 Mo. LIBOR + 0.37% (a).......... 2.56% 08/08/22 2,009,582
----------------
ENVIRONMENTAL CONTROL -- 0.2%
8,876,000 Waste Management, Inc........................................... 4.75% 06/30/20 9,039,853
----------------
FOOD -- 1.1%
13,000,000 Conagra Brands, Inc., 3 Mo. LIBOR + 0.75% (a)................... 2.70% 10/22/20 13,001,195
13,477,000 General Mills, Inc., 3 Mo. LIBOR + 0.54% (a).................... 2.54% 04/16/21 13,517,179
13,800,000 JM Smucker (The) Co............................................. 2.50% 03/15/20 13,824,126
4,000,000 Kroger (The) Co................................................. 6.15% 01/15/20 4,032,830
11,484,000 Tyson Foods, Inc., 3 Mo. LIBOR + 0.55% (a)...................... 2.68% 06/02/20 11,505,654
----------------
55,880,984
----------------
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
GAS -- 0.2%
$ 4,103,000 Dominion Energy Gas Holdings LLC................................ 2.80% 11/15/20 $ 4,135,844
8,000,000 Dominion Energy Gas Holdings LLC, Series A, 3 Mo.
LIBOR + 0.60% (a)............................................ 2.72% 06/15/21 8,041,027
----------------
12,176,871
----------------
HEALTH CARE PRODUCTS -- 0.5%
1,941,000 Becton Dickinson and Co......................................... 2.68% 12/15/19 1,941,656
3,341,000 Becton Dickinson and Co......................................... 2.40% 06/05/20 3,349,996
10,595,000 Zimmer Biomet Holdings, Inc..................................... 4.63% 11/30/19 10,613,334
10,428,000 Zimmer Biomet Holdings, Inc..................................... 2.70% 04/01/20 10,449,622
----------------
26,354,608
----------------
HEALTH CARE SERVICES -- 0.2%
4,000,000 UnitedHealth Group, Inc......................................... 2.30% 12/15/19 4,002,029
1,000,000 UnitedHealth Group, Inc., 3 Mo. LIBOR + 0.07% (a)............... 2.07% 10/15/20 998,839
6,156,000 UnitedHealth Group, Inc., 3 Mo. LIBOR + 0.26% (a)............... 2.38% 06/15/21 6,150,887
----------------
11,151,755
----------------
INSURANCE -- 2.1%
1,000,000 Allstate (The) Corp., 3 Mo. LIBOR + 0.43% (a)................... 2.53% 03/29/21 1,002,639
2,782,000 Allstate (The) Corp., 3 Mo. LIBOR + 0.63% (a)................... 2.73% 03/29/23 2,788,671
3,692,000 American International Group, Inc............................... 3.38% 08/15/20 3,734,312
7,306,000 Hartford Financial Services Group (The), Inc.................... 5.50% 03/30/20 7,410,017
5,490,000 Jackson National Life Global Funding, 3 Mo. LIBOR +
0.30% (a) (b)................................................ 2.24% 04/27/20 5,495,964
3,750,000 Jackson National Life Global Funding, 3 Mo. LIBOR +
0.30% (a) (b)................................................ 2.30% 10/15/20 3,756,139
11,510,000 Jackson National Life Global Funding, 3 Mo. LIBOR +
0.48% (a) (b)................................................ 2.62% 06/11/21 11,556,776
6,000,000 Lincoln National Corp........................................... 6.25% 02/15/20 6,068,596
5,000,000 Metropolitan Life Global Funding I, SOFR +
0.57% (a) (b)................................................ 2.39% 09/07/20 5,012,611
10,000,000 Metropolitan Life Global Funding I, 3 Mo. LIBOR +
0.23% (a) (b)................................................ 2.26% 01/08/21 10,013,666
2,000,000 New York Life Global Funding, 3 Mo. LIBOR +
0.28% (a) (b)................................................ 2.22% 01/28/21 2,003,372
20,000,000 New York Life Global Funding, 3 Mo. LIBOR +
0.28% (a) (b)................................................ 2.23% 01/21/22 20,027,585
10,550,000 New York Life Global Funding, 3 Mo. LIBOR +
0.44% (a) (b)................................................ 2.44% 07/12/22 10,576,520
2,900,000 Principal Life Global Funding II (b)............................ 2.20% 04/08/20 2,903,243
14,300,000 Protective Life Global Funding, 3 Mo. LIBOR +
0.52% (a) (b)................................................ 2.62% 06/28/21 14,367,791
----------------
106,717,902
----------------
LODGING -- 0.3%
1,850,000 Marriott International, Inc., 3 Mo. LIBOR + 0.65% (a)........... 2.75% 03/08/21 1,858,575
13,405,000 Marriott International, Inc., Series Y, 3 Mo. LIBOR +
0.60% (a).................................................... 2.74% 12/01/20 13,442,679
----------------
15,301,254
----------------
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
MACHINERY-CONSTRUCTION & MINING -- 0.8%
$ 2,000,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.25% (a)...................................... 2.38% 08/26/20 $ 2,003,231
3,750,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.30% (a)...................................... 2.41% 03/08/21 3,753,894
6,000,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.23% (a)...................................... 2.35% 03/15/21 6,006,674
9,879,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.28% (a)...................................... 2.38% 09/07/21 9,884,721
1,379,000 Caterpillar Financial Services Corp., Medium-Term Note,
3 Mo. LIBOR + 0.59% (a)...................................... 2.70% 06/06/22 1,385,895
15,000,000 Caterpillar Financial Services Corp., Medium-Term Note,
Series I, 3 Mo. LIBOR + 0.39% (a)............................ 2.51% 05/17/21 15,038,143
----------------
38,072,558
----------------
MACHINERY-DIVERSIFIED -- 0.3%
15,000,000 John Deere Capital Corp., Medium-Term Note, 3 Mo.
LIBOR + 0.49% (a)............................................ 2.62% 06/13/22 15,061,569
2,200,000 Roper Technologies, Inc......................................... 3.00% 12/15/20 2,223,561
----------------
17,285,130
----------------
MEDIA -- 1.1%
14,980,000 Comcast Corp., 3 Mo. LIBOR + 0.33% (a).......................... 2.43% 10/01/20 15,019,980
22,810,000 NBCUniversal Enterprise, Inc., 3 Mo. LIBOR +
0.40% (a) (b)................................................ 2.50% 04/01/21 22,892,826
5,000,000 Walt Disney (The) Co., 3 Mo. LIBOR + 0.25% (a).................. 2.36% 09/01/21 5,015,248
13,450,000 Walt Disney (The) Co., 3 Mo. LIBOR + 0.39% (a).................. 2.50% 09/01/22 13,544,913
----------------
56,472,967
----------------
MISCELLANEOUS MANUFACTURING -- 0.4%
5,665,000 General Electric Co., Medium-Term Note.......................... 5.55% 05/04/20 5,758,177
13,419,000 General Electric Co., Medium-Term Note.......................... 4.38% 09/16/20 13,681,134
----------------
19,439,311
----------------
OIL & GAS -- 1.9%
9,169,000 BP Capital Markets America, Inc., 3 Mo. LIBOR +
0.65% (a).................................................... 2.81% 09/19/22 9,223,014
3,500,000 Chevron Corp., 3 Mo. LIBOR + 0.95% (a).......................... 3.12% 05/16/21 3,549,799
2,235,000 Chevron Corp., 3 Mo. LIBOR + 0.48% (a).......................... 2.62% 03/03/22 2,246,705
14,003,000 ConocoPhillips Co., 3 Mo. LIBOR + 0.90% (a)..................... 3.06% 05/15/22 14,206,795
7,000,000 EOG Resources, Inc.............................................. 2.45% 04/01/20 7,012,395
4,075,000 EOG Resources, Inc.............................................. 4.40% 06/01/20 4,135,179
10,000,000 Exxon Mobil Corp., 3 Mo. LIBOR + 0.33% (a)...................... 2.50% 08/16/22 10,055,889
4,507,000 Marathon Petroleum Corp......................................... 3.40% 12/15/20 4,571,125
9,080,000 Occidental Petroleum Corp., 3 Mo. LIBOR + 0.95% (a)............. 3.14% 02/08/21 9,144,983
10,498,000 Occidental Petroleum Corp....................................... 2.60% 08/13/21 10,567,567
7,000,000 Occidental Petroleum Corp., 3 Mo. LIBOR + 1.45% (a)............. 3.64% 08/15/22 7,044,112
3,250,000 Phillips 66, 3 Mo. LIBOR + 0.75% (a) (b)........................ 2.75% 04/15/20 3,251,173
7,419,000 Phillips 66, 3 Mo. LIBOR + 0.60% (a)............................ 2.73% 02/26/21 7,420,071
4,950,000 Pioneer Natural Resources Co.................................... 7.50% 01/15/20 5,000,475
1,012,000 Pioneer Natural Resources Co.................................... 3.45% 01/15/21 1,027,813
----------------
98,457,095
----------------
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
PHARMACEUTICALS -- 2.0%
$ 20,806,000 AbbVie, Inc..................................................... 2.50% 05/14/20 $ 20,865,543
5,000,000 Bayer US Finance II LLC, 3 Mo. LIBOR + 0.63% (a) (b)............ 2.74% 06/25/21 5,014,592
9,321,000 Bristol-Myers Squibb Co., 3 Mo. LIBOR + 0.20% (a) (b)........... 2.37% 11/16/20 9,327,489
5,855,000 Bristol-Myers Squibb Co. (b).................................... 2.55% 05/14/21 5,921,618
6,000,000 Bristol-Myers Squibb Co., 3 Mo. LIBOR + 0.38% (a) (b)........... 2.55% 05/16/22 6,008,061
7,000,000 Cigna Corp., 3 Mo. LIBOR + 0.35% (a)............................ 2.49% 03/17/20 7,002,953
11,000,000 Cigna Corp., Series WI, 3 Mo. LIBOR + 0.65% (a)................. 2.79% 09/17/21 11,001,811
1,558,000 CVS Health Corp., 3 Mo. LIBOR + 0.63% (a)....................... 2.73% 03/09/20 1,560,511
21,620,000 CVS Health Corp................................................. 2.80% 07/20/20 21,725,461
6,000,000 CVS Health Corp., 3 Mo. LIBOR + 0.72% (a)....................... 2.82% 03/09/21 6,034,714
6,391,000 CVS Health Corp................................................. 3.35% 03/09/21 6,505,706
2,500,000 Express Scripts Holding Co., 3 Mo. LIBOR + 0.75% (a)............ 2.87% 11/30/20 2,500,229
----------------
103,468,688
----------------
PIPELINES -- 2.5%
5,000,000 Enbridge Energy Partners, L.P................................... 4.38% 10/15/20 5,100,819
16,199,000 Energy Transfer Partners L.P. / Regency Energy Finance
Corp......................................................... 5.75% 09/01/20 16,531,869
5,225,000 Enterprise Products Operating LLC............................... 5.25% 01/31/20 5,265,354
11,977,000 Enterprise Products Operating LLC............................... 5.20% 09/01/20 12,304,123
3,000,000 Enterprise Products Operating LLC............................... 2.80% 02/15/21 3,031,697
2,000,000 Kinder Morgan Energy Partners L.P............................... 6.85% 02/15/20 2,026,260
7,756,000 Kinder Morgan Energy Partners L.P............................... 6.50% 04/01/20 7,891,376
17,740,000 Kinder Morgan, Inc.............................................. 3.05% 12/01/19 17,752,429
1,424,000 Kinder Morgan, Inc.............................................. 6.50% 09/15/20 1,477,353
5,000,000 MPLX L.P., 3 Mo. LIBOR + 0.90% (a).............................. 3.00% 09/09/21 5,020,724
20,000,000 MPLX L.P., 3 Mo. LIBOR + 1.10% (a).............................. 3.20% 09/09/22 20,075,318
9,025,000 Plains All American Pipeline L.P. / PAA Finance Corp............ 2.60% 12/15/19 9,025,240
2,400,000 Plains All American Pipeline L.P. / PAA Finance Corp............ 5.75% 01/15/20 2,415,724
6,355,000 Spectra Energy Partners, L.P., 3 Mo. LIBOR + 0.70% (a).......... 2.83% 06/05/20 6,367,833
9,462,000 Williams Cos. (The), Inc........................................ 5.25% 03/15/20 9,567,985
----------------
123,854,104
----------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
5,483,000 Boston Properties L.P........................................... 4.13% 05/15/21 5,633,747
----------------
RETAIL -- 0.6%
9,421,000 Dollar Tree, Inc., 3 Mo. LIBOR + 0.70% (a)...................... 2.70% 04/17/20 9,422,465
11,644,000 O'Reilly Automotive, Inc........................................ 4.88% 01/14/21 11,963,313
8,675,000 Walgreens Boots Alliance, Inc................................... 2.70% 11/18/19 8,676,927
----------------
30,062,705
----------------
SEMICONDUCTORS -- 0.3%
10,000,000 Broadcom Corp. / Broadcom Cayman Finance Ltd.................... 2.38% 01/15/20 10,003,694
4,301,000 Lam Research Corp............................................... 2.75% 03/15/20 4,309,848
----------------
14,313,542
----------------
SOFTWARE -- 0.0%
1,700,000 Fiserv, Inc..................................................... 2.70% 06/01/20 1,707,836
----------------
TELECOMMUNICATIONS -- 1.5%
2,000,000 AT&T, Inc., 3 Mo. LIBOR + 0.93% (a)............................. 3.03% 06/30/20 2,010,529
7,940,000 AT&T, Inc., 3 Mo. LIBOR + 0.75% (a)............................. 2.89% 06/01/21 7,977,245
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
$ 11,000,000 AT&T, Inc., 3 Mo. LIBOR + 0.95% (a)............................. 2.95% 07/15/21 $ 11,115,330
18,000,000 BellSouth LLC (b)............................................... 4.27% 04/26/20 18,022,860
9,000,000 Verizon Communications, Inc., 3 Mo. LIBOR +
0.55% (a).................................................... 2.70% 05/22/20 9,025,738
3,805,000 Verizon Communications, Inc..................................... 4.60% 04/01/21 3,949,603
25,385,000 Verizon Communications, Inc., 3 Mo. LIBOR +
1.00% (a).................................................... 3.12% 03/16/22 25,802,564
----------------
77,903,869
----------------
TRANSPORTATION -- 0.2%
7,438,000 Ryder System, Inc., Medium-Term Note............................ 2.88% 09/01/20 7,488,323
----------------
TRUCKING & LEASING -- 0.6%
7,365,000 Aviation Capital Group LLC, 3 Mo. LIBOR +
0.95% (a) (b)................................................ 3.08% 06/01/21 7,382,250
3,200,000 GATX Corp., 3 Mo. LIBOR + 0.72% (a)............................. 2.61% 11/05/21 3,215,064
6,335,000 Penske Truck Leasing Co., L.P. / PTL Finance Corp. (b).......... 3.05% 01/09/20 6,340,383
11,831,000 Penske Truck Leasing Co., L.P. / PTL Finance Corp. (b).......... 3.20% 07/15/20 11,907,081
----------------
28,844,778
----------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 1,976,067,255
(Cost $1,971,705,008) ----------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 26.7%
AEROSPACE/DEFENSE -- 0.4%
20,000,000 Boeing (The) Co................................................. 2.23% 02/26/20 19,858,180
----------------
AUTO MANUFACTURERS -- 0.8%
15,000,000 Ford Motor Credit Co. LLC....................................... 2.60% - 2.72% 11/01/19 15,000,000
10,000,000 General Motors Financial Co., Inc............................... 2.38% 11/06/19 9,996,745
15,000,000 VW Credit, Inc.................................................. 2.62% 11/08/19 14,992,463
----------------
39,989,208
----------------
BANKS -- 0.8%
10,000,000 Canadian Imperial Bank of Commerce, Federal Funds
Rate + 0.35% (a)............................................. 2.18% 08/27/20 10,000,000
20,000,000 Lloyds Bank PLC, 3 Mo. LIBOR + 0.10% (a)........................ 2.20% 12/20/19 20,000,000
10,000,000 National Australia Bank, Ltd., 1 Mo. LIBOR + 0.16% (a).......... 2.01% 05/20/20 9,998,347
----------------
39,998,347
----------------
BEVERAGES -- 0.4%
18,500,000 Keurig Dr Pepper, Inc........................................... 2.19% 11/15/19 18,484,440
----------------
CHEMICALS -- 0.8%
11,000,000 EI du Pont de Nemours & Co...................................... 2.29% 11/12/19 10,992,416
15,000,000 EI du Pont de Nemours & Co...................................... 2.29% 12/04/19 14,969,062
10,000,000 EI du Pont de Nemours & Co...................................... 2.31% 12/09/19 9,976,039
5,000,000 EI du Pont de Nemours & Co...................................... 2.17% 12/17/19 4,986,384
----------------
40,923,901
----------------
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
COMMERCIAL SERVICES -- 0.4%
$ 20,000,000 ERAC USA Finance LLC............................................ 2.27% 01/14/20 $ 19,908,197
----------------
COMPUTERS -- 0.5%
24,000,000 NetApp, Inc..................................................... 2.16% 12/13/19 23,939,800
----------------
ELECTRIC -- 2.6%
15,000,000 Enel Finance America LLC........................................ 2.42% 11/19/19 14,982,104
5,941,000 Enel Finance America LLC........................................ 2.40% 11/21/19 5,933,191
8,827,000 Enel Finance America LLC........................................ 2.46% 01/16/20 8,781,997
15,000,000 Enel Finance America LLC........................................ 2.27% 01/22/20 14,923,742
15,000,000 Entergy Corp.................................................... 2.40% 11/04/19 14,997,046
1,000,000 Entergy Corp.................................................... 2.15% 11/07/19 999,647
10,000,000 Entergy Corp.................................................... 2.29% 11/14/19 9,991,850
13,660,000 Entergy Corp.................................................... 2.25% 12/02/19 13,633,960
15,000,000 Entergy Corp.................................................... 2.27% 01/17/20 14,928,383
15,000,000 Oglethorpe Power Corp........................................... 2.35% 11/12/19 14,989,387
20,000,000 Public Service Enterprise Group, Inc............................ 2.17% 01/22/20 19,902,903
----------------
134,064,210
----------------
ELECTRONICS -- 2.0%
10,000,000 Arrow Electronics, Inc.......................................... 2.48% 11/04/19 9,997,962
14,500,000 Arrow Electronics, Inc.......................................... 2.46% 11/14/19 14,487,317
15,500,000 Arrow Electronics, Inc.......................................... 2.37% - 2.46% 11/21/19 15,479,646
4,012,000 Jabil, Inc...................................................... 2.59% 11/01/19 4,012,000
10,000,000 Jabil, Inc...................................................... 2.56% 11/06/19 9,996,496
5,000,000 Jabil, Inc...................................................... 2.56% 11/07/19 4,997,898
5,000,000 Jabil, Inc...................................................... 2.56% 11/12/19 4,996,146
8,000,000 Jabil, Inc...................................................... 2.56% 11/13/19 7,993,273
10,000,000 Jabil, Inc...................................................... 2.33% 11/18/19 9,989,138
20,000,000 Jabil, Inc...................................................... 2.30% 11/26/19 19,968,055
----------------
101,917,931
----------------
FOOD -- 2.4%
20,000,000 Campbell Soup Co................................................ 2.33% 11/25/19 19,969,356
5,000,000 Campbell Soup Co................................................ 2.20% 12/02/19 4,990,695
17,500,000 Campbell Soup Co................................................ 2.19% 12/09/19 17,460,266
15,000,000 Campbell Soup Co................................................ 2.18% 12/11/19 14,964,328
1,900,000 Campbell Soup Co................................................ 2.18% 12/13/19 1,895,256
8,500,000 Smithfield Foods, Inc........................................... 2.31% 11/05/19 8,497,818
10,000,000 Smithfield Foods, Inc........................................... 2.30% 11/06/19 9,996,806
10,000,000 Smithfield Foods, Inc........................................... 2.39% 11/12/19 9,992,816
10,000,000 Smithfield Foods, Inc........................................... 2.39% 11/13/19 9,992,163
10,000,000 Smithfield Foods, Inc........................................... 2.22% 11/14/19 9,992,091
15,000,000 Smithfield Foods, Inc........................................... 2.36% 11/18/19 14,983,565
----------------
122,735,160
----------------
GAS -- 1.0%
15,000,000 Sempra Global................................................... 2.29% 11/14/19 14,987,790
10,000,000 Sempra Global................................................... 2.19% 12/10/19 9,976,693
25,000,000 Sempra Global................................................... 2.27% 01/21/20 24,874,430
----------------
49,838,913
----------------
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
HEALTH CARE PRODUCTS -- 0.6%
$ 8,500,000 Boston Scientific Corp.......................................... 2.31% 11/05/19 $ 8,497,853
11,000,000 Boston Scientific Corp.......................................... 2.25% 12/10/19 10,973,641
12,000,000 Boston Scientific Corp.......................................... 2.22% 01/17/20 11,944,033
----------------
31,415,527
----------------
LEISURE TIME -- 1.5%
14,250,000 Royal Caribbean Cruises Ltd..................................... 2.31% 11/01/19 14,250,000
15,000,000 Royal Caribbean Cruises Ltd..................................... 2.25% 11/08/19 14,993,437
15,000,000 Royal Caribbean Cruises Ltd..................................... 2.29% 11/13/19 14,988,734
15,000,000 Royal Caribbean Cruises Ltd..................................... 2.23% 11/20/19 14,982,580
10,000,000 Royal Caribbean Cruises Ltd..................................... 2.24% 12/06/19 9,978,607
9,300,000 Royal Caribbean Cruises Ltd..................................... 2.26% 01/09/20 9,260,392
----------------
78,453,750
----------------
LODGING -- 0.2%
9,000,000 Marriott International, Inc..................................... 2.35% 12/18/19 8,972,899
----------------
MINING -- 1.2%
10,000,000 Glencore Funding LLC............................................ 2.34% 11/06/19 9,996,797
15,000,000 Glencore Funding LLC............................................ 2.34% 11/21/19 14,980,780
10,000,000 Glencore Funding LLC............................................ 2.34% 12/05/19 9,978,223
16,000,000 Glencore Funding LLC............................................ 2.29% - 2.34% 12/06/19 15,964,564
10,000,000 Glencore Funding LLC............................................ 2.24% 12/12/19 9,974,940
----------------
60,895,304
----------------
MISCELLANEOUS MANUFACTURING -- 1.1%
15,000,000 General Electric Co............................................. 2.28% 11/13/19 14,988,774
6,000,000 General Electric Co............................................. 2.29% 01/21/20 5,969,703
10,000,000 General Electric Co............................................. 2.16% 01/23/20 9,951,099
4,000,000 General Electric Co............................................. 2.16% 01/27/20 3,979,503
11,100,000 Parker-Hannifin Corp............................................ 2.25% 01/07/20 11,054,410
10,000,000 Parker-Hannifin Corp............................................ 2.25% 01/09/20 9,957,702
1,000,000 Pentair Finance Sarl............................................ 2.13% 11/01/19 1,000,000
----------------
56,901,191
----------------
OFFICE/BUSINESS EQUIPMENT -- 0.7%
10,000,000 Ricoh Finance Corp.............................................. 2.44% 11/01/19 10,000,000
3,750,000 Ricoh Finance Corp.............................................. 2.46% 11/20/19 3,745,205
9,500,000 Ricoh Finance Corp.............................................. 2.47% 11/25/19 9,484,599
10,000,000 Ricoh Finance Corp.............................................. 2.15% 12/02/19 9,981,744
----------------
33,211,548
----------------
OIL & GAS -- 2.7%
13,000,000 Encana Corp..................................................... 2.54% 11/04/19 12,997,286
15,000,000 Encana Corp..................................................... 2.54% 11/06/19 14,994,781
17,000,000 Encana Corp..................................................... 2.50% 11/14/19 16,984,876
15,000,000 Encana Corp..................................................... 2.46% - 2.60% 11/19/19 14,981,154
15,000,000 Encana Corp..................................................... 2.57% 12/03/19 14,966,334
14,000,000 Eni Finance USA, Inc............................................ 2.36% - 2.37% 11/07/19 13,994,555
8,500,000 Eni Finance USA, Inc............................................ 2.36% 11/13/19 8,493,412
11,191,000 Eni Finance USA, Inc............................................ 2.14% 01/23/20 11,136,811
15,000,000 Noble Energy, Inc............................................... 2.49% 11/06/19 14,994,893
15,000,000 Noble Energy, Inc............................................... 2.48% 11/07/19 14,993,897
----------------
138,537,999
----------------
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD ON DATE STATED
VALUE DESCRIPTION OF PURCHASE MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
PHARMACEUTICALS -- 0.3%
$ 14,750,000 Cigna Corp...................................................... 2.19% 01/30/20 $ 14,670,686
----------------
PIPELINES -- 0.4%
20,000,000 ETP Legacy L.P.................................................. 2.05% 11/01/19 20,000,000
----------------
REAL ESTATE INVESTMENT TRUSTS -- 0.7%
15,000,000 Alexandria Real Estate Equities, Inc............................ 2.27% 11/05/19 14,996,262
10,000,000 Alexandria Real Estate Equities, Inc............................ 2.22% 11/12/19 9,993,302
10,000,000 Crown Castle International Corp................................. 2.39% 11/04/19 9,998,038
----------------
34,987,602
----------------
RETAIL -- 0.3%
15,000,000 Walgreens Boots Alliance, Inc................................... 2.28% 02/25/20 14,892,308
----------------
SEMICONDUCTORS -- 1.4%
25,000,000 Broadcom, Inc................................................... 2.56% 11/07/19 24,989,473
15,000,000 Broadcom, Inc................................................... 2.54% 11/12/19 14,988,523
5,000,000 Broadcom, Inc................................................... 2.53% 11/14/19 4,995,500
25,000,000 Broadcom, Inc................................................... 2.46% 11/21/19 24,965,972
----------------
69,939,468
----------------
SHIPBUILDING -- 0.8%
9,500,000 Huntington Ingalls Industries, Inc.............................. 2.28% 11/04/19 9,498,218
15,000,000 Huntington Ingalls Industries, Inc.............................. 2.33% 11/08/19 14,993,289
10,000,000 Huntington Ingalls Industries, Inc.............................. 2.34% 11/15/19 9,991,052
4,000,000 Huntington Ingalls Industries, Inc.............................. 2.34% 11/26/19 3,993,608
----------------
38,476,167
----------------
TELECOMMUNICATIONS -- 2.3%
20,000,000 Bell Canada, Inc................................................ 2.40% 11/05/19 19,994,748
15,000,000 Bell Canada, Inc................................................ 2.25% 02/03/20 14,913,680
20,000,000 Motorola Solutions, Inc......................................... 2.59% 11/04/19 19,995,741
8,000,000 TELUS Corp...................................................... 2.26% 11/25/19 7,988,134
10,000,000 TELUS Corp...................................................... 2.26% 11/26/19 9,984,550
15,000,000 TELUS Corp...................................................... 2.25% 01/22/20 14,924,705
10,000,000 TELUS Corp...................................................... 2.08% 02/04/20 9,946,161
10,000,000 TELUS Corp...................................................... 2.08% 02/05/20 9,945,594
10,000,000 Vodafone Group PLC.............................................. 2.29% 12/03/19 9,979,929
----------------
117,673,242
----------------
TRUCKING & LEASING -- 0.4%
20,000,000 Aviation Capital Group LLC...................................... 2.38% 11/20/19 19,975,274
----------------
TOTAL COMMERCIAL PAPER....................................................................... 1,350,661,252
(Cost $1,350,661,253) ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES -- 14.6%
AGRICULTURE -- 0.4%
13,937,000 BAT International Finance PLC (b)............................... 2.75% 06/15/20 14,001,962
6,910,000 Imperial Brands Finance PLC (b)................................. 2.95% 07/21/20 6,942,431
----------------
20,944,393
----------------
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
AUTO MANUFACTURERS -- 0.4%
$ 5,000,000 BMW Finance N.V., 3 Mo. LIBOR + 0.79% (a) (b)................... 2.97% 08/12/22 $ 5,032,487
12,500,000 Volkswagen International Finance N.V. (b)....................... 4.00% 08/12/20 12,690,054
----------------
17,722,541
----------------
BANKS -- 11.3%
16,095,000 ABN AMRO Bank N.V., 3 Mo. LIBOR + 0.41% (a) (b)................. 2.38% 01/19/21 16,119,288
7,158,000 ABN AMRO Bank N.V., 3 Mo. LIBOR + 0.57% (a) (b)................. 2.70% 08/27/21 7,189,044
2,000,000 ANZ New Zealand Int'l Ltd./London (b)........................... 2.85% 08/06/20 2,013,934
5,000,000 ANZ New Zealand Int'l Ltd./London (b)........................... 2.75% 01/22/21 5,046,025
2,500,000 ANZ New Zealand Int'l Ltd./London, 3 Mo. LIBOR +
1.00% (a) (b)................................................ 2.94% 01/25/22 2,531,522
3,000,000 Australia & New Zealand Banking Group Ltd., 3 Mo.
LIBOR + 0.50% (a) (b)........................................ 2.62% 08/19/20 3,009,516
12,090,000 Australia & New Zealand Banking Group Ltd., 3 Mo.
LIBOR + 0.46% (a) (b)........................................ 2.58% 05/17/21 12,139,285
3,000,000 Australia & New Zealand Banking Group Ltd., 3 Mo.
LIBOR + 0.99% (a) (b)........................................ 3.13% 06/01/21 3,034,379
9,535,000 Bank of Montreal, Medium-Term Note.............................. 2.10% 06/15/20 9,552,080
3,750,000 Bank of Montreal, Medium-Term Note, 3 Mo. LIBOR +
0.44% (a).................................................... 2.56% 06/15/20 3,759,153
1,222,000 Bank of Montreal, Medium-Term Note, 3 Mo. LIBOR +
0.34% (a).................................................... 2.34% 07/13/20 1,223,865
2,000,000 Bank of Montreal, Medium-Term Note, 3 Mo. LIBOR +
0.79% (a).................................................... 2.92% 08/27/21 2,022,372
11,526,000 Bank of Montreal, Medium-Term Note, Series D, 3 Mo.
LIBOR + 0.46% (a)............................................ 2.46% 04/13/21 11,578,449
17,867,000 Bank of Nova Scotia (The), 3 Mo. LIBOR + 0.44% (a).............. 2.41% 04/20/21 17,929,454
5,500,000 Barclays Bank PLC............................................... 5.13% 01/08/20 5,531,222
1,770,000 Barclays Bank PLC, 3 Mo. LIBOR + 0.46% (a)...................... 2.44% 01/11/21 1,769,600
5,110,000 Barclays Bank PLC............................................... 2.65% 01/11/21 5,152,210
13,080,000 Barclays PLC.................................................... 2.75% 11/08/19 13,080,851
6,000,000 Barclays PLC.................................................... 2.88% 06/08/20 6,025,662
15,000,000 BNP Paribas S.A., 3 Mo. LIBOR + 0.39% (a) (b)................... 2.57% 08/07/21 15,014,971
380,000 BPCE S.A. (b)................................................... 3.15% 07/31/20 383,572
25,000,000 BPCE S.A., Medium-Term Note, 3 Mo. LIBOR +
0.88% (a).................................................... 3.00% 05/31/22 25,205,109
2,000,000 Commonwealth Bank of Australia, 3 Mo. LIBOR +
0.64% (a) (b)................................................ 2.85% 11/07/19 2,000,164
7,000,000 Commonwealth Bank of Australia, 3 Mo. LIBOR +
0.70% (a) (b)................................................ 2.83% 03/10/22 7,058,240
5,200,000 Cooperatieve Rabobank UA/NY, 3 Mo. LIBOR +
0.43% (a).................................................... 2.37% 04/26/21 5,217,270
9,816,000 Cooperatieve Rabobank UA/NY, 3 Mo. LIBOR +
0.83% (a).................................................... 2.84% 01/10/22 9,914,713
20,000,000 Credit Agricole Corporate & Investment Bank S.A.,
Medium-Term Note, 3 Mo. LIBOR + 0.40% (a) (b)................ 2.30% 05/03/21 20,035,260
10,715,000 Credit Agricole Corporate & Investment Bank S.A.,
Medium-Term Note, 3 Mo. LIBOR + 0.63% (a).................... 2.71% 10/03/21 10,747,254
500,000 Credit Agricole S.A./London (b)................................. 2.75% 06/10/20 502,217
1,400,000 Credit Agricole S.A./London, 3 Mo. LIBOR +
0.97% (a) (b)................................................ 3.10% 06/10/20 1,408,258
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 3,000,000 Credit Agricole S.A./London, 3 Mo. LIBOR +
1.18% (a) (b)................................................ 3.28% 07/01/21 $ 3,042,392
5,000,000 Credit Suisse AG/New York NY, Medium-Term Note.................. 4.38% 08/05/20 5,095,411
6,000,000 Credit Suisse Group Funding Guernsey Ltd........................ 2.75% 03/26/20 6,019,646
12,000,000 Credit Suisse Group Funding Guernsey Ltd........................ 3.13% 12/10/20 12,134,534
1,125,000 Credit Suisse Group Funding Guernsey Ltd........................ 3.45% 04/16/21 1,145,793
5,500,000 Credit Suisse Group Funding Guernsey Ltd., 3 Mo.
LIBOR + 2.29% (a)............................................ 4.29% 04/16/21 5,646,987
6,000,000 Danske Bank A/S (b)............................................. 2.20% 03/02/20 6,002,348
1,200,000 Danske Bank A/S, 3 Mo. LIBOR + 0.51% (a) (b).................... 2.65% 03/02/20 1,200,316
500,000 Danske Bank A/S (b) (c)......................................... 3.00% 09/20/22 504,853
8,935,000 Danske Bank A/S, Medium-Term Note (b)........................... 2.80% 03/10/21 9,008,117
2,770,000 DNB Bank ASA (b)................................................ 2.13% 10/02/20 2,776,639
19,000,000 HSBC Holdings PLC............................................... 3.40% 03/08/21 19,333,570
2,000,000 HSBC Holdings PLC, 3 Mo. LIBOR + 2.24% (a)...................... 4.34% 03/08/21 2,048,030
3,000,000 HSBC Holdings PLC............................................... 5.10% 04/05/21 3,129,686
19,262,000 HSBC Holdings PLC, 3 Mo. LIBOR + 0.60% (a)...................... 2.72% 05/18/21 19,286,635
6,000,000 HSBC Holdings PLC, 3 Mo. LIBOR + 0.65% (a)...................... 2.78% 09/11/21 6,014,182
2,980,000 ING Groep N.V., 3 Mo. LIBOR + 1.15% (a)......................... 3.25% 03/29/22 3,020,290
6,295,000 Macquarie Group Ltd. (b)........................................ 6.00% 01/14/20 6,344,129
19,221,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.65% (a).................................................... 2.59% 07/26/21 19,294,987
1,500,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.92% (a).................................................... 3.07% 02/22/22 1,513,294
7,834,000 Mitsubishi UFJ Financial Group, Inc., 3 Mo. LIBOR +
0.79% (a).................................................... 2.73% 07/25/22 7,871,893
5,000,000 Mizuho Financial Group, Inc. (b)................................ 2.63% 04/12/21 5,037,651
500,000 Mizuho Financial Group, Inc., 3 Mo. LIBOR +
1.48% (a) (b)................................................ 3.48% 04/12/21 508,122
9,200,000 Mizuho Financial Group, Inc., 3 Mo. LIBOR +
1.14% (a).................................................... 3.27% 09/13/21 9,310,537
250,000 National Australia Bank Ltd., 3 Mo. LIBOR +
0.59% (a) (b)................................................ 2.60% 01/10/20 250,290
4,075,000 National Bank of Canada......................................... 2.20% 11/02/20 4,088,811
250,000 Nordea Bank Abp (b)............................................. 2.13% 05/29/20 250,298
3,000,000 Nordea Bank Abp, 3 Mo. LIBOR + 0.47% (a) (b).................... 2.59% 05/29/20 3,007,271
5,000,000 Nordea Bank Abp (b)............................................. 2.50% 09/17/20 5,030,107
2,900,000 Royal Bank of Canada, Global Medium-Term Note, 3 Mo.
LIBOR + 0.38% (a)............................................ 2.52% 03/02/20 2,903,148
13,445,000 Royal Bank of Canada, Global Medium-Term Note, 3 Mo.
LIBOR + 0.39% (a)............................................ 2.33% 04/30/21 13,489,482
9,000,000 Royal Bank of Canada, Global Medium-Term Note, 3 Mo.
LIBOR + 0.47% (a)............................................ 2.40% 04/29/22 9,016,160
1,042,000 Royal Bank of Canada, Medium-Term Note, 3 Mo. LIBOR
+ 0.40% (a).................................................. 2.34% 01/25/21 1,044,557
8,512,000 Santander UK Group Holdings PLC................................. 2.88% 10/16/20 8,561,038
6,250,000 Santander UK Group Holdings PLC................................. 3.13% 01/08/21 6,314,776
3,400,000 Santander UK PLC................................................ 2.13% 11/03/20 3,406,588
4,800,000 Skandinaviska Enskilda Banken AB (b)............................ 2.63% 11/17/20 4,829,741
1,000,000 Skandinaviska Enskilda Banken AB................................ 2.63% 03/15/21 1,010,255
9,000,000 Skandinaviska Enskilda Banken AB, 3 Mo. LIBOR +
0.43% (a) (b)................................................ 2.55% 05/17/21 9,028,890
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 410,000 Societe Generale S.A. (b)....................................... 2.63% 09/16/20 $ 412,706
1,000,000 Societe Generale S.A., 3 Mo. LIBOR + 1.33% (a) (b).............. 3.36% 04/08/21 1,014,588
4,475,000 Sumitomo Mitsui Banking Corp., 3 Mo. LIBOR +
0.35% (a).................................................... 2.35% 01/17/20 4,479,313
2,000,000 Sumitomo Mitsui Banking Corp., 3 Mo. LIBOR +
0.37% (a).................................................... 2.37% 10/16/20 2,004,589
2,712,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
1.68% (a).................................................... 3.78% 03/09/21 2,762,335
5,000,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
1.11% (a).................................................... 3.11% 07/14/21 5,058,656
4,000,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
1.14% (a).................................................... 3.11% 10/19/21 4,051,090
1,333,000 Sumitomo Mitsui Financial Group, Inc., 3 Mo. LIBOR +
0.97% (a).................................................... 2.95% 01/11/22 1,345,275
3,500,000 Svenska Handelsbanken AB, Medium-Term Note, 3 Mo.
LIBOR + 0.47% (a)............................................ 2.60% 05/24/21 3,515,377
4,804,000 Toronto-Dominion Bank (The), Global Medium-Term
Note, 3 Mo. LIBOR + 0.26% (a)................................ 2.40% 09/17/20 4,813,227
25,000,000 Toronto-Dominion Bank (The), Medium-Term Note (c)............... 2.70% 07/30/21 24,951,208
15,000,000 UBS AG/London (b)............................................... 2.20% 06/08/20 15,028,389
7,000,000 UBS AG/London, 3 Mo. LIBOR + 0.58% (a) (b)...................... 2.68% 06/08/20 7,019,050
6,800,000 UBS AG/London, 3 Mo. LIBOR + 0.48% (a) (b)...................... 2.62% 12/01/20 6,820,506
15,681,000 UBS Group AG, 3 Mo. LIBOR + 1.53% (a) (b)....................... 3.44% 02/01/22 16,050,868
6,000,000 UBS Group Funding Switzerland AG, 3 Mo. LIBOR +
1.78% (a) (b)................................................ 3.77% 04/14/21 6,118,640
8,261,000 Westpac Banking Corp., 3 Mo. LIBOR + 0.34% (a).................. 2.28% 01/25/21 8,276,170
5,000,000 Westpac Banking Corp., 3 Mo. LIBOR + 0.71% (a).................. 2.81% 06/28/22 5,048,504
----------------
572,486,884
----------------
BEVERAGES -- 0.2%
7,012,000 Pernod Ricard S.A. (b).......................................... 5.75% 04/07/21 7,382,419
----------------
DIVERSIFIED FINANCIAL SERVICES -- 0.4%
15,760,000 AerCap Ireland Capital DAC / AerCap Global Aviation
Trust........................................................ 4.25% 07/01/20 15,973,374
4,176,000 AerCap Ireland Capital DAC / AerCap Global Aviation
Trust........................................................ 4.63% 10/30/20 4,280,135
----------------
20,253,509
----------------
ELECTRONICS -- 0.0%
1,000,000 Tyco Electronics Group S.A., 3 Mo. LIBOR + 0.45% (a)............ 2.58% 06/05/20 1,000,800
----------------
MISCELLANEOUS MANUFACTURING -- 0.2%
2,000,000 Siemens Financieringsmaatschappij N.V., 3 Mo. LIBOR +
0.34% (a) (b)................................................ 2.46% 03/16/20 2,003,466
9,200,000 Siemens Financieringsmaatschappij N.V., 3 Mo. LIBOR +
0.61% (a) (b)................................................ 2.73% 03/16/22 9,255,805
----------------
11,259,271
----------------
OIL & GAS -- 0.4%
7,000,000 BP Capital Markets PLC.......................................... 2.52% 01/15/20 7,008,170
2,000,000 BP Capital Markets PLC, 3 Mo. LIBOR + 0.87% (a)................. 2.99% 09/16/21 2,024,181
13,199,000 Husky Energy, Inc............................................... 7.25% 12/15/19 13,259,638
----------------
22,291,989
----------------
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
PHARMACEUTICALS -- 0.6%
$ 19,958,000 Allergan Funding SCS............................................ 3.00% 03/12/20 $ 20,008,937
2,000,000 Allergan Funding SCS, 3 Mo. LIBOR + 1.26% (a)................... 3.39% 03/12/20 2,006,601
6,654,000 Shire Acquisitions Investments Ireland DAC...................... 2.40% 09/23/21 6,697,308
----------------
28,712,846
----------------
PIPELINES -- 0.7%
12,965,000 Enbridge, Inc., 3 Mo. LIBOR + 0.40% (a)......................... 2.41% 01/10/20 12,972,355
6,657,000 Enbridge, Inc., 3 Mo. LIBOR + 0.70% (a)......................... 2.82% 06/15/20 6,668,038
8,500,000 TransCanada PipeLines Ltd....................................... 2.13% 11/15/19 8,499,967
6,840,000 TransCanada PipeLines Ltd., 3 Mo. LIBOR + 0.28% (a)............. 2.43% 11/15/19 6,840,398
----------------
34,980,758
----------------
TELECOMMUNICATIONS -- 0.0%
1,000,000 Deutsche Telekom International Finance BV, 3 Mo. LIBOR
+ 0.58% (a) (b).............................................. 2.58% 01/17/20 1,000,925
----------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................................... 738,036,335
(Cost $735,895,540) ----------------
ASSET-BACKED SECURITIES -- 11.8%
AmeriCredit Automobile Receivables Trust
3,323,000 Series 2015-3, Class D....................................... 3.34% 08/08/21 3,332,557
Ameriquest Mortgage Securities, Inc.
37,318 Series 2004-R9, Class M2, 1 Mo. LIBOR + 0.98% (a)............ 2.80% 10/25/34 37,528
Avis Budget Rental Car Funding AESOP LLC
2,000,000 Series 2014-2A, Class A (b).................................. 2.50% 02/20/21 2,000,804
17,800,000 Series 2015-1A, Class A (b).................................. 2.50% 07/20/21 17,827,131
BMW Vehicle Lease Trust
6,302,633 Series 2017-2, Class A3...................................... 2.07% 10/20/20 6,310,608
120,000 Series 2017-2, Class A4...................................... 2.19% 03/22/21 120,125
6,250,000 Series 2018-1, Class A3...................................... 3.26% 07/20/21 6,323,670
BMW Vehicle Owner Trust
2,448,375 Series 2018-A, Class A3...................................... 2.35% 04/25/22 2,453,707
California Republic Auto Receivables Trust
683,278 Series 2015-3, Class A4...................................... 2.13% 05/17/21 683,146
5,349,000 Series 2015-3, Class B....................................... 2.70% 09/15/21 5,356,814
789,288 Series 2016-1, Class A4...................................... 2.24% 10/15/21 789,443
2,917,104 Series 2016-2, Class A4...................................... 1.83% 12/15/21 2,914,093
1,531,745 Series 2017-1, Class A4...................................... 2.28% 06/15/22 1,533,150
1,103,118 Series 2018-1, Class A2...................................... 2.86% 03/15/21 1,103,370
Canadian Pacer Auto Receivables Trust
2,588,215 Series 2017-1A, Class A3 (b)................................. 2.05% 03/19/21 2,588,238
815,000 Series 2017-1A, Class A4 (b)................................. 2.29% 01/19/22 815,951
17,720,234 Series 2018-1A, Class A3 (b)................................. 3.00% 11/19/21 17,799,924
2,473,381 Series 2018-2A, Class A2A (b)................................ 3.00% 06/21/21 2,480,170
16,585,273 Series 2019-1A, Class A2 (b)................................. 2.78% 03/21/22 16,654,600
Carmax Auto Owner Trust
1,041,537 Series 2016-3, Class A3...................................... 1.39% 05/17/21 1,041,449
2,428,532 Series 2017-1, Class A3...................................... 1.98% 11/15/21 2,428,853
1,415,685 Series 2017-3, Class A3...................................... 1.97% 04/15/22 1,415,518
461,774 Series 2018-4, Class A2A..................................... 3.11% 02/15/22 464,035
6,000,506 Series 2019-1, Class A2A..................................... 3.02% 07/15/22 6,031,202
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Chrysler Capital Auto Receivables Trust
$ 3,007,447 Series 2016-AA, Class C (b).................................. 3.25% 06/15/22 $ 3,011,299
Countrywide Asset-Backed Certificates
2,182,968 Series 2004-SD4, Class M1, 1 Mo. LIBOR +
0.75% (a) (b)............................................. 2.57% 12/25/34 2,193,997
692,978 Series 2005-BC3, Class M3, 1 Mo. LIBOR +
1.08% (a)................................................. 2.90% 06/25/35 696,394
Dell Equipment Finance Trust
179,055 Series 2018-1, Class A2A (b)................................. 2.97% 10/22/20 179,426
9,000,000 Series 2019-1, Class A2 (b).................................. 2.78% 08/23/21 9,064,001
Element Rail Leasing I LLC
2,234,831 Series 2014-1A, Class A1 (b)................................. 2.30% 04/19/44 2,237,410
Exeter Automobile Receivables Trust
25,681 Series 2018-3A, Class A (b).................................. 2.90% 01/18/22 25,697
53,782 Series 2018-4A, Class A (b).................................. 3.05% 12/15/21 53,851
2,497,756 Series 2019-1A, Class A (b).................................. 3.20% 04/15/22 2,504,938
6,467,818 Series 2019-3A, Class A (b).................................. 2.59% 09/15/22 6,483,915
Ford Credit Auto Lease Trust
1,151,404 Series 2018-A, Class A2A..................................... 2.71% 12/15/20 1,152,015
850,000 Series 2018-A, Class A4...................................... 3.05% 08/15/21 856,633
5,162,732 Series 2018-B, Class A2A..................................... 2.93% 04/15/21 5,172,732
4,780,000 Series 2018-B, Class A3...................................... 3.19% 12/15/21 4,827,047
12,960,000 Series 2019-A, Class A2A..................................... 2.84% 09/15/21 13,009,595
9,000,000 Series 2019-A, Class A3...................................... 2.90% 05/15/22 9,113,331
Foursight Capital Automobile Receivables Trust
10,000,000 Series 2019-1, Class A2 (b).................................. 2.58% 03/15/23 10,023,188
GM Financial Automobile Leasing Trust
2,005,661 Series 2017-1, Class B....................................... 2.48% 08/20/20 2,005,889
166,071 Series 2017-2, Class A3...................................... 2.02% 09/21/20 166,076
1,700,000 Series 2017-2, Class A4...................................... 2.18% 06/21/21 1,700,240
1,162,000 Series 2017-2, Class B....................................... 2.43% 06/21/21 1,162,659
1,559,218 Series 2017-3, Class A3...................................... 2.01% 11/20/20 1,559,207
500,000 Series 2017-3, Class B....................................... 2.40% 09/20/21 500,246
5,040,479 Series 2018-1, Class A3...................................... 2.61% 01/20/21 5,048,251
963,686 Series 2018-2, Class A2A..................................... 2.83% 07/20/20 964,035
4,490,000 Series 2018-2, Class A3...................................... 3.06% 06/21/21 4,510,579
2,256,226 Series 2018-3, Class A2A..................................... 2.89% 09/21/20 2,258,409
4,393,000 Series 2018-3, Class A3...................................... 3.18% 06/21/21 4,424,116
9,325,761 Series 2019-1, Class A2A..................................... 2.91% 04/20/21 9,360,821
7,500,000 Series 2019-1, Class A3...................................... 2.98% 12/20/21 7,582,176
10,000,000 Series 2019-2, Class A2A..................................... 2.67% 06/21/21 10,034,337
GM Financial Consumer Automobile Receivables Trust
4,095,298 Series 2017-1A, Class A3 (b)................................. 1.78% 10/18/21 4,091,128
GSAA Home Equity Trust
1,362,189 Series 2005-MTR1, Class A4, 1 Mo. LIBOR +
0.37% (a)................................................. 2.19% 10/25/35 1,373,904
Honda Auto Receivables Owner Trust
3,519,500 Series 2018-3, Class A2...................................... 2.67% 12/21/20 3,524,312
Hyundai Auto Lease Securitization Trust
6,900,000 Series 2018-A, Class A3 (b).................................. 2.81% 04/15/21 6,923,075
5,540,359 Series 2018-B, Class A2 (b).................................. 2.81% 12/15/20 5,548,539
</TABLE>
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Hyundai Auto Lease Securitization Trust (Continued)
$ 1,100,000 Series 2018-B, Class A4 (b).................................. 3.20% 06/15/22 $ 1,115,189
4,660,960 Series 2019-A, Class A2 (b).................................. 2.92% 07/15/21 4,686,007
Master Asset Backed Securities Trust
237,767 Series 2005-OPT1, Class M2, 1 Mo. LIBOR +
0.63% (a)................................................. 2.45% 03/25/35 238,551
Mercedes-Benz Auto Lease Trust
8,949,797 Series 2019-A, Class A2...................................... 3.01% 02/16/21 8,974,436
Mill City Mortgage Loan Trust
2,647,838 Series 2016-1, Class A1 (b).................................. 2.50% 04/25/57 2,660,950
3,339,548 Series 2017-1, Class A1 (b).................................. 2.75% 11/25/58 3,368,173
7,413,192 Series 2017-2, Class A1 (b).................................. 2.75% 07/25/59 7,501,144
Nationstar Home Equity Loan Trust
2,513,541 Series 2006-B, Class AV4, 1 Mo. LIBOR + 0.28% (a)............ 2.10% 09/25/36 2,503,846
New Century Home Equity Loan Trust
1,485,713 Series 2005-2, Class M2, 1 Mo. LIBOR + 0.68% (a)............. 2.50% 06/25/35 1,490,188
Nissan Auto Lease Trust
8,500,000 Series 2018-A, Class A3...................................... 3.25% 09/15/21 8,595,180
Nissan Auto Receivables Owner Trust
688,532 Series 2015-B, Class A4...................................... 1.79% 01/17/22 688,278
953,373 Series 2016-B, Class A3...................................... 1.32% 01/15/21 952,826
449,244 Series 2016-C, Class A3...................................... 1.18% 01/15/21 448,758
179,839 Series 2017-B, Class A3...................................... 1.75% 10/15/21 179,660
Nomua Home Equity Loan, Inc., Home Equity Loan Trust
1,329,001 Series 2005-HE1, Class M3, 1 Mo. LIBOR +
0.72% (a)................................................. 2.54% 09/25/35 1,334,692
OSCAR US Funding Trust IX LLC
1,365,000 Series 2018-2A, Class A3 (b)................................. 3.39% 09/12/22 1,384,302
OSCAR US Funding Trust V
225,720 Series 2016-2A, Class A3 (b)................................. 2.73% 12/15/20 225,871
28,110,000 Series 2016-2A, Class A4 (b)................................. 2.99% 12/15/23 28,290,648
OSCAR US Funding Trust VI LLC
3,832,121 Series 2017-1A, Class A3 (b)................................. 2.82% 06/10/21 3,838,744
7,810,000 Series 2017-1A, Class A4 (b)................................. 3.30% 05/10/24 7,931,039
OSCAR US Funding Trust VII LLC
6,350,976 Series 2017-2A, Class A3 (b)................................. 2.45% 12/10/21 6,357,922
3,280,000 Series 2017-2A, Class A4 (b)................................. 2.76% 12/10/24 3,310,750
OSCAR US Funding Trust VIII LLC
956,250 Series 2018-1A, Class A2A (b)................................ 2.91% 04/12/21 957,690
18,790,000 Series 2018-1A, Class A3 (b)................................. 3.23% 05/10/22 18,955,876
OSCAR US Funding X LLC
9,613,791 Series 2019-1A, Class A2 (b)................................. 3.10% 04/11/22 9,670,497
OSCAR US Funding XI LLC
21,500,000 Series 2019-2A, Class A2 (b)................................. 2.49% 08/10/22 21,557,949
Securitized Term Auto Receivables Trust
1,000,000 Series 2017-1A, Class A4 (b)................................. 2.21% 06/25/21 1,000,228
1,791,182 Series 2017-2A, Class A3 (b)................................. 2.04% 04/26/21 1,791,200
4,095,000 Series 2017-2A, Class A4 (b)................................. 2.29% 03/25/22 4,103,059
4,628,849 Series 2018-2A, Class A2A (b)................................ 3.06% 02/25/21 4,640,795
4,900,000 Series 2019-1A, Class A3 (b)................................. 2.99% 02/27/23 4,971,955
Sierra Timeshare Receivables Funding LLC
5,248,789 Series 2016-3A, Class A (b).................................. 2.43% 10/20/33 5,249,745
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Structured Asset Investment Loan Trust
$ 53,967 Series 2004-10, Class A7, 1 Mo. LIBOR + 1.06% (a)............ 2.88% 11/25/34 $ 54,265
Towd Point Mortgage Trust
1,203,582 Series 2015-1, Class AES (b)................................. 3.00% 10/25/53 1,208,930
336,143 Series 2015-2, Class 1A12 (b)................................ 2.75% 11/25/60 338,823
2,582,436 Series 2015-3, Class A1B (b)................................. 3.00% 03/25/54 2,600,371
1,970,745 Series 2015-4, Class A1, (b)................................. 3.50% 04/25/55 1,994,949
2,201,481 Series 2015-4, Class A1B, (b)................................ 2.75% 04/25/55 2,212,725
34,145,691 Series 2015-5, Class A1B (b)................................. 2.75% 05/25/55 34,368,003
26,899,735 Series 2015-6, Class A1B, (b)................................ 2.75% 04/25/55 27,111,006
65,593 Series 2016-1, Class A1 (b).................................. 3.50% 02/25/55 66,741
3,061,015 Series 2016-1, Class A1B (b)................................. 2.75% 02/25/55 3,084,758
14,205,470 Series 2016-2, Class A1 (b).................................. 3.00% 08/25/55 14,420,558
6,924,091 Series 2016-2, Class A1A (b)................................. 2.75% 08/25/55 7,000,902
4,427,675 Series 2016-3, Class A1 (b).................................. 2.25% 04/25/56 4,428,841
12,990,876 Series 2016-5, Class A1 (b).................................. 2.50% 10/25/56 13,073,031
1,069,877 Series 2017-2, Class A1 (b).................................. 2.75% 04/25/57 1,081,031
Toyota Auto Receivables Owner Trust
283,434 Series 2018-A, Class A2A..................................... 2.10% 10/15/20 283,434
2,797,710 Series 2018-C, Class A2A..................................... 2.77% 08/16/21 2,805,410
Verizon Owner Trust
3,790,852 Series 2016-2A, Class A (b).................................. 1.68% 05/20/21 3,789,777
5,110,313 Series 2017-1A, Class A (b).................................. 2.06% 09/20/21 5,110,453
12,129,014 Series 2017-2A, Class A (b).................................. 1.92% 12/20/21 12,126,313
13,917,000 Series 2018-1A, Class A1A (b)................................ 2.82% 09/20/22 14,021,607
World Omni Auto Receivables Trust
7,510,333 Series 2019-A, Class A2...................................... 3.02% 04/15/22 7,543,463
World Omni Automobile Lease Securitization Trust
1,221,255 Series 2017-A, Class A3...................................... 2.13% 04/15/20 1,221,318
1,735,000 Series 2017-A, Class A4...................................... 2.32% 08/15/22 1,735,644
1,192,561 Series 2018-A, Class A2...................................... 2.59% 11/16/20 1,193,463
4,355,000 Series 2018-A, Class A4...................................... 2.94% 05/15/23 4,392,307
5,765,601 Series 2018-B, Class A2A..................................... 2.96% 06/15/21 5,787,320
10,017,240 Series 2019-A, Class A2...................................... 2.89% 11/15/21 10,072,397
----------------
TOTAL ASSET-BACKED SECURITIES................................................................ 597,953,542
(Cost $595,410,797) ----------------
U.S. GOVERNMENT NOTES -- 3.8%
65,000,000 U.S. Treasury Note.............................................. 1.13% 04/30/20 64,848,926
40,000,000 U.S. Treasury Note.............................................. 1.50% 06/15/20 39,982,031
19,200,000 U.S. Treasury Note.............................................. 1.75% 07/31/21 19,260,750
40,000,000 U.S. Treasury Note.............................................. 1.50% 08/31/21 39,960,156
30,000,000 U.S. Treasury Note.............................................. 1.50% 09/30/21 29,975,391
----------------
TOTAL U.S. GOVERNMENT NOTES.................................................................. 194,027,254
(Cost $193,594,492) ----------------
</TABLE>
Page 26 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 3.5%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.0%
Federal Home Loan Mortgage Corporation
$ 2,235,693 Series 2003-2723, Class KN................................... 5.00% 12/15/23 $ 2,325,437
3,193,826 Series 2004-2783, Class YB................................... 5.00% 04/15/24 3,328,254
8,683 Series 2005-2931, Class DE................................... 4.00% 02/15/20 8,692
279 Series 2005-2945, Class HB................................... 5.00% 03/15/20 279
1 Series 2007-3266, Class D.................................... 5.00% 01/15/22 1
1,090 Series 2007-3294, Class DB................................... 4.50% 03/15/22 1,091
347,311 Series 2009-3539, Class YA................................... 4.00% 02/15/24 349,027
11,295 Series 2010-3705, Class CA................................... 3.00% 08/15/20 11,292
3,688,350 Series 2010-3737, Class DA................................... 2.00% 12/15/39 3,684,051
20,468 Series 2010-3755, Class AJ................................... 2.00% 11/15/20 20,432
23,097 Series 2010-3766, Class HE................................... 3.00% 11/15/20 23,147
54,827 Series 2010-3770, Class EB................................... 2.00% 01/15/38 54,782
28,921 Series 2010-3773, Class GK................................... 2.50% 12/15/20 28,918
163,531 Series 2011-3790, Class AP................................... 4.50% 01/15/37 165,866
36,083 Series 2011-3852, Class CA................................... 3.00% 10/15/39 36,167
1,201,672 Series 2011-3925, Class VB................................... 4.00% 09/15/31 1,209,301
310,750 Series 2012-4001, Class A.................................... 3.50% 11/15/38 313,483
101,912 Series 2012-4011, Class KM................................... 2.00% 03/15/22 101,880
2,040,365 Series 2013-4199, Class YV................................... 3.50% 05/15/26 2,094,371
402,142 Series 2014-4305, Class KN................................... 2.50% 03/15/38 402,633
12,831 Series 2015-4459, Class NC................................... 5.00% 07/15/25 12,852
Federal National Mortgage Association
1,218,388 Series 2003-48, Class TC..................................... 5.00% 06/25/23 1,265,062
733,064 Series 2006-60, Class DF, 1 Mo. LIBOR + 0.43% (a)............ 2.25% 04/25/35 733,880
770 Series 2008-53, Class CA..................................... 5.00% 07/25/23 770
3,465 Series 2008-59, Class KB..................................... 4.50% 07/25/23 3,476
37,759 Series 2009-14, Class EB..................................... 4.50% 03/25/24 38,076
14,276 Series 2009-52, Class AJ..................................... 4.00% 07/25/24 14,472
442,632 Series 2009-71, Class BA..................................... 4.00% 08/25/24 445,839
10,312 Series 2009-96, Class JA..................................... 3.50% 10/25/24 10,317
1,189,633 Series 2010-99, Class UK..................................... 3.00% 10/25/38 1,191,932
2,866 Series 2010-116, Class AD.................................... 2.00% 08/25/20 2,862
62,377 Series 2010-145, Class MA.................................... 2.00% 12/25/20 62,293
1,165 Series 2011-3, Class EG...................................... 2.00% 05/25/20 1,163
37,907 Series 2011-13, Class AD..................................... 2.00% 07/25/21 37,754
15,873 Series 2011-15, Class HT..................................... 5.50% 03/25/26 16,107
331,362 Series 2011-32, Class CV..................................... 3.50% 04/25/24 331,061
97,310 Series 2011-60, Class UC..................................... 2.50% 09/25/39 98,032
1,671 Series 2011-68, Class AH..................................... 4.50% 12/25/20 1,678
24,580 Series 2011-71, Class KC..................................... 1.75% 08/25/21 24,489
28,106 Series 2011-86, Class DC..................................... 2.00% 09/25/21 28,021
35,600 Series 2011-111, Class DA.................................... 3.00% 12/25/38 35,594
833,630 Series 2012-20, Class AB..................................... 2.50% 07/25/39 835,726
2,654,799 Series 2012-103, Class LE.................................... 1.75% 05/25/39 2,648,591
2,377,095 Series 2013-1, Class KC...................................... 2.00% 07/25/40 2,376,906
Government National Mortgage Association
77,843 Series 2009-10, Class MD..................................... 4.50% 12/16/36 78,963
1,735 Series 2009-52, Class PA..................................... 5.00% 04/16/39 1,734
97,824 Series 2009-79, Class AE..................................... 3.75% 02/16/39 97,764
32,785 Series 2010-4, Class JC...................................... 3.00% 08/16/39 32,872
1,671 Series 2010-85, Class NK..................................... 3.25% 01/20/38 1,669
</TABLE>
See Notes to Financial Statements Page 27
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 61,740 Series 2010-87, Class HE..................................... 3.00% 11/20/38 $ 62,143
57,842 Series 2010-125, Class TE.................................... 3.00% 06/20/39 58,035
9,211 Series 2010-164, Class LE.................................... 3.00% 10/20/38 9,226
43,786 Series 2010-164, Class LH.................................... 3.50% 10/20/38 43,876
17,371 Series 2011-24, Class NE..................................... 3.50% 04/20/39 17,374
47,077 Series 2011-37, Class PG..................................... 3.00% 05/20/40 47,106
13,429 Series 2011-115, Class PD.................................... 2.00% 10/20/38 13,434
8,510,397 Series 2012-17, Class MA..................................... 1.75% 08/20/40 8,470,979
10,365,779 Series 2015-103, Class AB.................................... 2.00% 01/16/40 10,378,010
3,416,353 Series 2018-89, Class A...................................... 3.50% 06/20/39 3,454,043
NCUA Guaranteed Notes Trust
818,902 Series 2010-R1, Class 1A, 1 Mo. LIBOR + 0.45% (a)............ 2.44% 10/07/20 819,309
----------------
47,962,594
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 2.4%
Federal Home Loan Mortgage Corporation Multifamily
Structured Pass Through Certificates
6,829,328 Series 2010-K007, Class A2................................... 4.22% 03/25/20 6,838,831
8,206,555 Series 2011-K011, Class A2................................... 4.08% 11/25/20 8,353,929
13,725,000 Series 2011-K013, Class A2................................... 3.97% 01/25/21 14,007,123
14,384,425 Series 2013-K025, Class A1................................... 1.88% 04/25/22 14,369,423
9,905,242 Series 2013-K027, Class A1................................... 1.79% 09/25/22 9,910,274
2,167,684 Series 2013-K029, Class A1................................... 2.84% 10/25/22 2,198,261
24,491,544 Series 2014-K715, Class A2................................... 2.86% 01/25/21 24,678,263
503,641 Series 2014-K716, Class A1................................... 2.41% 01/25/21 504,809
4,290,000 Series 2014-K716, Class A2................................... 3.13% 06/25/21 4,351,842
16,638,823 Series 2015-K720, Class A1................................... 2.32% 11/25/21 16,715,099
FREMF Mortgage Trust
4,400,000 Series 2010-K7, Class B (b) (d).............................. 5.50% 04/25/20 4,446,277
4,761,000 Series 2010-K8, Class B (b) (d).............................. 5.28% 09/25/43 4,823,950
5,290,000 Series 2011-K10, Class B (b) (d)............................. 4.62% 11/25/49 5,401,516
3,822,000 Series 2011-K14, Class B (b) (d)............................. 5.18% 02/25/47 3,981,781
1,850,000 Series 2014-K715, Class B (b) (d)............................ 3.97% 02/25/46 1,886,303
Government National Mortgage Association
22,984 Series 2014-28, Class A...................................... 2.00% 01/16/46 22,869
----------------
122,490,550
----------------
PASS-THROUGH SECURITIES -- 0.1%
Federal Home Loan Mortgage Corporation
360 Pool B18688.................................................. 5.00% 02/01/20 371
399 Pool G11728.................................................. 5.50% 02/01/20 399
24,041 Pool G11777.................................................. 5.00% 10/01/20 24,783
6,522 Pool G11820.................................................. 5.50% 12/01/20 6,579
7,887 Pool G11879.................................................. 5.00% 10/01/20 8,138
30,647 Pool G11902.................................................. 5.00% 08/01/20 31,593
25,860 Pool G11966.................................................. 5.50% 11/01/20 25,987
3,497 Pool G12255.................................................. 5.50% 07/01/21 3,562
22,049 Pool G12673.................................................. 5.00% 09/01/21 22,730
34,146 Pool G13204.................................................. 6.00% 11/01/22 34,991
11,556 Pool G13235.................................................. 4.50% 08/01/20 11,918
25 Pool G13395.................................................. 4.50% 12/01/19 26
</TABLE>
Page 28 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 3,952 Pool G13761.................................................. 5.50% 12/01/20 $ 3,973
55,404 Pool G13812.................................................. 5.00% 12/01/20 57,115
29,367 Pool G14030.................................................. 4.50% 12/01/20 30,288
44,876 Pool G14035.................................................. 5.50% 12/01/21 45,319
57,864 Pool G14187.................................................. 5.50% 12/01/20 58,043
738,907 Pool G15435.................................................. 5.00% 11/01/24 763,270
44,323 Pool G15821.................................................. 5.00% 07/01/25 45,732
286,662 Pool G15874.................................................. 5.00% 06/01/26 295,537
41,459 Pool G18056.................................................. 5.00% 06/01/20 42,739
56,574 Pool J02535.................................................. 5.00% 09/01/20 58,321
8,718 Pool P60959.................................................. 4.50% 09/01/20 8,719
Federal National Mortgage Association
1,153 Pool 255547.................................................. 4.50% 01/01/20 1,188
629 Pool 310097.................................................. 5.00% 10/01/20 648
163 Pool 735512.................................................. 6.00% 03/01/20 163
8,291 Pool 735646.................................................. 4.50% 07/01/20 8,547
4,913 Pool 735920.................................................. 4.50% 10/01/20 5,065
152 Pool 745119 (e).............................................. 5.50% 12/01/19 152
6,685 Pool 745238.................................................. 6.00% 12/01/20 6,682
117,937 Pool 745735.................................................. 5.00% 03/01/21 121,527
25,967 Pool 745749.................................................. 5.50% 03/01/21 26,221
298,149 Pool 745832.................................................. 6.00% 04/01/21 302,544
1,867 Pool 814708.................................................. 6.00% 04/01/20 1,869
3,346 Pool 815098.................................................. 6.00% 05/01/20 3,350
4,072 Pool 839226.................................................. 4.00% 09/01/20 4,079
18,985 Pool 844915.................................................. 4.50% 11/01/20 19,573
22,832 Pool 847919.................................................. 5.50% 11/01/20 23,009
20,005 Pool 888932.................................................. 4.50% 11/01/22 20,624
285 Pool 889191.................................................. 4.50% 04/01/21 294
1,514 Pool 889318.................................................. 5.50% 07/01/20 1,514
3,865 Pool 889531.................................................. 4.50% 05/01/22 3,985
2,733 Pool 889847.................................................. 4.50% 04/01/21 2,817
59,096 Pool 890403.................................................. 6.00% 05/01/23 60,093
8,474 Pool 898044.................................................. 4.50% 12/01/20 8,737
408,336 Pool 901931.................................................. 6.00% 10/01/21 416,193
3,932 Pool 931592.................................................. 5.00% 09/01/20 3,957
193,705 Pool 962078.................................................. 4.50% 03/01/23 201,636
12,982 Pool 995158.................................................. 4.50% 12/01/20 13,384
610 Pool 995886.................................................. 6.00% 04/01/21 614
196,128 Pool AD0285.................................................. 5.00% 09/01/22 202,098
19,905 Pool AD0402.................................................. 5.00% 02/01/23 20,511
49,379 Pool AE0126.................................................. 5.00% 06/01/20 50,882
51,765 Pool AE0237.................................................. 5.50% 11/01/23 52,077
173,407 Pool AE0314.................................................. 5.00% 08/01/21 178,686
35,447 Pool AE0792.................................................. 5.00% 12/01/20 36,526
130,471 Pool AE0812.................................................. 5.00% 07/01/25 134,452
393,612 Pool AL5764.................................................. 5.00% 09/01/25 405,624
312,293 Pool AL5812.................................................. 5.50% 05/01/25 318,336
165,817 Pool AL6212.................................................. 4.50% 01/01/27 170,947
1,943 Pool AL6725.................................................. 4.50% 09/01/20 2,003
</TABLE>
See Notes to Financial Statements Page 29
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 406,166 Pool AL6798.................................................. 5.00% 09/01/25 $ 418,562
612 Pool AL8539.................................................. 4.50% 01/01/27 631
843,743 Pool BM1299.................................................. 5.00% 03/01/27 874,543
4,634 Pool MA0323.................................................. 4.50% 02/01/20 4,777
8,903 Pool MA0358.................................................. 4.50% 03/01/20 9,179
11,586 Pool MA0419.................................................. 4.50% 05/01/20 11,944
23,271 Pool MA0772.................................................. 4.00% 06/01/21 24,255
600,936 Pool MA1030.................................................. 3.00% 04/01/22 615,240
Government National Mortgage Association
44,918 Pool 783524.................................................. 5.00% 09/15/24 46,525
----------------
6,416,396
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................................... 176,869,540
(Cost $176,366,883) ----------------
CERTIFICATES OF DEPOSIT -- 1.5%
BANKS -- 1.5%
10,000,000 Bank of Montreal, 1 Mo. LIBOR + 0.26% (a)....................... 2.24% 09/08/20 9,998,432
10,000,000 Barclays Bank PLC, 3 Mo. LIBOR + 0.36% (a)...................... 2.36% 07/15/20 10,002,393
10,000,000 BNP Paribas S.A./New York NY, 1 Mo. LIBOR +
0.19% (a).................................................... 2.04% 06/19/20 9,996,023
8,300,000 Canadian Imperial Bank of Commerce, 1 Mo. LIBOR +
0.18% (a).................................................... 1.95% 04/06/20 8,300,080
20,000,000 Societe Generale, 1 Mo. LIBOR + 0.34% (a)....................... 2.19% 08/19/20 20,011,581
20,000,000 Svenska Handelsbanken, 1 Mo. LIBOR + 0.24% (a).................. 2.04% 08/28/20 20,003,520
----------------
TOTAL CERTIFICATES OF DEPOSIT................................................................ 78,312,029
(Cost $78,296,412) ----------------
MORTGAGE-BACKED SECURITIES -- 0.1%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.1%
Merrill Lynch Mortgage Investors Trust
1,718,583 Series 2005-A6, Class 2A3, 1 Mo. LIBOR + 0.38% (a)........... 2.20% 08/25/35 1,733,674
Sequoia Mortgage Trust
622,923 Series 2014-3, Class A14 (b)................................. 3.00% 10/25/44 625,802
2,292,962 Series 2015-1, Class A6 (b).................................. 2.50% 01/25/45 2,297,760
----------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................. 4,657,236
(Cost $4,632,377) ----------------
TOTAL INVESTMENTS -- 101.0%.................................................................. 5,116,584,443
(Cost $5,106,562,762) (f)
NET OTHER ASSETS AND LIABILITIES -- (1.0)%................................................... (50,834,915)
----------------
NET ASSETS -- 100.0%......................................................................... $ 5,065,749,528
================
</TABLE>
Page 30 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
-----------------------------
(a) Floating or variable rate security.
(b) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Trust's Board of Trustees, this security has
been determined to be liquid by First Trust Advisors L.P., the Fund's
advisor (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, 2019, securities noted as such
amounted to $981,729,893 or 19.4% of net assets.
(c) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at October 31, 2019. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(d) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
(e) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(f) Aggregate cost for federal income tax purposes is $5,106,642,905. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$10,291,810 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$350,272. The net unrealized appreciation was $9,941,538.
LIBOR - London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2019 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Corporate Bonds and Notes*......................... $1,976,067,255 $ -- $1,976,067,255 $ --
Commercial Paper*.................................. 1,350,661,252 -- 1,350,661,252 --
Foreign Corporate Bonds and Notes*................. 738,036,335 -- 738,036,335 --
Asset-Backed Securities............................ 597,953,542 -- 597,953,542 --
U.S. Government Notes.............................. 194,027,254 -- 194,027,254 --
U.S. Government Agency Mortgage-Backed
Securities...................................... 176,869,540 -- 176,869,540 --
Certificates of Deposit*........................... 78,312,029 -- 78,312,029 --
Mortgage-Backed Securities......................... 4,657,236 -- 4,657,236 --
-------------- -------------- -------------- --------------
Total Investments.................................. $5,116,584,443 $ -- $5,116,584,443 $ --
============== ============== ============== ==============
</TABLE>
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 31
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value..................................................... $5,116,584,443
Cash...................................................................... 453,108
Receivables:
Interest............................................................... 16,619,958
Investment securities sold............................................. 132,445
--------------
Total Assets........................................................ 5,133,789,954
--------------
LIABILITIES:
Payables:
Investment securities purchased ....................................... 57,096,862
Distributions to shareholders.......................................... 9,230,820
Investment advisory fees............................................... 1,712,744
--------------
Total Liabilities................................................... 68,040,426
--------------
NET ASSETS................................................................ $5,065,749,528
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $5,057,736,041
Par value................................................................. 842,997
Accumulated distributable earnings (loss)................................. 7,170,490
--------------
NET ASSETS................................................................ $5,065,749,528
==============
NET ASSET VALUE, per share................................................ $ 60.09
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)............................................. 84,299,724
==============
Investments, at cost...................................................... $5,106,562,762
==============
</TABLE>
Page 32 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2019
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest.................................................................. $ 122,689,661
--------------
Total investment income................................................ 122,689,661
--------------
EXPENSES:
Investment advisory fees.................................................. 19,366,837
--------------
Total expenses......................................................... 19,366,837
Less fees waived by the investment advisor............................. (2,775,527)
--------------
Net expenses........................................................... 16,591,310
--------------
NET INVESTMENT INCOME (LOSS).............................................. 106,098,351
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments................................... (719,958)
Net change in unrealized appreciation (depreciation) on investments....... 10,123,036
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... 9,403,078
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 115,501,429
==============
</TABLE>
See Notes to Financial Statements Page 33
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2019 10/31/2018
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 106,098,351 $ 39,134,269
Net realized gain (loss).................................................. (719,958) 76,244
Net change in unrealized appreciation (depreciation)...................... 10,123,036 (1,285,379)
-------------- --------------
Net increase (decrease) in net assets resulting from operations........... 115,501,429 37,925,134
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (105,441,956) (39,922,395)
Return of capital......................................................... -- (159,526)
-------------- --------------
Total distributions to shareholders....................................... (105,441,956) (40,081,921)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 2,558,526,535 2,058,338,158
Cost of shares redeemed................................................... (573,290,488) (144,051,601)
-------------- --------------
Net increase (decrease) in net assets resulting from shareholder
transactions........................................................... 1,985,236,047 1,914,286,557
-------------- --------------
Total increase (decrease) in net assets................................... 1,995,295,520 1,912,129,770
NET ASSETS:
Beginning of period....................................................... 3,070,454,008 1,158,324,238
-------------- --------------
End of period............................................................. $5,065,749,528 $3,070,454,008
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 51,199,724 19,299,724
Shares sold............................................................... 42,650,000 34,300,000
Shares redeemed........................................................... (9,550,000) (2,400,000)
-------------- --------------
Shares outstanding, end of period......................................... 84,299,724 51,199,724
============== ==============
</TABLE>
Page 34 See Notes to Financial Statements
<PAGE>
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2019 2018 2017 2016 2015
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 59.97 $ 60.02 $ 59.93 $ 59.94 $ 60.04
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 1.48 1.15 0.76 0.47 0.43
Net realized and unrealized gain (loss)................. 0.11 (0.01) 0.12 0.09 (0.26)
---------- ---------- ---------- ---------- ----------
Total from investment operations........................ 1.59 1.14 0.88 0.56 0.17
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................... (1.47) (1.19) (0.79) (0.57) (0.27)
Return of capital....................................... -- (0.00)(a) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions..................................... (1.47) (1.19) (0.79) (0.57) (0.27)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......................... $ 60.09 $ 59.97 $ 60.02 $ 59.93 $ 59.94
========== ========== ========== ========== ==========
TOTAL RETURN (b)........................................ 2.68% 1.92% 1.48% 0.94% 0.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................... $5,065,750 $3,070,454 $1,158,324 $ 458,413 $ 149,829
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets........... 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of net expenses to average net assets............. 0.39% 0.33% 0.25% 0.25% 0.23%
Ratio of net investment income (loss) to average
net assets........................................... 2.47% 2.04% 1.33% 1.06% 0.51%
Portfolio turnover rate (c)............................. 73% 45% 56% 115% 406%
</TABLE>
(a) Amount represents less than $0.01 per share.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived by the investment advisor.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 35
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Enhanced Short Maturity ETF (the "Fund"), a
non-diversified series of the Trust, which trades under the ticker "FTSM" on The
Nasdaq Stock Market LLC ("Nasdaq"). Unlike conventional mutual funds, the Fund
issues and redeems shares on a continuous basis, at net asset value ("NAV"),
only in large specified blocks consisting of 50,000 shares called a "Creation
Unit." Creation Units are generally issued and redeemed for cash and, in certain
circumstances, in-kind for securities in which the Fund invests, and only to and
from broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's
investment objective is to seek current income, consistent with preservation of
capital and daily liquidity. Under normal market conditions, the Fund intends to
achieve its investment objective by investing at least 80% of its net assets in
a portfolio of U.S. dollar-denominated fixed- and variable-rate debt securities,
including securities issued or guaranteed by the U.S. government or its
agencies, instrumentalities or U.S. government-sponsored entities, residential
and commercial mortgage-backed securities, asset-backed securities, U.S.
corporate bonds, fixed income securities issued by non-U.S. corporations and
governments, municipal obligations, privately issued securities and other debt
securities bearing fixed or floating interest rates. The Fund may also invest in
money market securities. The Fund may invest in investment companies, such as
ETFs, that invest primarily in debt securities. The Fund intends to limit its
investments in privately-issued, non-agency sponsored mortgage- and asset-backed
securities to 20% of its net assets. The Fund may also invest up to 20% of its
net assets in floating rate loans representing amounts borrowed by companies or
other entities from banks and other lenders. A significant portion of these
loans may be rated below investment grade or unrated. Floating rate loans held
by the Fund may be senior or subordinate obligations of the borrower and may or
may not be secured by collateral. Under normal market conditions, the Fund's
average duration is expected to be less than one year and the average maturity
of the Fund's portfolio is expected to be less than three years. There can be no
assurance that the Fund will achieve its investment objective. The Fund may not
be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. The Fund's investments are valued as
follows:
Corporate bonds, corporate notes, U.S. government securities,
mortgage-backed securities, asset-backed securities, certificates of
deposit and other debt securities are fair valued on the basis of
valuations provided by dealers who make markets in such securities or by a
third-party pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
Page 36
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Commercial paper is fair valued at cost adjusted for amortization of
premiums and accretion of discounts (amortized cost), provided the
Advisor's Pricing Committee has determined that the use of amortized cost
is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the fundamental business data relating to the borrower/issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based
on the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the borrower/issuer, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the borrower/issuer, including any
ability to obtain money or resources from a parent or
affiliate and an assessment of the borrower's/issuer's
management (for corporate debt only);
11) the prospects for the borrower's/issuer's industry, and
multiples (of earnings and/or cash flows) being paid for
similar businesses in that industry (for corporate debt only);
12) the borrower's/issuer's competitive position within the
industry;
13) the borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
14) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
Page 37
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2019, 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.
On July 27, 2017, the Financial Conduct Authority ("FCA") announced that it will
no longer persuade or compel banks to submit rates for the calculation of the
London Interbank Offered Rates ("LIBOR") after 2021 (the "FCA Announcement").
Furthermore, in the United States, efforts to identify a set of alternative U.S.
dollar reference interest rates include proposals by the Alternative Reference
Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New
York. On August 24, 2017, the Federal Reserve Board requested public comment on
a proposal by the Federal Reserve Bank of New York, in cooperation with the
Office of Financial Research, to produce three new reference rates intended to
serve as alternatives to LIBOR. These alternative rates are based on overnight
repurchase agreement transactions secured by U.S. Treasury Securities. On
December 12, 2017, following consideration of public comments, the Federal
Reserve Board concluded that the public would benefit if the Federal Reserve
Bank of New York published the three proposed reference rates as alternatives to
LIBOR (the "Federal Reserve Board Notice").
At this time, it is not possible to predict the effect of the FCA Announcement,
the Federal Reserve Board Notice, or other regulatory changes or announcements,
any establishment of alternative reference rates or any other reforms to LIBOR
that may be enacted in the United Kingdom, the United States or elsewhere. As
such, the potential effect of any such event on the Fund cannot yet be
determined.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on portfolio securities held by the Fund and
have no impact on net assets or NAV per share. Temporary differences, which
arise from recognizing certain items of income, expense and gain/loss in
different periods for financial statement and tax purposes, will reverse at some
time in the future.
The tax character of distributions paid during the fiscal years ended October
31, 2019 and 2018 was as follows:
Distributions paid from: 2019 2018
Ordinary income................................. $ 96,211,136 $ 39,922,395
Capital gains................................... -- --
Return of capital............................... -- 159,526
Page 38
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019
As of October 31, 2019, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 656,395
Accumulated capital and other gain (loss)....... (3,427,443)
Net unrealized appreciation (depreciation)...... 9,941,538
D. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2016,
2017, 2018, and 2019 remain open to federal and state audit. As of October 31,
2019, 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, 2019, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $3,427,443.
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, 2019, the Fund had no
net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings
(loss) (which consists of accumulated net investment income (loss), accumulated
net realized gain (loss) on investments and net unrealized appreciation
(depreciation) on investments) on the Statement of Assets and Liabilities that
more closely represent their tax character, certain adjustments have been made
to paid-in capital, accumulated net investment income (loss) and accumulated net
realized gain (loss) on investments. For the fiscal year ended October 31, 2019,
there were no tax adjustments made to accumulated distributable earnings (loss)
accounts due to differences between book and tax treatments.
E. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
F. NEW ACCOUNTING PRONOUNCEMENTS
On March 30, 2017, the FASB issued Accounting Standards Update ("ASU") 2017-08
"Premium Amortization on Purchased Callable Debt Securities", which amends the
amortization period for certain purchased callable debt securities held at a
premium by shortening such period to the earliest call date. The new guidance
requires an entity to amortize the premium on a callable debt security within
its scope to the earliest call date, unless the guidance for considering
estimated prepayments is applied. If the call option is not exercised at the
earliest call date, the yield is reset to the effective yield using the payment
terms of the security. If the security has more than one call date and the
premium was amortized to a call price greater than the next call price, any
excess of the amortized cost basis over the amount repayable at the next call
date will be amortized to that date. If there are no other call dates, any
excess of the amortized cost basis over the par amount will be amortized to
maturity. Discounts on purchased callable debt securities will continue to be
amortized to the security's maturity date. The ASU 2017-08 is effective for
public business entities for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Earlier application is
permitted for all entities, including adoption in an interim period. If an
entity early adopts the ASU in an interim period, any adjustments must be
reflected as of the beginning of the fiscal year that includes that interim
period. Management is still assessing the impact of the adoption of ASU 2017-08
on the financial statements but does not expect it to have a material impact.
On August 28, 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement," which amends the
fair value measurement disclosure requirements of ASC 820. The amendments of ASU
2018-13 include new, eliminated, and modified disclosure requirements of ASC
820. In addition, the amendments clarify that materiality is an appropriate
consideration of entities when evaluating disclosure requirements. The ASU is
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019
effective for fiscal years beginning after December 15, 2019, including interim
periods therein. Early adoption is permitted for any eliminated or modified
disclosures upon issuance of this ASU. The Fund has early adopted ASU 2018-13
for these financial statements, which did not result in a material impact.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and Advisor,
First Trust manages the investment of the Fund's assets and is responsible for
the Fund's expenses, including the cost of transfer agency, custody, fund
administration, legal, audit and other services, but excluding fee payments
under the Investment Management Agreement, interest, taxes, acquired fund fees
and expenses with the exception of those attributable to affiliated funds,
brokerage commissions and other expenses connected with the execution of
portfolio transactions, distribution and service fees pursuant to a Rule 12b-1
plan, if any, and extraordinary expenses. The Fund has agreed to pay First Trust
an annual unitary management fee equal to 0.45% of its average daily net assets.
Pursuant to a contractual agreement, First Trust has agreed to waive management
fees of 0.05% of average daily net assets until March 1, 2021 and, pursuant to a
separate contractual agreement, First Trust waived an additional 0.05% of
average daily net assets until March 1, 2019. The waiver agreement may be
terminated by action of the Trust's Board of Trustees at any time upon 60 days'
written notice by the Trust on behalf of the Fund or by the Fund's investment
advisor only after March 1, 2021. Pursuant to a contractual agreement between
the Trust, on behalf of the Fund, and First Trust, the management fees paid to
First Trust will be reduced by the portion of the management fees earned by
First Trust from the Fund for assets invested in other investment companies
advised by First Trust. This contractual agreement shall continue until the
earlier of (i) its termination at the direction of the Trust's Board of Trustees
or (ii) upon termination of the Fund's management agreement with First Trust;
however, it is expected to remain in place at least until March 1, 2021. First
Trust does not have the right to recover the fees waived that are attributable
to the assets invested in other investment companies advised by First Trust.
During the fiscal year ended October 31, 2019, the Advisor waived fees of
$2,775,527.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases of U.S. Government securities and non-U.S. Government
securities, excluding short-term investments, for the fiscal year ended October
31, 2019, were $787,022,419 and $2,397,753,865, 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, 2019, were $576,352,424 and $1,074,602,975, respectively.
For the fiscal year ended October 31, 2019, the Fund had no in-kind
transactions.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may vary and is based on the
composition of the securities included in the Fund's portfolio and/or the
countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share times the number of shares in a Creation
Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When Creation
Units are issued for cash, the Authorized Participant may also be assessed an
amount to cover the cost of purchasing portfolio securities, including
operational processing and brokerage costs, transfer fees, stamp taxes, and part
or all of the spread between the expected bid and offer side of the market
related to such securities. Authorized Participants redeeming Creation Units
must pay to BNYM, as transfer agent, a standard redemption transaction fee (the
"Redemption Transaction Fee"), regardless of the number of Creation Units
redeemed in the transaction. The Redemption Transaction Fee may vary and is
based on the composition of the securities included in the Fund's portfolio
and/or the countries in which the transactions are settled. When shares are
redeemed for cash, the Authorized Participant may also be assessed an amount to
cover other costs, including operational processing and brokerage costs,
transfer fees, stamp taxes and part or all of the spread between the expected
bid and offer side of the market related to portfolio securities sold in
connection with the redemption.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before March 31, 2021.
7. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Enhanced Short Maturity ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2019, 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, 2019, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2019, 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, 2019
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal year ended
October 31, 2019 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, 2019, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees (the "Board") 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, 2020 at a meeting held on June 2, 2019.
The Board determined that the continuation of the Agreement is in the best
interests of the Fund in light of the nature, extent and quality of the services
provided and such other matters as the Board considered to be relevant in the
exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor responding to requests for information from counsel to the Independent
Trustees, submitted on behalf of the Independent Trustees, that, among other
things, outlined: the services provided by the Advisor to the Fund (including
the relevant personnel responsible for these services and their experience); the
unitary fee rate payable by the Fund as compared to fees charged to a peer group
of funds (the "Expense Group") and a broad peer universe of funds (the "Expense
Universe"), each assembled by Broadridge Financial Solutions, Inc.
("Broadridge"), an independent source, and as compared to fees charged to other
clients of the Advisor, including other exchange-traded funds ("ETFs") managed
by the Advisor; the expense ratio of the Fund as compared to expense ratios of
the funds in the Fund's Expense Group and Expense Universe; performance
information for the Fund, including comparisons of the Fund's performance to
that of one or more relevant benchmark indexes and to that of a performance
group of funds and a broad performance universe of funds (the "Performance
Universe"), each assembled by Broadridge; the nature of expenses incurred in
providing services to the Fund and the potential for economies of scale, if any;
financial data on the Advisor; any fall-out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P. ("FTP"); and information on the Advisor's
compliance program. The Board reviewed initial materials with the Advisor at the
meeting held on April 18, 2019, prior to which the Independent Trustees and
their counsel met separately to discuss the information provided by the Advisor.
Following the April meeting, independent legal counsel 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
independent legal counsel held prior to the June 2, 2019 meeting, as well as at
the meeting held that day. 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
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
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 objectives, policies and
restrictions. The Board also considered a report from the Advisor with respect
to its risk management functions related to the operation of the Fund. Finally,
as part of the Board's consideration of the Advisor's services, the Advisor, in
its written materials and at the April 18, 2019 meeting, described to the Board
the scope of its ongoing investment in additional infrastructure and personnel
to maintain and improve the quality of services provided to the Fund and the
other funds in the First Trust Fund Complex. In light of the information
presented and the considerations made, the Board concluded that the nature,
extent and quality of the services provided to the Trust and the Fund by the
Advisor under the Agreement have been and are expected to remain satisfactory
and that the Advisor has managed the Fund consistent with its investment
objectives, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The
Board noted that the Advisor had previously agreed to waive a portion of its
unitary fee in an amount equal to 0.05% of the Fund's average daily net assets
until at least March 1, 2020 and to also reduce the unitary fee to the extent of
acquired fund fees and expenses of shares of investment companies advised by the
Advisor that are held by the Fund. The Board received and reviewed information
showing the advisory or unitary fee rates and expense ratios of the peer funds
in the Expense Group, as well as advisory and unitary fee rates charged by the
Advisor to other fund (including ETFs) and non-fund clients, as applicable.
Because the Fund pays a unitary fee, the Board determined that expense ratios
were the most relevant comparative data point. Based on the information
provided, the Board noted that the unitary fee for the Fund, after taking into
account the contractual fee waiver, was in line with the median total (net)
expense ratio of the peer funds in the Expense Group. With respect to the
Expense Group, the Board, at the April 18, 2019 meeting, discussed with
Broadridge its methodology for assembling peer groups and discussed with the
Advisor limitations in creating peer groups for actively-managed ETFs, including
different business models that may affect the pricing of services among ETF
sponsors. With respect to fees charged to other non-ETF clients, the Board
considered differences between the Fund and other non-ETF clients that limited
their comparability. In considering the unitary fee rate overall, the Board also
considered the Advisor's statement that it seeks to meet investor needs through
innovative and value-added investment solutions and the Advisor's description of
its long-term commitment to the Fund.
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, 2018
to the performance of the funds in the Performance Universe and to that of a
benchmark index. Based on the information provided, the Board noted that the
Fund outperformed the Performance Universe median for the one- and three-year
periods ended December 31, 2018. The Board also noted that the Fund outperformed
the benchmark index for the three-year period ended December 31, 2018 but
underperformed the benchmark index for the one-year period ended December 31,
2018.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund continues to be reasonable and appropriate in light of
the nature, extent and quality of the services provided by the Advisor to the
Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services to the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. The Board considered the revenues and allocated costs (including the
allocation methodology) of the Advisor in serving as investment advisor to the
Fund for the twelve months ended December 31, 2018 and the estimated
profitability level for the Fund calculated by the Advisor based on such data,
as well as complex-wide and product-line profitability data, for the same
period. The Board noted the inherent limitations in the profitability analysis
and concluded that, based on the information provided, the Advisor's
profitability level for the Fund was not unreasonable. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out benefit to the Advisor and FTP their exposure to
investors and brokers who, absent their exposure to the Fund, may have had no
Page 46
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
dealings with the Advisor or FTP, and noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of
certain funds it manages, including First Trust 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, 2018, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $5,053,397. This
figure is comprised of $958,138 paid (or to be paid) in fixed compensation and
$4,095,259 paid (or to be paid) in variable compensation. There were a total of
18 beneficiaries of the remuneration described above. Those amounts include
$657,104 paid (or to be paid) to senior management of First Trust and $4,396,293
paid (or to be paid) to other employees whose professional activities have a
material impact on the risk profiles of First Trust Advisors L.P. or the Fund
(collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 47
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 162 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 162 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 162 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 162 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services);
President and Chief Executive Officer
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 162 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 48
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 49
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED SHORT MATURITY ETF (FTSM)
OCTOBER 31, 2019 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 50
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<PAGE>
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<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Strategic Income
ETF (FDIV)
Annual Report
For the Year Ended
October 31, 2019
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2019
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 15
Statement of Operations...................................................... 16
Statements of Changes in Net Assets.......................................... 17
Financial Highlights......................................................... 18
Notes to Financial Statements................................................ 19
Report of Independent Registered Public Accounting Firm...................... 29
Additional Information....................................................... 30
Board of Trustees and Officers............................................... 36
Privacy Policy............................................................... 38
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or First Trust Global Portfolios Ltd. ("FTGP");
Energy Income Partners, LLC ("EIP"); Stonebridge Advisors LLC ("Stonebridge");
and/or Richard Bernstein Advisors LLC ("RBA") (each, a "Sub-Advisor" and
together, the "Sub-Advisors") and their respective representatives, taking into
account the information currently available to them. Forward-looking statements
include all statements that do not relate solely to current or historical fact.
For example, forward-looking statements include the use of words such as
"anticipate," "estimate," "intend," "expect," "believe," "plan," "may,"
"should," "would" or other words that convey uncertainty of future events or
outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Strategic Income ETF; hereinafter referred to as the
"Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and/or Sub-Advisors and their respective representatives
only as of the date hereof. We undertake no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of investing
in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor and/or Sub-Advisors are just that: informed opinions. They should not be
considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. The material risks of
investing in the Fund are spelled out in the prospectus, the statement of
additional information, and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2019
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Strategic Income ETF (the "Fund"), which contains detailed information about the
Fund for the twelve months ended October 31, 2019, including a market overview
and a performance analysis. We encourage you to read this report carefully and
discuss it with your financial advisor.
One of our responsibilities as asset managers is to be good listeners. Perhaps
the most effective way in which we do this continually is by paying close
attention to mutual fund and exchange-traded fund (ETF) money flows. After all,
investors vote with their dollars, and money flows provide valuable feedback
with respect to their biases. Over the past 12 months, we have learned that
investors, in general, have grown more risk-averse. For the 12-month period
ended October 31, 2019, investors funneled an estimated net $359.56 billion into
bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion
from equity mutual funds and ETFs, according to data from Morningstar. Over the
same period, money market funds took in an estimated net $583.27 billion. Those
figures were more balanced for the full-year 2018. Those estimated net flows
were as follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion
(bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to monitoring fund flows, we watch the performance of all the asset
classes. Market returns can either help validate or invalidate our
interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that
comprise the S&P 500(R) Index back it up. For the 12-month period ended October
31, 2019, as measured by total return, the top performers were Real Estate and
Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P
500(R) Index posted a total return of 14.33% for the period. These two sectors
are defensive in nature. They also tend to distribute cash dividends that are
often well above those sectors that are more cyclical in nature. The higher
dividend distributions likely drew the attention of fixed-income investors
dissatisfied with the current low-yield climate in the bond market, in our
opinion.
The absence of a new trade deal between the U.S. and China has been a bit of a
wet blanket on the global economy. Global growth projections have been trimmed
over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack
of any significant progress in the negotiations between the U.S. and China is a
concern, we believe a remedy will be found. Remember, as uncertain as things may
appear in the current climate, investors with diversified investment portfolios
were most likely rewarded over the past 12 months. Stay the course and stay
engaged!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
The primary investment objective of First Trust Strategic Income ETF (the
"Fund") is to seek risk-adjusted income. The Fund's secondary investment
objective is capital appreciation. The Fund is a multi-manager, multi-strategy
actively managed exchange-traded fund. First Trust Advisors L.P. ("First Trust"
or the "Advisor") serves as the Fund's investment advisor. The Advisor's
Investment Committee determines the Fund's strategic allocation among various
general investment categories and allocates the Fund's assets to portfolio
management teams comprised of personnel of the Advisor and/or a sub-advisor
(each, a "Management Team"), which employ their respective investment
strategies. Shares of the Fund are listed on The Nasdaq Stock Market LLC under
the ticker symbol "FDIV."
The Fund's investment categories are: (i) high yield corporate bonds, commonly
referred to as "junk" bonds, and first lien senior secured floating rate bank
loans; (ii) mortgage-related investments; (iii) preferred securities; (iv)
international sovereign bonds, including securities issued by emerging markets
countries; (v) equity securities of Energy Infrastructure Companies(1), certain
of which are master limited partnerships ("MLPs"); and (vi) dividend paying U.S.
exchange-traded equity securities and depositary receipts. The Management Teams
may utilize a related option overlay strategy and/or derivative instruments in
implementing their respective investment strategies for the Fund. Additionally,
the Management Teams may seek to gain exposure to the Fund's investment
categories directly or through investments in exchange-traded funds. The Advisor
expects that the Fund may at times invest significantly in other exchange-traded
funds, including but not limited to, other exchange-traded funds that are
advised by the Advisor; accordingly, the Fund may operate principally as a "fund
of funds," but will not necessarily operate as such at all times. The Fund seeks
to achieve its objectives by having each Management Team focus on those
instruments within its respective investment category. The Fund may add or
remove investment categories or Management Teams at the discretion of the
Advisor.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (8/13/14) 5 Years Ended Inception (8/13/14)
10/31/19 10/31/19 to 10/31/19 10/31/19 to 10/31/19
<S> <C> <C> <C> <C> <C>
FUND PERFORMANCE
NAV 10.60% 4.20% 4.37% 22.83% 25.00%
Market Price 10.65% 4.25% 4.39% 23.11% 25.12%
INDEX PERFORMANCE
Blended Index(2) 7.97% 3.41% 3.52% 18.26% 19.78%
Bloomberg Barclays U.S. Aggregate
Bond Index 11.51% 3.24% 3.26% 17.27% 18.21%
Russell 3000(R) Index 13.49% 10.31% 10.64% 63.37% 69.44%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the period
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint 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 the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
-----------------------------
(1) Energy Infrastructure Companies are publicly-traded MLPs or limited
liability companies that are taxed as partnerships; entities that control
MLPs, entities that own general partner interests in an MLP, or MLP
affiliates (such as I-shares or I-units); U.S. and Canadian energy yield
corporations ("yieldcos"); pipeline companies; utilities; and other
companies that are involved in operating or providing services in support
of infrastructure assets such as pipeline, power transmission,
terminalling and petroleum and natural gas storage in the petroleum,
natural gas and power generation industries.
(2) The Blended Index is equally weighted to include these six indices: the
Alerian MLP Index, Dow Jones U.S. Select Dividend Index, ICE BofAML Fixed
Rate Preferred Securities Index, ICE BofAML U.S. High Yield Index,
Bloomberg Barclays EM USD Aggregate Index and Bloomberg Barclays U.S. MBS
Index. An index does not charge management fees or brokerage expenses, and
no such fees or expenses were deducted from the index performance shown.
Indices are unmanaged and an investor cannot invest directly in an index.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
-----------------------------------------------------------
% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Exchange-Traded Funds 58.42%
Common Stocks 22.52
Master Limited Partnerships 8.05
U.S. Government Agency Mortgage-
Backed Securities 6.89
Real Estate Investment Trusts 4.06
Asset-Backed Securities 0.03
Mortgage-Backed Securities 0.03
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
First Trust Tactical High Yield ETF 17.68%
First Trust Preferred Securities and
Income ETF 9.58
First Trust Emerging Markets Local
Currency Bond ETF 9.24
iShares MBS ETF 7.29
iShares J.P. Morgan USD Emerging
Markets Bond ETF 6.07
First Trust Low Duration Opportunities ETF 3.59
First Trust Institutional Preferred Securities
and Income ETF 3.21
Enterprise Products Partners, L.P. 1.73
Magellan Midstream Partners, L.P. 1.07
TC Energy Corp. 1.03
-------
Total 60.49%
=======
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 13, 2014 - OCTOBER 31, 2019
First Trust Strategic Blended Bloomberg Barclays U.S. Russell 3000(R)
Income ETF Index Aggregate Bond Index Index
<S> <C> <C> <C> <C>
8/13/14 $10,000 $10,002 $10,003 $10,000
10/31/14 10,177 10,129 10,080 10,371
4/30/15 10,330 10,191 10,288 10,863
10/31/15 9,989 9,735 10,280 10,837
4/30/16 10,436 10,006 10,571 10,844
10/31/16 10,856 10,446 10,731 11,297
4/30/17 11,275 10,981 10,659 12,859
10/31/17 11,442 11,058 10,827 14,006
4/30/18 11,340 11,029 10,625 14,537
10/31/18 11,303 11,093 10,605 14,929
4/30/19 12,100 11,766 11,187 16,379
10/31/19 12,502 11,977 11,826 16,942
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 November 1, 2014 through
October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/1/14 - 10/31/15 36 6 6 2 152 33 9 7
11/1/15 - 10/31/16 69 16 7 3 125 27 3 2
11/1/16 - 10/31/17 142 14 0 0 95 1 0 0
11/1/17 - 10/31/18 91 0 1 2 156 1 1 0
11/1/18 - 10/31/19 123 0 0 0 128 0 0 0
</TABLE>
Page 3
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
INVESTMENT ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the First Trust Strategic Income ETF ("FDIV" or the "Fund"). The
following serve as investment sub-advisors (each, a "Sub-Advisor") to the Fund:
First Trust Global Portfolios Ltd. ("FTGP"); Energy Income Partners, LLC
("EIP"); Stonebridge Advisors LLC ("Stonebridge"); and Richard Bernstein
Advisors LLC ("RBA"). The Advisor's Investment Committee determines the Fund's
strategic allocation among various general investment categories and allocates
the Fund's assets to portfolio management teams comprised of personnel of the
Advisor and/or a Sub-Advisor, which employ their respective investment
strategies.
ADVISOR'S INVESTMENT COMMITTEE
ADVISOR'S INVESTMENT COMMITTEE
The Advisor's Investment Committee, which determines the Fund's strategic
allocation among various general investment categories and allocates the Fund's
assets, consists of:
o DANIEL J. LINDQUIST, CHAIRMAN OF THE INVESTMENT COMMITTEE AND MANAGING
DIRECTOR OF FIRST TRUST;
o DAVID G. MCGAREL, CHIEF INVESTMENT OFFICER, CHIEF OPERATING OFFICER AND
MANAGING DIRECTOR OF FIRST TRUST;
o JON C. ERICKSON, SENIOR VICE PRESIDENT OF FIRST TRUST;
o ROGER F. TESTIN, SENIOR VICE PRESIDENT OF FIRST TRUST;
o TODD LARSON, CFA, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST
TRUST;
o JOHN GAMBLA; CFA, FRM, PRM, SENIOR PORTFOLIO MANAGER OF FIRST TRUST;
o ROB A. GUTTSCHOW, CFA, SENIOR PORTFOLIO MANAGER OF FIRST TRUST; AND
o CHRIS A. PETERSON, CFA, SENIOR VICE PRESIDENT OF FIRST TRUST.
ADVISOR PORTFOLIO MANAGERS
o WILLIAM HOUSEY, CFA, SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER OF
FIRST TRUST, LEVERAGED FINANCE TEAM;
o SCOTT D. FRIES, CFA, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST
TRUST, LEVERAGED FINANCE TEAM;
o JEREMIAH CHARLES, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST
TRUST, SECURITIZED PRODUCTS GROUP; AND
o JAMES SNYDER, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF FIRST TRUST,
SECURITIZED PRODUCTS GROUP.
SUB-ADVISOR PORTFOLIO MANAGERS
o JAMES J. MURCHIE, FOUNDER, CHIEF EXECUTIVE OFFICER, CO-PORTFOLIO MANAGER
AND PRINCIPAL OF EIP.
o EVA PAO, PORTFOLIO MANAGER AND PRINCIPAL OF EIP.
o JOHN K. TYSSELAND, PORTFOLIO MANAGER AND PRINCIPAL OF EIP.
o DEREK FULTON, DIRECTOR AND CHIEF EXECUTIVE OFFICER OF FTGP.
o LEONARDO DACOSTA, DIRECTOR AND PORTFOLIO MANAGER OF FTGP.
o ANTHONY BEEVERS, PORTFOLIO MANAGER OF FTGP.
o RICHARD BERNSTEIN, CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER OF
RBA.
o HENRY TIMMONS, CFA, DIRECTOR OF ETFS OF RBA.
o MATTHEW GRISWOLD, CFA, DIRECTOR OF INVESTMENTS OF RBA.
o SCOTT T. FLEMING, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF STONEBRIDGE.
o ROBERT WOLF, SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER OF
STONEBRIDGE.
COMMENTARY
FIRST TRUST STRATEGIC INCOME ETF
The Fund is an actively managed exchange-traded fund. The primary investment
objective of the Fund is to seek risk-adjusted income. The Fund's secondary
investment objective is capital appreciation. There is no assurance that the
Fund's investment objectives will be achieved. The Fund may not be appropriate
for all investors.
MARKET RECAP
One year ago we commented that real gross domestic product ("GDP") growth in the
U.S. was ascending. It reached as high as 3.5% annualized in the second quarter
of 2018, according to the Bureau of Economic Analysis ("BEA"). Fast forward to
today's climate and we find that growth has been notably tempered. In fact,
economic growth has descended over the past 12 months. Real U.S. GDP growth
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
stood at just 1.9% on an annualized basis in the third quarter of 2019, matching
the 1.9% average real GDP growth rate posted by the Obama Administration over
its two terms, according to data from the BEA. We believe that most of the
recent economic headwinds have largely been a byproduct of tariffs. The Trump
Administration launched its first round of tariffs on imported steel and
aluminum on March 8, 2018. The trade tariffs were employed as a tactic to garner
more leverage over the U.S.'s top trading partners in any future trade
negotiations. President Donald J. Trump promised voters he would secure more
favorable trade agreements if elected. One of the reasons given as to why
President Trump launched the tariffs in March 2018 was because he wanted to do
it from a position of strength. He wanted that economic tailwind behind him.
While history will likely be the judge of the efficacy of the timing of said
tariffs, it would have been interesting to see how much stronger the U.S.
economy might have become had he waited at least a few more quarters to allow
the tax cuts to work unabated.
An economic growth rate of roughly 2.0% may be modest by historical standards,
but it should suit income-oriented investors just fine, in our opinion. One of
the things that has been absent in the current U.S. economic expansion is
inflationary pressure. That is amazing, in our view, considering the recovery is
in its 11th year. The trailing 12-month U.S. Consumer Price Index - Headline
Rate stood at 1.8% in October 2019, down from 2.5% a year earlier, according to
the Bureau of Labor Statistics. The Federal Reserve (the "Fed") has let it be
known that its desired target rate for inflation is around the 2.0% level. The
combination of the escalation of the use of trade tariffs by the Trump
Administration, the lack of any major inflationary pressure and the
low-to-negative government bond yields in Europe and Japan provided the
necessary cover for the Fed to cut rates three times for a total of 75 basis
points ("bps") from July 2019 through October 2019. Prior to these rate
reductions, the Fed had increased its federal funds target rate (upper bound)
nine times for a total of 225 bps, from December 2015 through December 2018,
according to its own data. Providing the U.S. staves off a recession for the
foreseeable future, a low interest rate, low inflationary climate is a potential
win-win proposition for income-oriented investors, in our opinion.
In addition to curbing economic growth here in the U.S. and abroad, the trade
conflict between the U.S. and China has boosted the value of the U.S. dollar, in
our opinion. Historically, the U.S. dollar has been a safe haven destination for
foreign capital during periods of global instability. The U.S. Dollar Index
("DXY"), which indicates the general international value of the dollar relative
to a basket of major world currencies, stood at a reading of 90.18 on March 8,
2018, the day President Trump signed-off on the first round of tariffs. That
reading was in line with the index's 20- and 30-year averages of 90.70 and
90.96, respectively, as of October 31, 2019, according to Bloomberg. The index,
however, closed trading on October 31, 2019, at a reading of 97.35, up 7.95%
from its closing value on March 8, 2018. One of the asset classes that has been
negatively impacted by the strengthened U.S. Dollar is commodities, since they
tend to be priced in dollars. The price of crude oil (WTI), in particular, fell
from $60.12 per barrel on March 8, 2018, to $54.18 on October 31, 2019, or a
decline of 9.88%, according to data from Bloomberg. The price of crude oil was
down a bit more than the 7.95% rally in the DXY due in part to increased oil
production from the U.S. shale regions and slightly softer demand stemming from
the pullback in global economic growth, in our opinion. A new or partial trade
deal with China would likely ease some of the pressure on prices moving forward.
PERFORMANCE ANALYSIS/FUND
The Fund generated a net asset value ("NAV") return of 10.60% for the 12-month
period ended October 31, 2019. During the same period, the Blended Index
generated a return of 7.97%. The Blended Index is equally weighted to include
these six indices: the Alerian MLP Index, Dow Jones U.S. Select Dividend Index,
ICE BofAML Fixed Rate Preferred Securities Index, ICE BofAML U.S. High Yield
Index, Bloomberg Barclays EM USD Aggregate Index and Bloomberg Barclays U.S. MBS
Index.
The Fund invests in six investment categories which are: high-yield corporate
bonds and first lien senior secured floating-rate bank loans, mortgage-related
investments, preferred securities, international sovereign bonds, equity
securities of Energy Infrastructure Companies, and dividend-paying U.S.
exchange-traded equity securities and depositary receipts. The Fund may seek
exposure to these investment categories directly or through investment in
exchange-traded funds. The weight assigned to each investment category is
determined on a periodic basis. As of October 31, 2019, the highest-weighted
investment category was the dividend-paying U.S. exchange-traded equity
securities and the lowest-weighted investment category was preferred securities.
All of the investment categories had positive performance for the one-year
period.
The performance for the high-yield corporate bonds and floating-rate bank loans,
while positive, were the largest relative detractor on the overall performance
of the Fund. The floating-rate bank loan and high-yield corporate bond asset
classes experienced strong returns in 2019 but did not rally as much as other
asset classes. Specifically detracting from the bank loan and high-yield bond
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
performance within the Fund was the overweight position and asset selection
within the healthcare industry and the Fund's selection within the automotive
industry. Mitigating these headwinds were the Fund's underweight position and
asset selection within the energy industry as this was one of the worst
performing industries in the broader market and the Fund's overweight position
within the insurance industry as this was one of the strongest performing
industries within the broader market.
Mortgage-related investments posted positive returns but underperformed the
overall Fund performance during the period. Going forward, we expect wider
mortgage spreads will improve outcomes for mortgage investments. In addition, we
expect the yield curve to mildly steepen, and therefore, are focused on
increased investments in the intermediate segments of the yield curve.
The performance of preferred securities had a positive impact on the overall
performance of the Fund. It was a strong period for the preferred and hybrid
securities market with all parts of the market experiencing positive performance
as interest rates trended lower and central banks established a more dovish
stance. Security selection and an overweight to variable rate preferred
securities and contingent convertible capital securities ("CoCos") were the
largest contributors to positive performance within the Fund's preferred
allocation. Investments in newly issued preferred and hybrid securities also
added to performance.
The performance of international sovereign bonds had a positive impact on the
overall performance of the Fund. Across emerging market fixed income, both U.S.
dollar denominated debt and local currency denominated debt performed well over
the year. The headline noise regarding US-China trade and the weakness in global
manufacturing added to volatility, but we continue to see stable and improving
underlying fundamentals across many emerging market economies. The International
sovereign bonds sleeve maintained a bias towards local currency denominated debt
over the period, primarily based on more attractive valuations. This positioning
continues to be the case moving forward.
The performance of the equity securities of Energy Infrastructure Companies
performed in-line with the overall performance of the Fund. Positive
contributions from the regulated utilities and pipeline corporations in the
portfolio more than offset negative sentiment across the entire energy sector
that weighed on some of the master limited partnerships ("MLPs") in the
portfolio.
The dividend-paying U.S. exchange-traded equity securities had the largest
positive impact on the overall Fund performance. In terms of sectors,
performance was primarily helped by securities in the real estate, financials
and consumer discretionary sectors, while it was hurt most significantly by the
communication services sector. In terms of industries, positive contributions
were mainly driven by exposure to the following: equity real estate invest
trusts ("REITs"), banks, electric utilities, electrical equipment and IT
services. Industry detractors included exposure to specialty retail and tobacco.
A breakdown of category performance by market-cap reveals that all segments
contributed positively, led by large-cap and mid-cap securities which had the
largest allocations and performed most positively.
MARKET/FUND OUTLOOK
As we previously noted, the current climate is encouraging for income-oriented
investments. We believe the following barometers of Corporate America reflect
strength:
Corporate Earnings/Revenue Growth: Bloomberg's consensus earnings growth rate
estimates for 2020 and 2021 for the S&P 500(R) Index were 9.26% and 10.36%,
respectively, as of November 1, 2019. We believe that corporate earnings
determine the direction of stock prices over time. From 1926-2018, the S&P
500(R) Index posted an average annual total return of 9.99%, according to
Morningstar/Ibbotson Associates. The 2020 and 2021 consensus revenue (sales)
growth rate estimates were 4.80% and 4.62%, respectively, as of November 1,
2019, according to Bloomberg. While the earnings and revenue growth rates
currently projected for 2020 and 2021 are not overly robust, we do not believe
they portend a recession is in the offing.
Default Rates: Defaults are expected to trend higher over the next 12 months,
but we believe the default rate should remain below its historical average.
Moody's reported that its global speculative-grade default rate stood at 2.6% in
October, according to its own release. It sees the rate rising to 3.6% in
October 2020. Moody's puts the historical average default rate at 4.1% since
1983. Year-to-date, a total of 72 Moody's-rated issuers defaulted, up from 65 at
this point a year ago. The U.S. speculative-grade default rate stood at 3.6% in
October. It sees the rate rising to 3.7% in October 2020. The default rate on
senior loans stood at 1.64% in October, according to S&P Global Market
Intelligence.
Stock Dividends: Cash dividends are a sign of strength, in our view, and they
continue to rise. S&P Dow Jones Indices announced that total dividend
distributions for U.S. common stocks increased by a net (increases less
decreases) $14.6 billion in the third quarter of 2019, according to its own
release. For the 12-month period ended September 30, 2019, net dividend
increases totaled $42.2 billion.
Page 6
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2019 (UNAUDITED)
As a shareholder of First Trust Strategic Income ETF (the "Fund"), you incur two
types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service fees, if any, and other Fund
expenses. This Example is intended to help you understand your ongoing costs of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2019.
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 period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2019 OCTOBER 31, 2019 PERIOD (a) (b) PERIOD (b) (c)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
Actual $1,000.00 $1,033.20 0.48% $2.46
Hypothetical (5% return before expenses) $1,000.00 $1,022.79 0.48% $2.45
</TABLE>
(a) These expense ratios reflect expense waivers. See Note 3 in the Notes to
Financial Statements.
(b) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(c) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2019
through October 31, 2019), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
EXCHANGE-TRADED FUNDS -- 57.5%
CAPITAL MARKETS -- 57.5%
215,834 First Trust Emerging Markets Local Currency Bond ETF (a)..................................... $ 8,279,392
144,347 First Trust Institutional Preferred Securities and Income ETF (a)............................ 2,875,710
11,606 First Trust Long Duration Opportunities ETF (a).............................................. 322,299
62,110 First Trust Low Duration Opportunities ETF (a)............................................... 3,217,919
431,855 First Trust Preferred Securities and Income ETF (a).......................................... 8,585,277
330,111 First Trust Tactical High Yield ETF (a)...................................................... 15,842,027
3,531 iShares 20+ Year Treasury Bond ETF........................................................... 498,718
2,000 iShares 3-7 Year Treasury Bond ETF........................................................... 253,940
4,500 iShares 7-10 Year Treasury Bond ETF.......................................................... 506,295
47,900 iShares J.P. Morgan USD Emerging Markets Bond ETF............................................ 5,441,440
60,315 iShares MBS ETF.............................................................................. 6,537,543
---------------
TOTAL EXCHANGE-TRADED FUNDS.................................................................. 52,360,560
(Cost $51,563,015) ---------------
COMMON STOCKS -- 22.2%
BANKS -- 4.0%
8,988 Associated Banc-Corp......................................................................... 180,749
10,440 Cathay General Bancorp....................................................................... 371,351
14,772 First Financial Bancorp...................................................................... 346,256
11,009 Great Western Bancorp, Inc................................................................... 383,884
10,275 Hanmi Financial Corp......................................................................... 197,794
24,679 Hope Bancorp, Inc............................................................................ 352,169
10,073 PacWest Bancorp.............................................................................. 372,600
23,271 People's United Financial, Inc............................................................... 376,292
22,876 Regions Financial Corp....................................................................... 368,303
22,071 Umpqua Holdings Corp......................................................................... 349,163
9,605 United Bankshares, Inc....................................................................... 379,782
---------------
3,678,343
---------------
CAPITAL MARKETS -- 0.8%
6,806 Northern Trust Corp.......................................................................... 678,422
---------------
CONTAINERS & PACKAGING -- 0.8%
12,490 Sonoco Products Co........................................................................... 720,673
---------------
DISTRIBUTORS -- 0.8%
7,304 Genuine Parts Co............................................................................. 749,244
---------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3%
7,264 China Telecom Corp., Ltd., ADR............................................................... 307,921
---------------
ELECTRIC UTILITIES -- 4.2%
1,258 Alliant Energy Corp.......................................................................... 67,102
1,446 American Electric Power Co., Inc............................................................. 136,488
1,536 Emera, Inc. (CAD)............................................................................ 63,593
10,878 Evergy, Inc.................................................................................. 695,213
1,590 Eversource Energy............................................................................ 133,147
6,085 Exelon Corp.................................................................................. 276,807
4,792 Fortis, Inc. (CAD)........................................................................... 199,087
15,814 Hawaiian Electric Industries, Inc............................................................ 714,002
1,903 NextEra Energy, Inc.......................................................................... 453,561
7,459 Pinnacle West Capital Corp................................................................... 702,041
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
6,456 PPL Corp..................................................................................... $ 216,211
3,136 Xcel Energy, Inc............................................................................. 199,167
---------------
3,856,419
---------------
ELECTRICAL EQUIPMENT -- 0.8%
10,846 Emerson Electric Co.......................................................................... 760,847
---------------
FOOD & STAPLES RETAILING -- 0.8%
13,159 Walgreens Boots Alliance, Inc................................................................ 720,850
---------------
GAS UTILITIES -- 0.2%
599 Atmos Energy Corp............................................................................ 67,375
1,506 New Jersey Resources Corp.................................................................... 65,662
---------------
133,037
---------------
HOTELS, RESTAURANTS & LEISURE -- 0.8%
16,618 Carnival Corp................................................................................ 712,746
---------------
IT SERVICES -- 0.8%
8,808 Paychex, Inc................................................................................. 736,701
---------------
MULTI-UTILITIES -- 1.5%
1,843 ATCO Ltd., Class I (CAD)..................................................................... 64,787
9,667 NorthWestern Corp............................................................................ 701,051
6,581 Public Service Enterprise Group, Inc......................................................... 416,643
462 Sempra Energy................................................................................ 66,764
714 WEC Energy Group, Inc........................................................................ 67,401
---------------
1,316,646
---------------
OIL, GAS & CONSUMABLE FUELS -- 3.4%
11,608 Enbridge, Inc................................................................................ 422,647
14,272 Equitrans Midstream Corp..................................................................... 198,666
33,037 Kinder Morgan, Inc........................................................................... 660,079
3,715 ONEOK, Inc................................................................................... 259,419
18,350 TC Energy Corp............................................................................... 923,556
27,481 Williams (The) Cos., Inc..................................................................... 613,101
---------------
3,077,468
---------------
PHARMACEUTICALS -- 0.8%
15,703 Sanofi, ADR.................................................................................. 723,594
---------------
THRIFTS & MORTGAGE FINANCE -- 1.4%
21,995 OceanFirst Financial Corp.................................................................... 526,340
18,490 Provident Financial Services, Inc............................................................ 461,326
30,692 TrustCo Bank Corp. NY........................................................................ 265,179
---------------
1,252,845
---------------
TRADING COMPANIES & DISTRIBUTORS -- 0.8%
4,309 Watsco, Inc.................................................................................. 759,677
---------------
TOTAL COMMON STOCKS.......................................................................... 20,185,433
(Cost $19,356,454) ---------------
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
UNITS DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
MASTER LIMITED PARTNERSHIPS -- 7.9%
CHEMICALS -- 0.3%
11,460 Westlake Chemical Partners, L.P.............................................................. $ 262,893
---------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.6%
10,274 NextEra Energy Partners, L.P. (b)............................................................ 541,440
---------------
OIL, GAS & CONSUMABLE FUELS -- 7.0%
8,625 Alliance Resource Partners, L.P.............................................................. 98,325
9,352 BP Midstream Partners, L.P................................................................... 137,942
53,888 Energy Transfer, L.P......................................................................... 678,450
59,647 Enterprise Products Partners, L.P............................................................ 1,552,611
18,921 Holly Energy Partners, L.P................................................................... 432,345
15,430 Magellan Midstream Partners, L.P............................................................. 961,598
7,301 MPLX, L.P.................................................................................... 192,527
12,441 Phillips 66 Partners, L.P.................................................................... 695,327
29,541 Plains All American Pipeline, L.P............................................................ 535,578
16,803 Shell Midstream Partners, L.P................................................................ 344,798
19,732 TC PipeLines, L.P............................................................................ 781,782
---------------
6,411,283
---------------
TOTAL MASTER LIMITED PARTNERSHIPS............................................................ 7,215,616
(Cost $6,901,430) ---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 6.8%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 4.0%
Federal Home Loan Mortgage Corporation
$ 10,492 Series 1998-192, Class IO, IO, STRIPS........................ 6.50% 02/01/28 1,578
102,478 Series 2003-2564, Class PK................................... 4.00% 06/15/32 113,528
93,000 Series 2003-2669, Class LL................................... 5.50% 08/15/33 104,106
1,550 Series 2004-2776, Class QP................................... 4.00% 01/15/34 1,553
98,201 Series 2006-3114, Class GI, IO,
1 Mo. LIBOR (x) -1 + 6.60% (c)............................ 4.68% 02/15/36 17,258
6,939 Series 2006-3200, Class PO, PO............................... (d) 08/15/36 6,344
9,769 Series 2007-3373, Class TO, PO............................... (d) 04/15/37 8,751
89,468 Series 2007-3382, Class CE................................... 6.00% 11/15/37 101,220
81,483 Series 2009-3589, Class ZW................................... 4.50% 10/15/39 93,528
232,000 Series 2010-3626, Class ME................................... 5.00% 01/15/40 264,040
76,500 Series 2011-3817, Class MA................................... 4.50% 10/15/37 78,114
11,288 Series 2011-3917, Class AI, IO............................... 4.50% 07/15/26 719
87,947 Series 2012-4101, Class QN................................... 3.50% 09/15/42 92,097
1,376,490 Series 2016-4619, Class IB, IO............................... 4.00% 12/15/47 81,449
Federal National Mortgage Association
3,274 Series 1992-205, Class Z..................................... 7.00% 11/25/22 3,444
17,870 Series 1993-176, Class E, PO................................. (d) 08/25/23 17,333
15,483 Series 1993-247, Class 2, IO, STRIPS......................... 7.50% 10/25/23 1,487
57,437 Series 1997-22, Class PC..................................... 4.50% 03/18/27 60,561
11,326 Series 2002-1, Class HC...................................... 6.50% 02/25/22 11,626
76,117 Series 2003-339, Class 12, IO, STRIPS........................ 6.00% 06/25/33 15,157
14,172 Series 2003-W2, Class 1A1.................................... 6.50% 07/25/42 16,240
47,952 Series 2004-T2, Class 1PO, PO................................ (d) 11/25/43 45,219
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 9,689 Series 2006-125, Class FA, 1 Mo. LIBOR + 0.28% (e)........... 2.10% 01/25/37 $ 9,655
54,377 Series 2007-32, Class KT..................................... 5.50% 04/25/37 61,913
19,905 Series 2007-42, Class AO, PO................................. (d) 05/25/37 18,191
103,842 Series 2008-24, Class WH..................................... 6.00% 02/25/38 134,647
12,323 Series 2008-44, Class PO, PO................................. (d) 05/25/38 10,652
227,000 Series 2010-45, Class EB..................................... 5.00% 05/25/40 280,320
105,110 Series 2011-30, Class MD..................................... 4.00% 02/25/39 106,206
89,288 Series 2012-409, Class C17, IO, STRIPS....................... 4.00% 11/25/41 14,853
112,463 Series 2015-14, Class IK, IO................................. 0.75% 03/25/45 11,066
70,805 Series 2015-72, Class PC..................................... 3.00% 10/25/43 71,290
Government National Mortgage Association
29,586 Series 2003-7, Class TA...................................... 4.50% 11/16/32 30,688
25,034 Series 2003-52, Class AP, PO................................. (d) 06/16/33 22,800
54,000 Series 2004-47, Class PD..................................... 6.00% 06/16/34 61,211
36,326 Series 2004-109, Class BC.................................... 5.00% 11/20/33 36,889
9,823 Series 2005-17, Class AD..................................... 5.00% 02/20/35 10,449
322,491 Series 2006-17, Class TW..................................... 6.00% 04/20/36 363,485
270,000 Series 2008-2, Class GC...................................... 4.75% 01/16/38 297,967
84,620 Series 2009-96, Class ZG..................................... 5.50% 10/16/39 98,759
10,000 Series 2010-84, Class YB..................................... 4.00% 07/20/40 10,766
167,713 Series 2010-111, Class JA.................................... 2.50% 09/16/40 168,676
456,000 Series 2010-167, Class WL.................................... 4.50% 09/20/40 515,518
31,876 Series 2012-34, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.05% (c)............................ 4.16% 03/16/42 5,970
33,632 Series 2013-20, Class KI, IO................................. 5.00% 01/20/43 4,911
1,735 Series 2013-31, Class TH, 1 Mo. LIBOR + 4.35% (e)............ 6.20% 08/20/39 1,748
41,404 Series 2013-67, Class PI, IO................................. 4.00% 12/16/42 5,121
NCUA Guaranteed Notes Trust
29,217 Series 2010-R3, Class 1A, 1 Mo. LIBOR + 0.56% (e)............ 2.33% 12/08/20 29,237
Vendee Mortgage Trust
73,238 Series 2011-2, Class DA...................................... 3.75% 12/15/33 73,849
---------------
3,592,189
---------------
PASS-THROUGH SECURITIES -- 2.8%
Federal Home Loan Mortgage Corporation
66,345 Pool A47829.................................................. 4.00% 08/01/35 69,252
72,977 Pool A80290.................................................. 5.00% 11/01/35 80,711
53,514 Pool A94951.................................................. 4.00% 11/01/40 57,327
30,195 Pool A95134.................................................. 4.50% 11/01/40 32,768
29,623 Pool A97601.................................................. 4.50% 03/01/41 32,708
13,142 Pool G03523.................................................. 6.00% 11/01/37 15,141
36,643 Pool G06501.................................................. 4.00% 04/01/41 39,247
48,259 Pool G07286.................................................. 6.50% 09/01/39 56,391
2 Pool G11805.................................................. 5.50% 12/01/19 2
3,155 Pool G11973.................................................. 5.50% 02/01/21 3,182
31,419 Pool G13124.................................................. 6.00% 12/01/22 32,495
22,978 Pool G13465.................................................. 6.00% 01/01/24 23,693
26,254 Pool G13790.................................................. 4.50% 04/01/25 27,431
30,175 Pool G13844.................................................. 4.50% 07/01/25 31,715
20,118 Pool G14184.................................................. 5.00% 07/01/25 20,742
34,518 Pool G15725.................................................. 4.50% 09/01/26 36,271
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 6,439 Pool G18072.................................................. 4.50% 09/01/20 $ 6,641
9,167 Pool O20138.................................................. 5.00% 11/01/30 9,913
34,115 Pool Q05201.................................................. 4.00% 12/01/41 36,482
Federal National Mortgage Association
89,095 Pool 724888.................................................. 5.50% 06/01/33 96,778
16,195 Pool 879398.................................................. 5.50% 02/01/21 16,382
27,852 Pool 888112.................................................. 6.50% 12/01/36 32,456
12,348 Pool 889780.................................................. 5.50% 03/01/23 12,794
1,724 Pool 890206.................................................. 5.50% 10/01/21 1,734
27,223 Pool 897936.................................................. 5.50% 08/01/21 27,798
21,854 Pool 923171.................................................. 7.50% 03/01/37 24,728
30,513 Pool 977130.................................................. 5.50% 08/01/23 31,584
20,456 Pool 983629.................................................. 4.50% 05/01/23 21,124
24,654 Pool 995400.................................................. 7.00% 06/01/23 25,646
58,247 Pool 995700.................................................. 6.50% 03/01/27 64,910
28,611 Pool AB2265.................................................. 4.00% 02/01/41 30,831
9,149 Pool AI1191.................................................. 4.50% 04/01/41 9,922
30,299 Pool AI7800.................................................. 4.50% 07/01/41 32,896
24,635 Pool AJ5299.................................................. 4.00% 11/01/41 26,619
44,683 Pool AJ5300.................................................. 4.00% 11/01/41 47,845
37,537 Pool AK3103.................................................. 4.00% 02/01/42 40,115
69,680 Pool AL1024.................................................. 4.50% 07/01/26 73,860
20,276 Pool AL6304.................................................. 5.50% 09/01/25 21,012
50,889 Pool AU4726.................................................. 4.00% 09/01/43 54,555
400,373 Pool BN0965.................................................. 4.50% 12/01/48 422,059
Government National Mortgage Association
17,144 Pool 3500.................................................... 5.50% 01/20/34 19,318
9,869 Pool 3513.................................................... 5.00% 02/20/34 10,948
20,085 Pool 3555.................................................... 5.00% 05/20/34 22,289
55,479 Pool 3975.................................................... 5.50% 04/20/37 61,918
21,220 Pool 4230.................................................... 6.00% 09/20/23 22,412
37,060 Pool 609116.................................................. 4.50% 02/15/44 41,515
346,954 Pool 769055.................................................. 3.75% 07/15/41 365,112
271,666 Pool 770005.................................................. 4.00% 11/15/33 291,809
22,372 Pool MA2293.................................................. 3.50% 10/20/44 23,078
---------------
2,586,159
---------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................................... 6,178,348
(Cost $6,122,862) ---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS -- 4.0%
EQUITY REAL ESTATE INVESTMENT TRUSTS -- 4.0%
9,461 EPR Properties............................................................................... 735,971
12,313 National Retail Properties, Inc.............................................................. 725,359
2,957 Public Storage............................................................................... 658,997
9,475 Realty Income Corp........................................................................... 774,960
39,613 Retail Opportunity Investments Corp.......................................................... 739,377
---------------
TOTAL REAL ESTATE INVESTMENT TRUSTS.......................................................... 3,634,664
(Cost $3,312,058) ---------------
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 0.0%
First Alliance Mortgage Loan Trust
$ 24,849 Series 1999-1, Class A1...................................... 7.18% 06/20/30 $ 25,004
---------------
TOTAL ASSET-BACKED SECURITIES................................................................ 25,004
(Cost $24,849) ---------------
MORTGAGE-BACKED SECURITIES -- 0.0%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.0%
BCAP LLC Trust
7,393 Series 2011-R11, Class 30A5 (f) (g).......................... 4.35% 01/26/34 7,342
Residential Accredit Loans, Inc.
1,653 Series 2003-QS5, Class A2,
1 Mo. LIBOR (x) -1.83 + 14.76% (c)........................ 11.42% 03/25/18 1,569
1,663 Series 2003-QS14, Class A1................................... 5.00% 07/25/18 1,631
1,093 Series 2003-QS20, Class CB................................... 5.00% 11/25/18 1,101
Residential Asset Securitization Trust
222 Series 2003-A14, Class A1.................................... 4.75% 02/25/19 173
Structured Asset Securities Corp.
10,680 Series 2003-37A, Class 3A7 (g) (h)........................... 4.37% 12/25/33 10,958
---------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................. 22,774
(Cost $22,486) ---------------
TOTAL INVESTMENTS -- 98.4%................................................................... 89,622,399
(Cost $87,303,154) (i)
NET OTHER ASSETS AND LIABILITIES -- 1.6%..................................................... 1,498,012
---------------
NET ASSETS -- 100.0%......................................................................... $ 91,120,411
===============
</TABLE>
-----------------------------
(a) Investment in an affiliated fund.
(b) This security is taxed as a "C" corporation for federal income tax
purposes.
(c) Inverse floating rate security.
(d) Zero coupon security.
(e) Floating or variable rate security.
(f) 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, 2019, securities noted as such amounted to $7,342
or 0.0% of net assets.
(g) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
(h) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(i) Aggregate cost for federal income tax purposes is $87,773,755. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$3,135,111 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$1,286,467. The net unrealized appreciation was $1,848,644.
ADR American Depositary Receipt
IO Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
LIBOR London Interbank Offered Rate
PO Principal-Only Security
STRIPS Separate Trading of Registered Interest and Principal of Securities
Currency Abbreviations:
CAD Canadian Dollar
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2019 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Exchange-Traded Funds*............................ $ 52,360,560 $ 52,360,560 $ -- $ --
Common Stocks*.................................... 20,185,433 20,185,433 -- --
Master Limited Partnerships*...................... 7,215,616 7,215,616 -- --
U.S. Government Agency Mortgage-Backed
Securities..................................... 6,178,348 -- 6,178,348 --
Real Estate Investment Trusts*.................... 3,634,664 3,634,664 -- --
Asset-Backed Securities........................... 25,004 -- 25,004 --
Mortgage-Backed Securities........................ 22,774 -- 22,774 --
--------------- --------------- --------------- ---------------
Total Investments................................. $ 89,622,399 $ 83,396,273 $ 6,226,126 $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value - Unaffiliated................................... $ 50,499,775
Investments, at value - Affiliated..................................... 39,122,624
----------------
Total investments, at value............................................ 89,622,399
Cash................................................................... 1,347,241
Foreign currency, at value............................................. 5,355
Due from broker........................................................ 51,690
Receivables:
Dividends........................................................... 118,076
Interest............................................................ 27,181
Reclaims............................................................ 11,542
----------------
Total Assets..................................................... 91,183,484
----------------
LIABILITIES:
Payables:
Investment advisory fees............................................ 36,185
Investment securities purchased..................................... 26,888
----------------
Total Liabilities................................................ 63,073
----------------
NET ASSETS............................................................. $ 91,120,411
================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 89,254,677
Par value.............................................................. 18,000
Accumulated distributable earnings (loss).............................. 1,847,734
----------------
NET ASSETS............................................................. $ 91,120,411
================
NET ASSET VALUE, per share............................................. $ 50.62
================
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 1,800,002
================
Investments, at cost - Unaffiliated.................................... $ 48,579,011
================
Investments, at cost - Affiliated...................................... $ 38,724,143
================
Total investments, at cost............................................. $ 87,303,154
================
Foreign currency, at cost (proceeds)................................... $ 6,073
================
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2019
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends - Unaffiliated............................................... $ 1,146,588
Dividends - Affiliated................................................. 1,716,013
Interest............................................................... 186,929
Foreign withholding tax................................................ (19,672)
----------------
Total investment income............................................. 3,029,858
----------------
EXPENSES:
Investment advisory fees............................................... 693,073
----------------
Total expenses...................................................... 693,073
Less fees waived by the investment advisor.......................... (284,380)
----------------
Net expenses........................................................ 408,693
----------------
NET INVESTMENT INCOME (LOSS)........................................... 2,621,165
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Unaffiliated.......................................... 582,305
Investments - Affiliated............................................ (501,022)
In-kind redemptions................................................. 497,288
Futures contracts................................................... 342
Foreign currency transactions....................................... (1,572)
----------------
Net realized gain (loss)............................................... 577,341
----------------
Net change in unrealized appreciation (depreciation) on:
Investments - Unaffiliated.......................................... 3,563,395
Investments - Affiliated............................................ 1,225,905
Futures contracts................................................... 1,290
Foreign currency translation........................................ 48
----------------
Net change in unrealized appreciation (depreciation)................... 4,790,638
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 5,367,979
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ 7,989,144
================
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2019 10/31/2018
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 2,621,165 $ 3,109,606
Net realized gain (loss)............................................... 577,341 (138,062)
Net change in unrealized appreciation (depreciation)................... 4,790,638 (4,128,061)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations........ 7,989,144 (1,156,517)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (3,409,004) (3,832,900)
Return of capital...................................................... -- (526,104)
---------------- ----------------
Total distributions to shareholders.................................... (3,409,004) (4,359,004)
---------------- ----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 17,620,172 9,972,148
Cost of shares redeemed................................................ (14,583,948) (17,238,788)
---------------- ----------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................................... 3,036,224 (7,266,640)
---------------- ----------------
Total increase (decrease) in net assets................................ 7,616,364 (12,782,161)
NET ASSETS:
Beginning of period.................................................... 83,504,047 96,286,208
---------------- ----------------
End of period.......................................................... $ 91,120,411 $ 83,504,047
================ ================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 1,750,002 1,900,002
Shares sold............................................................ 350,000 200,000
Shares redeemed........................................................ (300,000) (350,000)
---------------- ----------------
Shares outstanding, end of period...................................... 1,800,002 1,750,002
================ ================
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------
2019 2018 2017 2016 2015
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 47.72 $ 50.68 $ 49.89 $ 47.76 $ 50.59
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 1.63 1.69 1.56 1.60 1.67
Net realized and unrealized gain (loss) 3.34 (2.26) 1.10 (a) 2.45 (2.58) (b)
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.97 (0.57) 2.66 4.05 (0.91)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (2.07) (2.10) (1.65) (1.92) (1.40)
Net realized gain -- -- (0.22) -- --
Return of capital -- (0.29) -- -- (0.52)
---------- ---------- ---------- ---------- ----------
Total distributions (2.07) (2.39) (1.87) (1.92) (1.92)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 50.62 $ 47.72 $ 50.68 $ 49.89 $ 47.76
========== ========== ========== ========== ==========
TOTAL RETURN (c) 10.60% (1.21)% 5.40% (a) 8.67% (1.85)% (b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 91,120 $ 83,504 $ 96,286 $ 17,460 $ 19,102
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average
net assets (d) 0.85% 0.86% (e) 0.85% 0.85% 0.85%
Ratio of net expenses to average
net assets (d) 0.50% 0.50% (e) 0.52% 0.55% 0.61%
Ratio of net investment income (loss) to
average net assets 3.21% 3.40% 3.10% 3.30% 3.37%
Portfolio turnover rate (f) 91% 113% 119% 88% 125%
</TABLE>
(a) The Fund received a reimbursement from the Advisor in the amount of $3,457
in connection with a trade error, which represents less than $0.01 per
share. Since the Advisor reimbursed the Fund, there was no effect on the
Fund's total return.
(b) The Fund received a payment from the Advisor in the amount of $23,478 in
connection with a trade error. The payment from the Advisor represents
$0.06 per share and had no effect on the Fund's total return.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The 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.
(d) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. This ratio
does not include these indirect fees and expenses.
(e) Includes excise tax. If this excise tax expense was not included, the
total and net expense ratios would have been 0.85% and 0.49%,
respectively.
(f) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 18 See Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Strategic Income ETF (the "Fund"), which trades under the
ticker "FDIV" on The Nasdaq Stock Market LLC ("Nasdaq"). Unlike conventional
mutual funds, the Fund issues and redeems shares on a continuous basis, at net
asset value ("NAV"), only in large specified blocks consisting of 50,000 shares
called a "Creation Unit." Creation Units are issued and redeemed in-kind for
securities in which the Fund invests and/or cash, and only to and from
broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is a multi-manager, multi-strategy actively managed exchange-traded
fund. The Fund's primary investment objective is to seek risk-adjusted income.
The Fund's secondary investment objective is capital appreciation.
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the Fund. The following serve as investment sub-advisors to the Fund:
First Trust Global Portfolios Ltd. ("FTGP"); Energy Income Partners, LLC
("EIP"); Stonebridge Advisors LLC ("Stonebridge"); and Richard Bernstein
Advisors LLC ("RBA") (each, a "Sub-Advisor" and together, the "Sub-Advisors").
The Advisor's Investment Committee determines the Fund's strategic allocation
among various general investment categories and allocates the Fund's assets to
portfolio management teams comprised of personnel of the Advisor and/or a
Sub-Advisor (each, a "Management Team"), which employ their respective
investment strategies. The Fund seeks to achieve its objectives by having each
Management Team focus on those investments within its respective investment
category. The Fund may add or remove investment categories or Management Teams
at the discretion of the Advisor.
The Fund's investment categories are: (i) high-yield corporate bonds, commonly
referred to as "junk" bonds, and first lien senior secured floating rate bank
loans; (ii) mortgage-related investments; (iii) preferred securities; (iv)
international sovereign bonds, including securities issued by emerging market
countries; (v) equity securities of Energy Infrastructure Companies(1), certain
of which are master limited partnerships ("MLPs"); and (vi) dividend paying U.S.
exchange-traded equity securities (including common stock) of companies (that
may be domiciled in or outside of the United States) and depositary receipts.
The Management Teams may utilize a related option overlay strategy and/or
derivative instruments in implementing their respective investment strategies
for the Fund. Additionally, the Management Team may seek exposure to these asset
classes directly or through investments in exchange-traded funds ("ETFs"). The
Advisor expects that the Fund may at times invest significantly in other
exchange-traded funds, including but not limited to, other exchange-traded funds
that are advised by the Advisor; accordingly, the Fund may operate principally
as a "fund of funds," but will not necessarily operate as such at all times.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
-----------------------------
(1) Energy Infrastructure Companies are publicly-traded MLPs or limited
liability companies that are taxed as partnerships; entities that control
MLPs, entities that own general partner interests in an MLP, or MLP
affiliates (such as I-shares or I-units); U.S. and Canadian energy yield
corporations ("yieldcos"); pipeline companies; utilities; and other
companies that are involved in operating or providing services in support
of infrastructure assets such as pipeline, power transmission,
terminalling and petroleum and natural gas storage in the petroleum,
natural gas and power generation industries.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Advisor's Pricing Committee in
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. All securities and other assets of the Fund
initially expressed in foreign currencies will be converted to U.S. dollars
using exchange rates in effect at the time of valuation. The Fund's investments
are valued as follows:
Corporate bonds, corporate notes, U.S. government securities,
mortgage-backed securities, asset-backed securities and other debt
securities are fair valued on the basis of valuations provided by dealers
who make markets in such securities or by a third-party pricing service
approved by the Trust's Board of Trustees, which may use the following
valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Common stocks, preferred stocks, MLPs and other equity securities listed
on any national or foreign exchange (excluding Nasdaq and the London Stock
Exchange Alternative Investment Market ("AIM")) are valued at the last
sale price on the exchange on which they are principally traded or, for
Nasdaq and AIM securities, the official closing price. Securities traded
on more than one securities exchange are valued at the last sale price or
official closing price, as applicable, at the close of the securities
exchange representing the principal market for such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Fixed income and other debt securities having a remaining maturity of
sixty days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities.
Fair valuation of a debt security will be based on the consideration of all
available information, including, but not limited to, the following:
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management (for corporate debt
only);
11) the economic, political and social prospects/developments of
the country of issue and the assessment of the country's
government leaders/officials (for sovereign debt only);
12) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); and
13) other relevant factors.
Fair valuation of an equity security will be based on the consideration of all
available information, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or
the appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might
affect the value of the security.
Because foreign markets may be open on different days than the days during which
investors may transact in the shares of the Fund, the value of the Fund's
securities may change on the days when investors are not able to transact in the
shares of the Fund. The value of the securities denominated in foreign
currencies is converted into U.S. dollars using exchange rates determined daily
as of the close of regular trading on the NYSE.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2019, 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.
On July 27, 2017, the Financial Conduct Authority ("FCA") announced that it will
no longer persuade or compel banks to submit rates for the calculation of the
London Interbank Offered Rates ("LIBOR") after 2021 (the "FCA Announcement").
Furthermore, in the United States, efforts to identify a set of alternative U.S.
dollar reference interest rates include proposals by the Alternative Reference
Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New
York. On August 24, 2017, the Federal Reserve Board requested public comment on
a proposal by the Federal Reserve Bank of New York, in cooperation with the
Office of Financial Research, to produce three new reference rates intended to
serve as alternatives to LIBOR. These alternative rates are based on overnight
repurchase agreement transactions secured by U.S. Treasury Securities. On
December 12, 2017, following consideration of public comments, the Federal
Reserve Board concluded that the public would benefit if the Federal Reserve
Bank of New York published the three proposed reference rates as alternatives to
LIBOR (the "Federal Reserve Board Notice").
At this time, it is not possible to predict the effect of the FCA Announcement,
the Federal Reserve Board Notice, or other regulatory changes or announcements,
any establishment of alternative reference rates or any other reforms to LIBOR
that may be enacted in the United Kingdom, the United States or elsewhere. As
such, the potential effect of any such event on the Fund cannot yet be
determined.
Distributions received from the Fund's investments in MLPs generally are
comprised of return of capital and investment income. The Fund records estimated
return of capital and investment income based on historical information
available from each MLP. These estimates may subsequently be revised based on
information received from the MLPs after their tax reporting periods are
concluded.
Distributions received from the Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year is not
known until after the REITs' fiscal year end. The Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by the Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
C. FUTURES CONTRACTS
The Fund purchases or sells (i.e., is long or short) exchange-listed futures
contracts to hedge against changes in interest rates (interest rate risk).
Futures contracts are agreements between the Fund and a counterparty to buy or
sell a specific quantity of an underlying instrument at a specified price and at
a specified date. Depending on the terms of the contract, futures contracts are
settled either through physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement amount on the settlement
date. Open futures contracts can also be closed out prior to settlement by
entering into an offsetting transaction in a matching futures contract. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain margin deposits on the futures contract. When the
contract is closed or expires, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed or expired. This gain or loss is included in
"Net realized gain (loss) on futures contracts" on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures contacts
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
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
variation margin and are included in "Variation margin" receivable or payable on
the Statement of Assets and Liabilities. If market conditions change
unexpectedly, the Fund may not achieve the anticipated benefits of the futures
contract and may realize a loss. The use of futures contracts involves the risk
of imperfect correlation in movements in the price of the futures contracts,
interest rates and the underlying instruments.
D. FOREIGN CURRENCY
The books and records of the Fund are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investments and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities, other than investments in securities, which
result from changes in foreign currency exchange rates have been included in
"Net change in unrealized appreciation (depreciation) on foreign currency
translation" on the Statement of Operations. Unrealized gains and losses on
investments in securities which result from changes in foreign exchange rates
are included with fluctuations arising from changes in market price and are
included in "Net change in unrealized appreciation (depreciation) on investments
- Unaffiliated" on the Statement of Operations. Net realized foreign currency
gains and losses include the effect of changes in exchange rates between trade
date and settlement date on investment security transactions, foreign currency
transactions and interest and dividends received is included in "Net realized
gain (loss) on foreign currency transactions" on the Statement of Operations.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial purchase settlement date and subsequent sale
trade date is included in "Net realized gain (loss) on investments -
Unaffiliated" on the Statement of Operations.
E. INTEREST-ONLY SECURITIES
An interest-only security ("IO Security") is the interest-only portion of a
mortgage-backed security that receives some or all of the interest portion of
the underlying mortgage-backed security and little or no principal. A reference
principal value called a notional value is used to calculate the amount of
interest due to the IO Security. IO Securities are sold at a deep discount to
their notional principal amount. Generally speaking, when interest rates are
falling and prepayment rates are increasing, the value of an IO Security will
fall. Conversely, when interest rates are rising and prepayment rates are
decreasing, generally the value of an IO Security will rise. These securities,
if any, are identified on the Portfolio of Investments.
F. PRINCIPAL-ONLY SECURITIES
A principal-only security ("PO Security") is the principal-only portion of a
mortgage-backed security that does not receive any interest, is priced at a deep
discount to its redemption value and ultimately receives the redemption value.
Generally speaking, when interest rates are falling and prepayment rates are
increasing, the value of a PO Security will rise. Conversely, when interest
rates are rising and prepayment rates are decreasing, generally the value of a
PO Security will fall. These securities, if any, are identified on the Portfolio
of Investments.
G. STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security known as an IO Security and all
of the principal is distributed to holders of another type of security known as
a PO Security. These securities, if any, are identified on the Portfolio of
Investments.
H. AFFILIATED TRANSACTIONS
The Fund invests in securities of affiliated funds. Dividend income and realized
gains and losses, and change in appreciation (depreciation) from affiliated
funds are presented on the Statement of Operations. The Fund's investment
performance and risks are directly related to the investment performance and
risks of the affiliated funds.
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
Amounts related to these investments at October 31, 2019 and for the fiscal year
then ended are as follows:
<TABLE>
<CAPTION>
CHANGES IN
UNREALIZED REALIZED
SHARES AT VALUE AT APPRECIATION GAIN VALUE AT DIVIDEND
SECURITY NAME 10/31/2019 10/31/2018 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2019 INCOME
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust
Emerging Markets
Local Currency
Bond ETF 215,834 $ 3,372,038 $ 7,202,951 $ (2,631,519) $ 403,234 $ (67,312) $ 8,279,392 $ 381,359
First Trust
Institutional
Preferred
Securities and
Income ETF 144,347 2,976,888 1,289,991 (1,567,019) 211,198 (35,348) 2,875,710 166,254
First Trust
Long Duration
Opportunities
ETF 11,606 -- 308,591 -- 13,708 -- 322,299 2,927
First Trust
Low Duration
Opportunities
ETF 62,110 -- 3,831,661 (622,908) 7,118 2,048 3,217,919 24,531
First Trust
Preferred
Securities and
Income ETF 431,855 8,899,776 3,893,461 (4,748,499) 552,315 (11,776) 8,585,277 527,588
First Trust
Senior Loan Fund -- 16,316,822 741,960 (16,724,514) 54,042 (388,310) -- 322,369
First Trust
Tactical High
Yield ETF 330,111 -- 16,244,535 (386,474) (15,710) (324) 15,842,027 290,985
--------------------------------------------------------------------------------------------------
Total Investments
in Affiliates $ 31,565,524 $ 33,513,150 $ (26,680,933) $ 1,225,905 $ (501,022) $ 39,122,624 $1,716,013
==================================================================================================
</TABLE>
I. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized capital gains earned by the Fund, if any, are
distributed at least annually.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on significantly modified portfolio securities
held by the Fund and have no impact on net assets or NAV per share. Temporary
differences, which arise from recognizing certain items of income, expense and
gain/loss in different periods for financial statement and tax purposes, will
reverse at some time in the future.
The tax character of distributions paid during the fiscal years ended October
31, 2019 and 2018 was as follows:
Distributions paid from: 2019 2018
Ordinary income............................... $ 3,409,004 $ 3,832,900
Capital gains................................. -- --
Return of capital............................. -- 526,104
As of October 31, 2019, 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).... 1,847,734
J. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
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 2016,
2017, 2018, and 2019 remain open to federal and state audit. As of October 31,
2019, 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, 2019, the
Fund had no non-expiring capital loss carryforwards available for federal income
tax purposes. During the taxable year ended October 31, 2019, the Fund utilized
post-enactment capital loss carryforwards in the amount of $197,827.
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, 2019, 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, 2019, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ 787,839 $ (243,424) $ (544,415)
K. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
L. NEW ACCOUNTING PRONOUNCEMENT
On August 28, 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13,
"Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement," which amends the fair value measurement disclosure requirements of
ASC 820. The amendments of ASU 2018-13 include new, eliminated, and modified
disclosure requirements of ASC 820. In addition, the amendments clarify that
materiality is an appropriate consideration of entities when evaluating
disclosure requirements. The ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods therein. Early adoption is
permitted for any eliminated or modified disclosures upon issuance of this ASU.
The Fund has early adopted ASU 2018-13 for these financial statements, which did
not result in a material impact.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for supervising the selection and ongoing monitoring of the
securities in the Fund's portfolio, managing the Fund's business affairs and
providing certain administrative services necessary for the management of the
Fund.
The Fund and First Trust have retained the Sub-Advisors to provide
recommendations to the Advisor regarding the selection and ongoing monitoring of
the securities in the Fund's investment portfolio. First Trust executes all
transactions on behalf of the Fund, with the exception of the securities that
are selected by FTGP. EIP, an affiliate of First Trust, provides recommendations
regarding the selection of MLP securities for the Fund's investment portfolio
and provides ongoing monitoring of the MLP securities, MLP affiliate and energy
infrastructure securities in the Fund's investment portfolio selected by EIP.
EIP exercises discretion only with respect to assets of the Fund allocated to
EIP by the Advisor. FTGP, an affiliate of First Trust, selects international
sovereign debt securities for the Fund's investment portfolio and provides
ongoing monitoring of the international sovereign debt securities in the
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
Fund's investment portfolio selected by FTGP. RBA provides recommendations
regarding longer term investment strategies that combine top-down, macroeconomic
analysis and quantitatively-driven portfolio construction. RBA exercises
discretion only with respect to assets allocated to RBA by the Advisor.
Stonebridge, an affiliate of First Trust, provides recommendations regarding the
selection and ongoing monitoring of the preferred and hybrid securities in the
Fund's investment portfolio.
Pursuant to the Investment Management Agreement between the Trust and Advisor,
First Trust will supervise the Sub-Advisors and their management of the
investment of the Fund's assets and will pay EIP, FTGP, RBA and Stonebridge for
their services as the Fund's sub-advisors. 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, pro rata share of
fees and expenses attributable to investments in other investment companies
("acquired fund fees and expenses") with the exception of those attributable to
affiliated Funds, brokerage commissions and other expenses connected with the
execution of portfolio transactions, distribution and service fees pursuant to a
Rule 12b-1 plan, if any, and extraordinary expenses. The Fund has agreed to pay
First Trust an annual unitary management fee equal to 0.85% of its average daily
net assets. The total of the unitary management fee, acquired fund fees and
expenses, and other excluded expenses, represents the Fund's total annual
operating expenses. Pursuant to a contractual agreement between the Trust, on
behalf of the Fund, and First Trust, the management fees paid to First Trust
will be reduced by the proportional amount of the acquired fund fees and
expenses of the shares of investment companies held by the Fund so that the Fund
would not bear the indirect costs of holding them, provided that the investment
companies are advised by First Trust. This contractual agreement shall continue
until the earlier of (i) its termination at the direction of the Trust's Board
of Trustees or (ii) the termination of the Fund's management agreement with
First Trust. First Trust does not have the right to recover the fees waived that
are attributable to acquired fund fees and expenses on the shares of investment
companies advised by First Trust. During the fiscal year ended October 31, 2019,
the Advisor waived fees of $284,380.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases of U.S. Government securities and non-U.S. Government
securities, excluding short-term investments and in-kind transactions for the
fiscal year ended October 31, 2019, were $2,916,953 and $70,854,889,
respectively. The proceeds from sales and paydowns of U.S. Government securities
and non-U.S. Government securities, excluding short-term investments and in-kind
transactions for the fiscal year ended October 31, 2019, were $1,713,373 and
$71,987,921, respectively.
For the fiscal year ended October 31, 2019, the cost of in-kind purchases and
proceeds from in-kind sales were $14,441,136 and $12,254,460, respectively.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
5. DERIVATIVE TRANSACTIONS
As of October 31, 2019, the Fund had no derivative instruments.
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the fiscal year
ended October 31, 2019, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
STATEMENT OF OPERATIONS LOCATION
--------------------------------
INTEREST RATE RISK EXPOSURE
Net realized gain (loss) on futures contracts $ 342
Net change in unrealized appreciation (depreciation) on
futures contracts 1,290
During the fiscal year ended October 31, 2019, the notional value of futures
contracts opened and closed were $114,144 and $87,112, respectively.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures contracts on the Statement of Assets and
Liabilities.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). In order to purchase Creation Units of the Fund, an
Authorized Participant must deposit (i) a designated portfolio of securities
determined by First Trust (the "Deposit Securities") and generally make or
receive a cash payment referred to as the "Cash Component," which is an amount
equal to the difference between the NAV of the Fund Shares (per Creation Unit
Aggregation) and the market value of the Deposit Securities, and/or (ii) cash in
lieu of all or a portion of the Deposit Securities. The Fund's Creation Units
are generally issued and redeemed for cash. If the Cash Component is a positive
number (i.e., the NAV per Creation Unit Aggregation exceeds the Deposit Amount),
the Authorized Participant will deliver the Cash Component. If the Cash
Component is a negative number (i.e., the NAV per Creation Unit Aggregation is
less than the Deposit Amount), the Authorized Participant will receive the Cash
Component. Authorized Participants purchasing Creation Units must pay to BNYM,
as transfer agent, a creation transaction fee (the "Creation Transaction Fee")
regardless of the number of Creation Units purchased in the transaction. The
Creation Transaction Fee may 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 price for each Creation Unit will equal the daily
NAV per share times the number of shares in a Creation Unit plus the fees
described above and, if applicable, any operational processing and brokerage
costs, transfer fees or stamp taxes. When the Fund permits an Authorized
Participant to substitute cash or a different security in lieu of depositing one
or more of the requisite Deposit Securities, the Authorized Participant may also
be assessed an amount to cover the cost of purchasing the Deposit Securities
and/or disposing of the substituted securities, including operational processing
and brokerage costs, transfer fees, stamp taxes, and part or all of the spread
between the expected bid and offer side of the market related to such Deposit
Securities and/or substitute securities.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a redemption transaction fee (the "Redemption Transaction Fee"),
regardless of the number of Creation Units redeemed in the transaction. The
Redemption Transaction Fee may 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 Fund reserves the right to effect redemptions in
cash. An Authorized Participant may request cash redemption in lieu of
securities; however, the Fund may, in its discretion, reject any such request.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before March 31, 2021.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019
8. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Strategic Income ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2019, 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, 2019, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2019, 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 17, 2019
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
For the taxable year ended October 31, 2019, the following percentages of income
dividend paid by the Fund qualify for the dividends received deduction available
to corporations and are hereby designated as qualified dividend income:
Dividends Received Deduction Qualified Dividend Income
---------------------------- -------------------------
17.44% 21.05%
A portion of the Fund's 2019 ordinary dividends (including short-term capital
gains) paid to its shareholders during the fiscal year ended October 31, 2019,
may be eligible for the Qualified Business Income Deduction (QBI) under Code
Section 199A for the aggregate dividends the Fund received from the underlying
Real Estate Investment Trusts (REITs) it invests in.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AND
SUB-ADVISORY AGREEMENTS
The Board of Trustees (the "Board") of First Trust Exchange-Traded Fund IV (the
"Trust"), including the Independent Trustees, unanimously approved the
continuation of the Investment Management Agreement (the "Advisory Agreement")
between the Trust, on behalf of First Trust Strategic Income ETF (the "Fund"),
and First Trust Advisors L.P. (the "Advisor"); the Investment Sub-Advisory
Agreement (the "Stonebridge Sub-Advisory Agreement") among the Trust, on behalf
of the Fund, the Advisor and Stonebridge Advisors LLC ("Stonebridge"); the
Investment Sub-Advisory Agreement (the "Richard Bernstein Sub-Advisory
Agreement") among the Trust, on behalf of the Fund, the Advisor and Richard
Bernstein Advisors LLC ("Richard Bernstein"); the Investment Sub-Advisory
Agreement (the "Energy Income Partners Sub-Advisory Agreement") among the Trust,
on behalf of the Fund, the Advisor and Energy Income Partners, LLC ("Energy
Income Partners"); and the Investment Sub-Advisory Agreement (the "First Trust
Global Sub-Advisory Agreement") among the Trust, on behalf of the Fund, the
Advisor and First Trust Global Portfolios Ltd. ("First Trust Global"). The
Stonebridge Sub-Advisory Agreement, the Richard Bernstein Sub-Advisory
Agreement, the Energy Income Partners Sub-Advisory Agreement and the First Trust
Global Sub-Advisory Agreement are collectively referred to as the "Sub-Advisory
Agreements." Stonebridge, Richard Bernstein, Energy Income Partners and First
Trust Global are each referred to as a "Sub-Advisor" and collectively as the
"Sub-Advisors." The Sub-Advisory Agreements together with the Advisory Agreement
are referred to as the "Agreements." The Board approved the continuation of the
Agreements for a one-year period ending June 30, 2020 at a meeting held on June
2, 2019. The Board determined that the continuation of the Agreements is in the
best interests of the Fund in light of the nature, extent and quality of the
services provided and such other matters as the Board considered to be relevant
in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and each Sub-Advisor responding to requests for information from counsel
to the Independent Trustees, submitted on behalf of the Independent Trustees,
that, among other things, outlined: the services provided by the Advisor and
each Sub-Advisor to the Fund (including the relevant personnel responsible for
these services and their experience); the unitary fee rate payable by the Fund
as compared to fees charged to a peer group of funds (the "Expense Group") and a
broad peer universe of funds (the "Expense Universe"), each assembled by
Broadridge Financial Solutions, Inc. ("Broadridge"), an independent source, and
as compared to fees charged to other clients of the Advisor, including other
exchange-traded funds ("ETFs") managed by the Advisor; the sub-advisory fee
rates for the Fund as compared to fees charged to other clients of the
Sub-Advisors; the expense ratio of the Fund as compared to expense ratios of the
funds in the Fund's Expense Group and Expense Universe; performance information
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
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 economies of scale, if any; financial data on
the Advisor and each Sub-Advisor; any fall-out benefits to the Advisor and its
affiliates, First Trust Portfolios L.P. ("FTP") and First Trust Global, and the
Sub-Advisors; and information on the Advisor's and each Sub-Advisor's compliance
programs. The Board reviewed initial materials with the Advisor at the meeting
held on April 18, 2019, prior to which the Independent Trustees and their
counsel met separately to discuss the information provided by the Advisor and
the Sub-Advisors. Following the April meeting, independent legal counsel 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 independent legal counsel held prior to the June 2, 2019 meeting,
as well as at the meeting held that day. The Board applied its business judgment
to determine whether the arrangements between the Trust and the Advisor and
among the Trust, the Advisor and each Sub-Advisor continue to be reasonable
business arrangements from the Fund's perspective. The Board determined that,
given the totality of the information provided with respect to the Agreements,
the Board had received sufficient information to renew the Agreements. The Board
considered that shareholders chose to invest or remain invested in the Fund
knowing that the Advisor and the Sub-Advisors manage the Fund and knowing the
Fund's unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality
of the services provided by the Advisor and the Sub-Advisors under the
Agreements. The Board considered that the Fund is an actively-managed ETF and
employs a multi-manager/multi-sleeve structure. With respect to the Advisory
Agreement, the Board considered that the Advisor is responsible for the overall
management and administration of the Trust and the Fund and reviewed all of the
services provided by the Advisor to the Fund, including the oversight of the
Sub-Advisors and the strategic and tactical asset allocations among internal
management teams and the Sub-Advisors, as well as the background and experience
of the persons responsible for such services. The Board considered that
Stonebridge and Richard Bernstein act as non-discretionary managers providing
model portfolio recommendations to the Advisor, and that although First Trust
Global and Energy Income Partners act as discretionary investment advisors, the
Advisor executes the Fund's portfolio trades. The Board noted that members of
the Advisor's Mortgage Securities Team and Leveraged Finance Investment Team
participate in the management of the Fund and considered the experience of each
Team and noted the Board's prior meetings with members of each Team. The Board
noted that the Advisor oversees management of the Fund's investments, including
portfolio risk monitoring and performance review. In reviewing the services
provided, the Board noted the compliance program that had been developed by the
Advisor and considered that it includes a robust program for monitoring the
Advisor's, the Sub-Advisors' and the Fund's compliance with the 1940 Act, as
well as the Fund's compliance with its investment objectives, policies and
restrictions. The Board also considered a report from the Advisor with respect
to its risk management functions related to the operation of the Fund. Finally,
as part of the Board's consideration of the Advisor's services, the Advisor, in
its written materials and at the April 18, 2019 meeting, described to the Board
the scope of its ongoing investment in additional infrastructure and personnel
to maintain and improve the quality of services provided to the Fund and the
other funds in the First Trust Fund Complex. With respect to the Sub-Advisory
Agreements, the Board reviewed the materials provided by each Sub-Advisor and
considered the services that each Sub-Advisor provides to the Fund, including
each Sub-Advisor's discretionary or non-discretionary management, as applicable,
of the portion of the Fund's assets allocated it. In considering each
Sub-Advisor's services to the Fund, the Board noted the background and
experience of each Sub-Advisor's portfolio management team and the Board's prior
meetings with members of each portfolio management team. The Board also received
presentations from a representative of First Trust Global at the April 18, 2019
meeting and from representatives of Stonebridge and Energy Income Partners at
the June 2, 2019 meeting. In light of the information presented and the
considerations made, the Board concluded that the nature, extent and quality of
the services provided to the Trust and the Fund by the Advisor and each
Sub-Advisor under the Agreements have been and are expected to remain
satisfactory and that the Advisor and Sub-Advisors have managed the Fund
consistent with the Fund's investment objectives, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the Advisory
Agreement for the services provided. The Board noted that the Advisor pays each
Sub-Advisor a separate sub-advisory fee from the unitary fee. The Board
considered that as part of the unitary fee the Advisor is responsible for the
Fund's expenses, including the cost of sub-advisory, transfer agency, custody,
fund administration, legal, audit and other services and license fees, if any,
but excluding the fee payment under the 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. The Board noted that
the Advisor agreed to waive its 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
Page 33
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--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
advisory or unitary fee rates and expense ratios of the peer funds in the
Expense Group, as well as advisory and unitary fee rates charged by the Advisor
and the Sub-Advisors to other fund (including ETFs) and non-fund clients, as
applicable. Because the Fund pays a unitary fee, the Board determined that
expense ratios were the most relevant comparative data point. Based on the
information provided, the Board noted that the unitary fee for the Fund, after
taking into account fee waivers, was below the median total (net) expense ratio
of the peer funds in the Expense Group. With respect to the Expense Group, the
Board, at the April 18, 2019 meeting, discussed with Broadridge its methodology
for assembling peer groups and discussed with the Advisor limitations in
creating peer groups for actively-managed ETFs and that different business
models may affect the pricing of services among ETF sponsors. The Board noted
that only one peer fund employ an advisor/sub-advisor management structure. The
Board took these limitations and differences into account in considering the
peer data. With respect to fees charged to other non-ETF clients, the Board
considered differences between the Fund and other non-ETF clients that limited
their comparability. In considering the unitary fee rate overall, the Board also
considered the Advisor's statement that it seeks to meet investor needs through
innovative and value-added investment solutions and the Advisor's description of
its long-term commitment to the Fund.
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- and three-year periods
ended December 31, 2018 to the performance of the peer funds in the Performance
Universe and to that of a blended benchmark index. Based on the information
provided, the Board noted that the Fund outperformed the Performance Universe
median for the three-year period ended December 31, 2018 but underperformed the
Performance Universe median for the one-year period ended December 31, 2018. The
Board also noted that the Fund underperformed the blended benchmark index for
the one- and three-year periods ended December 31, 2018.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund (out of which the Sub-Advisors are compensated)
continues to be reasonable and appropriate in light of the nature, extent and
quality of the services provided by the Advisor and the Sub-Advisors to the Fund
under the Agreements.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services of the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. The Board considered the revenues and allocated costs (including the
allocation methodology) of the Advisor in serving as investment advisor to the
Fund for the twelve months ended December 31, 2018 and the estimated
profitability level for the Fund calculated by the Advisor based on such data,
as well as complex-wide and product-line profitability data, for the same
period. The Board noted the inherent limitations in the profitability analysis
and concluded that, based on the information provided, the Advisor's
profitability level for the Fund was not unreasonable. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board noted that affiliates of the Advisor
have ownership interests in Stonebridge, Energy Income Partners and First Trust
Global and considered potential fall-out benefits to the Advisor from such
ownership interests. The Board also considered that the Advisor had identified
as a fall out benefit to the Advisor and FTP their exposure to investors and
brokers who, absent their exposure to the Fund, may have had no dealings with
the Advisor or FTP, and noted that the Advisor does not utilize soft-dollars in
connection with the Fund. The Board concluded that the character and amount of
potential fall-out benefits to the Advisor were not unreasonable.
With respect to the Stonebridge Sub-Advisory Agreement, the Board considered
Stonebridge's expenses in providing investment services to the Fund and noted
Stonebridge's hiring of additional personnel in the past year and commitment to
add additional resources if assets increase. The Board did not review the
profitability of Stonebridge with respect to the Fund. The Board noted that the
Advisor pays Stonebridge from the unitary fee, and its understanding that the
Fund's sub-advisory fee rate was the product of an arm's length negotiation. The
Board concluded that the profitability analysis for the Advisor was more
relevant. The Board considered fall-out benefits that may be realized by
Stonebridge from its relationship with the Fund, including potential fall-out
benefits to Stonebridge from the ownership interest of an affiliate of the
Advisor in Stonebridge. The Board noted that Stonebridge acts as
non-discretionary manager providing model portfolio recommendations to the
Advisor and does not provide trade execution services to the Fund. The Board
concluded that the character and amount of potential fall-out benefits to
Stonebridge were not unreasonable.
Page 34
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
With respect to the Richard Bernstein Sub-Advisory Agreement, the Board
considered Richard Bernstein's statements about economies of scale. The Board
did not review the profitability of Richard Bernstein with respect to the Fund.
The Board noted that the Advisor pays Richard Bernstein from the unitary fee,
and its understanding that the Fund's sub-advisory fee rate was the product of
an arm's length negotiation. The Board concluded that the profitability analysis
for the Advisor was more relevant. The Board noted the potential fall-out
benefits identified by Richard Bernstein as a result of its relationship with
the Fund and the Advisor. The Board noted that Richard Bernstein acts as
non-discretionary manager providing model portfolio recommendations to the
Advisor and does not provide trade execution services to the Fund. The Board
concluded that the character and amount of potential fall-out benefits to
Richard Bernstein were not unreasonable.
With respect to the Energy Income Partners Sub-Advisory Agreement, the Board
considered that Energy Income Partners' investment services expenses are
primarily fixed in nature, and that Energy Income Partners has made recent
investments in personnel and infrastructure and anticipates that its expenses
will continue to rise due to additions to personnel and system upgrades. The
Board did not review the profitability of Energy Income Partners with respect to
the Fund. The Board noted that the Advisor pays Energy Income Partners from the
unitary fee, and its understanding that the Fund's sub-advisory fee rate was the
product of an arm's length negotiation. The Board concluded that the
profitability analysis for the Advisor was more relevant. The Board considered
fall-out benefits that may be realized by Energy Income Partners from its
relationship with the Fund, including the potential fall-out benefits to Energy
Income Partners from the ownership interest of an affiliate of the Advisor in
Energy Income Partners. The Board noted that Energy Income Partners does not
provide trade execution services on behalf of the Fund. The Board concluded that
the character and amount of potential fall-out benefits to Energy Income
Partners were not unreasonable.
With respect to the First Trust Global Sub-Advisory Agreement, the Board
considered First Trust Global's statements that expenses incurred in providing
services to the Fund are of a fixed nature and that, at this time, no economies
of scale have been identified from the provision of services to the Fund. The
Board did not review the profitability of First Trust Global with respect to the
Fund. The Board concluded that the profitability analysis for the Advisor was
more relevant. The Board considered the potential fall-out benefits to First
Trust Global from being associated with the Advisor and the Fund. The Board
noted that First Trust Global does not provide trade execution services on
behalf of the Fund. The Board concluded that the character and amount of
potential fall-out benefits to First Trust Global were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 35
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 162 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 162 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 162 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 162 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services);
President and Chief Executive Officer
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 162 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 36
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 37
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST STRATEGIC INCOME ETF (FDIV)
OCTOBER 31, 2019 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 38
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<PAGE>
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<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISORS
Energy Income Partners, LLC
10 Wright Street
Westport, CT 06880
First Trust Global Portfolios Limited
8 Angel Court
London EC2R 7HJ
Richard Bernstein Advisors, LLC
120 West 45th Street, 36th Floor
New York, NY 10036
Stonebridge Advisors LLC
10 Westport Road, Suite C101
Wilton, CT 06897
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Low Duration Opportunities ETF (LMBS)
Annual Report
For the Year Ended
October 31, 2019
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2019
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 48
Statement of Operations...................................................... 49
Statements of Changes in Net Assets.......................................... 50
Financial Highlights......................................................... 51
Notes to Financial Statements................................................ 52
Report of Independent Registered Public Accounting Firm...................... 62
Additional Information....................................................... 63
Board of Trustees and Officers............................................... 68
Privacy Policy............................................................... 70
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Low Duration Opportunities ETF; hereinafter referred to
as the "Fund") to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of investing
in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2019
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Low Duration Opportunities ETF (the "Fund"), which contains detailed information
about the Fund for the twelve months ended October 31, 2019, including a market
overview and a performance analysis. We encourage you to read this report
carefully and discuss it with your financial advisor.
One of our responsibilities as asset managers is to be good listeners. Perhaps
the most effective way in which we do this continually is by paying close
attention to mutual fund and exchange-traded fund (ETF) money flows. After all,
investors vote with their dollars, and money flows provide valuable feedback
with respect to their biases. Over the past 12 months, we have learned that
investors, in general, have grown more risk-averse. For the 12-month period
ended October 31, 2019, investors funneled an estimated net $359.56 billion into
bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion
from equity mutual funds and ETFs, according to data from Morningstar. Over the
same period, money market funds took in an estimated net $583.27 billion. Those
figures were more balanced for the full-year 2018. Those estimated net flows
were as follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion
(bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to monitoring fund flows, we watch the performance of all the asset
classes. Market returns can either help validate or invalidate our
interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that
comprise the S&P 500(R) Index back it up. For the 12-month period ended October
31, 2019, as measured by total return, the top performers were Real Estate and
Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P
500(R) Index posted a total return of 14.33% for the period. These two sectors
are defensive in nature. They also tend to distribute cash dividends that are
often well above those sectors that are more cyclical in nature. The higher
dividend distributions likely drew the attention of fixed-income investors
dissatisfied with the current low-yield climate in the bond market, in our
opinion.
The absence of a new trade deal between the U.S. and China has been a bit of a
wet blanket on the global economy. Global growth projections have been trimmed
over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack
of any significant progress in the negotiations between the U.S. and China is a
concern, we believe a remedy will be found. Remember, as uncertain as things may
appear in the current climate, investors with diversified investment portfolios
were most likely rewarded over the past 12 months. Stay the course and stay
engaged!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
The primary investment objective of the First Trust Low Duration Opportunities
ETF (the "Fund") is to generate current income. The Fund's secondary investment
objective is to provide capital appreciation. The Fund is an actively managed
exchange-traded fund. First Trust Advisors L.P. ("First Trust" or the "Advisor")
serves as the advisor. Jim Snyder and Jeremiah Charles are the Fund's portfolio
managers and are jointly and primarily responsible for the day-to-day management
of the Fund's investment portfolio.
Under normal market conditions, the Fund will seek to achieve its investment
objectives by investing at least 80% of its net assets (including investment
borrowings) in mortgage-related debt securities and other mortgage-related
instruments. The Fund's investment categories are: (i) mortgage-related
investments, including mortgage-backed securities that may be, but are not
required to be, issued or guaranteed by the U.S. government or its agencies or
instrumentalities; (ii) U.S. government securities, including callable agency
securities, which give the issuer (the U.S. government agency) the right to
redeem the security prior to maturity, and U.S. government inflation-indexed
securities; and (iii) high yield debt, commonly referred to as "junk" debt.
Although the Fund intends to invest primarily in investment grade securities,
the Fund may invest up to 20% of its net assets (including investment
borrowings) in securities of any credit quality, including securities that are
below investment grade (as described in (iii) above), illiquid securities, and
derivative instruments. The Fund is non-diversified.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (11/4/14) Inception (11/4/14)
10/31/19 to 10/31/19 to 10/31/19
<S> <C> <C> <C>
FUND PERFORMANCE
NAV 4.88% 3.59% 19.23%
Market Price 4.67% 3.57% 19.14%
INDEX PERFORMANCE
ICE BofAML 1-5 Year US Treasury & Agency Index 5.79% 1.68% 8.67%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the periods
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint 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 distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
-----------------------------------------------------------
% OF LONG-TERM
ASSET CLASSIFICATION INVESTMENTS(1)
-----------------------------------------------------------
U.S. Government Agency Mortgage-
Backed Securities 80.36%
Asset-Backed Securities 8.62
Mortgage-Backed Securities 7.41
U.S. Government Bonds and Notes 3.60
Exchange-Traded Funds 0.01
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL LONG
FIXED-INCOME
CREDIT QUALITY(2) INVESTMENTS & CASH
-----------------------------------------------------------
Government and Agency 83.57%
AAA 1.48
AA+ 0.02
AA 0.04
AA- 0.00*
A+ 0.22
A 0.00*
BBB+ 0.13
BBB 0.01
BBB- 0.00*
BB+ 0.10
BB 0.04
B+ 0.00*
B- 0.00*
CCC 0.06
D 0.22
Not Rated 13.64
Cash 0.47
-------
Total 100.00%
=======
* Amount is less than 0.01%.
-----------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS(1)
-----------------------------------------------------------
Federal National Mortgage Association,
Pool FM1725, 2.50%, 11/1/47 2.55%
Federal National Mortgage Association,
Pool BN6078, 4.00%, 6/1/49 1.69
Federal National Mortgage Association,
Series 2012-151, Class PA,
1.50%, 1/25/43 1.41
Federal National Mortgage Association,
Series 2019-68, Class KP,
2.50%, 11/25/49 1.37
Federal National Mortgage Association,
Pool BN6068, 4.00%, 5/1/49 1.24
Federal National Mortgage Association,
Pool MA3765, 2.50%, 9/1/49 1.15
U.S. Treasury Note 3.38%, 11/15/19 1.10
Federal National Mortgage Association,
Pool BN6097, 4.00%, 6/1/49 1.01
Federal National Mortgage Association,
Series 2019-34, Class LA,
3.00%, 7/25/49 0.99
U.S. Treasury Note 2.25%, 3/31/20 0.97
-------
Total 13.48%
=======
-----------------------------------------------------------
WEIGHTED AVERAGE EFFECTIVE NET DURATION
-----------------------------------------------------------
October 31, 2019 2.34 Years
High - October 31, 2019 2.34 Years
Low - March 31, 2019 1.73 Years
-----------------------------
(1) Percentages are based on the long positions only. Money market funds and
short positions are excluded.
(2) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. A credit rating is an assessment provided by a
nationally recognized statistical rating organization (NRSRO), of the
creditworthiness of an issuer with respect to debt obligations. Ratings
are measured highest to lowest on a scale that generally ranges from AAA
to D for long-term ratings and A-1+ to C for short-term ratings.
Investment grade is defined as those issuers that have a long-term credit
rating of BBB- or higher or a short-term credit rating of A-3 or higher.
The credit ratings shown relate to the credit worthiness of the issuers of
the underlying securities in the Fund, and not to the Fund or its shares.
U.S. Treasury and U.S. Agency mortgage-backed securities appear under
"Government and Agency". Credit ratings are subject to change.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 4, 2014 - OCTOBER 31, 2019
First Trust Low Duration ICE BofAML 1-5 Year US
Opportunities ETF Treasury & Agency Index
<S> <C> <C>
11/4/14 $10,000 $10,000
4/30/15 10,236 10,097
10/31/15 10,362 10,144
4/30/16 10,725 10,256
10/31/16 11,138 10,301
4/30/17 11,186 10,279
10/31/17 11,274 10,307
4/30/18 11,294 10,205
10/31/18 11,368 10,273
4/30/19 11,635 10,578
10/31/19 11,923 10,867
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 November 5, 2014
(commencement of trading) through October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/5/14 - 10/31/15 144 40 0 1 62 3 0 0
11/1/15 - 10/31/16 178 7 0 0 66 1 0 0
11/1/16 - 10/31/17 236 0 0 0 16 0 0 0
11/1/17 - 10/31/18 222 1 0 0 29 0 0 0
11/1/18 - 10/31/19 246 0 0 0 5 0 0 0
</TABLE>
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the First Trust Low Duration Opportunities ETF (the "Fund" or
"LMBS"). In this capacity, First Trust is responsible for the selection and
ongoing monitoring of the investments in the Fund's portfolio and certain other
services necessary for the management of the portfolio.
PORTFOLIO MANAGEMENT TEAM
JEREMIAH CHARLES - SENIOR PORTFOLIO MANAGER, FIRST TRUST SECURITIZED
PRODUCTS GROUP
JIM SNYDER - SENIOR PORTFOLIO MANAGER, FIRST TRUST SECURITIZED
PRODUCTS GROUP
COMMENTARY
MARKET RECAP
The 2019 fiscal year began with volatile bond and equity markets as slowing
global growth scenarios and fallout from trade war escalations began to be
priced into U.S. markets. As a result, in January the Federal Reserve (the
"Fed") paused the well-underway monetary policy normalization and subsequently,
in the spring announced plans to abruptly end the runoff of its balance sheet.
By mid-summer of 2019, the pause turned to a reversal in monetary policy, and as
a result of cross currents from the ongoing China-United States trade war
escalation, the Fed began to cut interest rates, with a total of three 25 basis
point cuts by the end of October 2019. Additionally, the Fed once again began to
reinvest its holdings of U.S. Treasuries and Agency Mortgaged-Backed Securities
("MBS") and was forced to step in and provide liquidity to the overnight repo
markets as funding pressures intensified due to a confluence of events in
September 2019. This eventually led the Fed to announce plans to provide ongoing
repo market support alongside a purchase program targeting $60 billion per month
of U.S. Treasury bills to provide adequate reserves in the banking system. This
aggressive change of course from the Fed had significant impacts on the U.S.
Bond markets, which saw yields decline dramatically over the fiscal period, led
by the 5- and 10-Year Treasuries, which saw yields fall 145 basis points
("bps"). Given the outperformance by the belly of the curve, the yield curve
inverted and remained as such for most of the annual period. With the inverted
curve, faster than expected prepayments due to interest rates falling with such
velocity, and heightened market volatility, Agency MBS spreads gapped wider in
August with Treasury Option Adjusted Spread ("OAS") reaching a post-crisis wide
73 bps, before settling 15 bps wider over the year, to close at 56 bps at the
end of the period.
PERFORMANCE ANALYSIS
During the fiscal year ended October 31, 2019, the Fund returned 4.88% on a net
asset value ("NAV") basis. Since the Fund's November 4, 2014 inception, the Fund
has returned 3.59% on an average annualized basis at NAV.
During the same period, the ICE BofAML 1-5 Year U.S. Treasury & Agency Index
(the "Index") returned 5.79%. Since the Fund's inception, the Index has returned
1.68% on an average annualized basis.
During the fiscal year, the Fund underperformed the Index by 91 bps, net of
fees. Since inception, the Fund has outperformed the Index by 1.91% on an
average annualized basis. Although we had increased the overall duration in the
Fund early in the fourth quarter of 2018, over the fiscal year, the Fund
maintained a defensive duration in the portfolio relative to its longer
benchmark. This was a key driver of NAV underperformance as U.S. bond market
yields fell rather significantly, with 5-year Treasury yields falling 145 bps
over the period. During the fiscal year, the Fund continued its structural
approach to duration and yield curve management with the use of treasury futures
and options. These positions were used to limit the portfolio duration of the
Fund, which contributed to the overall defensive duration that the Fund carried
versus its benchmark. Additionally, a secondary driver of underperformance was
the widening of Agency MBS spreads over the time period, with Treasury OAS
closing 15 bps wider. This underperformance was partially offset, particularly
during the 2019 calendar year, with out of Index investments in Agency CMBS,
which offered significant income and spread opportunities for the Fund.
FUND AND MARKET OUTLOOK
After the dramatic reversal in monetary policy seen in 2019, the Fed has stated
that it intends to be on hold from both additional rate cuts and any near-term
interest rate hikes. We believe this will keep the front-end of the yield curve
somewhat anchored in place while the Fed remains on hold and maintains data
dependency. We expect consumer data to remain resilient and economic growth to
persist into 2020, and as such, do not see an imminent recession. Given the
strength of the economy, and the consumer, we anticipate a slightly less dovish
Fed than the market is pricing in and expect intermediate and longer maturity
yields to move modestly higher over the short to intermediate term, especially
as the pace of treasury issuance increases. Measures of unemployment remain low;
however, measures of inflation appear to be well-contained, in our view, and we
do not foresee 2+% symmetric inflation, which we believe will further reinforce
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
the Fed's current pause. We remain positive on MBS spread valuations over the
longer term and believe large steepening trends in the yield curve will prove to
be catalysts for MBS spread compression. Lastly, we expect interest rate
volatility to remain elevated through year-end due to ongoing political and
economic environments along with continued fallout from the trade war.
Given our outlook on the broader bond markets, we plan to continue to manage the
Fund somewhat defensively versus the Index through shorter duration, especially
after a 145 bps rally in the 5-Year Treasury and no near-term interest rate cut
forecasted with the Fed on hold. We plan to continue to tactically position
duration across the yield curve using futures and more liquid positions to
adjust overall key rates as interest rate curves reprice during this period of
modestly heightened volatility. We currently favor maintaining duration exposure
allocated to the long end, as we believe yields on longer end maturity segment
do favor risk/reward positioning against a backdrop of slowing global growth and
moderate inflation. Since we anticipate that the short end of the curve is
stabilized as the Fed remains on hold over the short run, allocations to very
short treasuries will decline as securities roll off and mature, in our opinion.
Given the widening in Agency MBS spreads seen in 2019, we will continue to
increase the level of MBS spread duration versus recent past periods, however we
will still look to remain tactical on the MBS basis. And lastly, we maintain our
longstanding approach to minimize overall portfolio credit risk by positioning
ample liquidity buckets and cash to allow for portfolio agility and
repositioning.
Page 6
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2019 (UNAUDITED)
As a shareholder of First Trust Low Duration Opportunities ETF (the "Fund"), you
incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Fund and to compare these costs with the ongoing costs
of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2019.
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 period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX MONTH SIX MONTH
MAY 1, 2019 OCTOBER 31, 2019 PERIOD (a) PERIOD (a) (b)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
Actual $1,000.00 $1,024.70 0.65% $3.32
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
</TABLE>
(a) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2019
through October 31, 2019), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 77.4%
ASSET-BACKED SECURITIES -- 0.0%
Fannie Mae Grantor Trust
$ 381,553 Series 2002-T7, Class A1, 1 Mo. LIBOR + 0.11% (a)............ 2.24% 07/25/32 $ 372,407
----------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 28.4%
Federal Home Loan Mortgage Corporation
3 Series 1990-186, Class E..................................... 6.00% 08/15/21 3
11 Series 1990-188, Class H..................................... 7.00% 09/15/21 11
45,065 Series 1992-133, Class B, IO, STRIPS......................... 8.50% 06/01/22 3,395
259 Series 1992-205, Class A, 1 Mo. LIBOR + 0.45% (a)............ 2.37% 05/15/23 259
54,394 Series 1992-1206, Class IB, 1 Mo. LIBOR + 0.83% (a).......... 2.75% 03/15/22 54,719
16,604 Series 1993-1498, Class I, 1 Mo. LIBOR + 1.15% (a)........... 3.07% 04/15/23 16,830
13,803 Series 1993-1552, Class I, 10 Yr. Constant Maturity Treasury
Rate - 0.65% (a).......................................... 1.15% 08/15/23 13,621
126,418 Series 1993-1579, Class PM................................... 6.70% 09/15/23 134,981
102,123 Series 1993-1630, Class PK................................... 6.00% 11/15/23 107,829
8,119 Series 1993-1643, Class PK................................... 6.50% 12/15/23 8,572
309,191 Series 1994-1710, Class G, 1 Mo. LIBOR + 1.50% (a)........... 3.42% 04/15/24 315,061
15,490 Series 1998-2042, Class H, PO................................ (b) 03/15/28 14,628
2,034 Series 1998-2089, Class PJ, IO............................... 7.00% 10/15/28 218
9,899 Series 1998-2102, Class Z.................................... 6.00% 12/15/28 10,946
960,154 Series 1999-21, Class A, 1 Mo. LIBOR + 0.18% (a)............. 2.00% 10/25/29 954,936
507,109 Series 1999-201, Class PO, PO, STRIPS........................ (b) 01/01/29 472,013
58,666 Series 2000-2245, Class EA, PO............................... (b) 08/15/30 56,670
2,371 Series 2001-2365, Class LO, PO............................... (b) 09/15/31 2,341
196,736 Series 2002-48, Class 1A (c)................................. 4.91% 07/25/33 215,029
76,604 Series 2002-2405, Class BF................................... 7.00% 03/25/24 81,117
150,747 Series 2002-2410, Class OG................................... 6.38% 02/15/32 187,338
279,650 Series 2002-2425, Class PO, PO............................... (b) 03/15/32 258,110
158,734 Series 2002-2427, Class GE................................... 6.00% 03/15/32 179,132
283,446 Series 2002-2437, Class SA, IO,
1 Mo. LIBOR (x) -1 + 7.90% (d)............................ 5.98% 01/15/29 42,464
78,233 Series 2002-2449, Class LO, PO............................... (b) 05/15/32 70,990
50,162 Series 2002-2499, Class PO, PO............................... (b) 01/15/32 46,667
17,482 Series 2003-58, Class 2A..................................... 6.50% 09/25/43 19,829
151,976 Series 2003-225, Class PO, PO, STRIPS........................ (b) 11/15/33 139,051
72,471 Series 2003-2557, Class HL................................... 5.30% 01/15/33 81,341
154,588 Series 2003-2564, Class AC................................... 5.50% 02/15/33 171,799
494,524 Series 2003-2574, Class PE................................... 5.50% 02/15/33 559,750
237,022 Series 2003-2577, Class LI, IO............................... 5.50% 02/15/33 37,497
1,546,000 Series 2003-2581, Class LL................................... 5.25% 03/15/33 1,683,823
432,527 Series 2003-2586, Class TG................................... 5.50% 03/15/23 446,086
111,315 Series 2003-2597, Class AE................................... 5.50% 04/15/33 119,329
1,890,000 Series 2003-2613, Class LL................................... 5.00% 05/15/33 2,061,577
225,911 Series 2003-2626, Class ZW................................... 5.00% 06/15/33 252,240
492,485 Series 2003-2626, Class ZX................................... 5.00% 06/15/33 617,171
110,000 Series 2003-2669, Class LL................................... 5.50% 08/15/33 123,137
7,000 Series 2003-2676, Class LL................................... 5.50% 09/15/33 7,704
725,867 Series 2004-2771, Class NL................................... 6.00% 03/15/34 840,002
566,113 Series 2004-2793, Class PE................................... 5.00% 05/15/34 636,279
1,311,364 Series 2004-2801, Class SE, IO,
1 Mo. LIBOR (x) -1 + 7.05% (d)............................ 5.13% 07/15/32 212,641
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 250,131 Series 2004-2835, Class QY, IO,
1 Mo. LIBOR (x) -1 + 7.90% (d) (e)........................ 5.98% 12/15/32 $ 40,567
21,633 Series 2004-2863, Class PO, PO............................... (b) 10/15/31 21,101
195,974 Series 2004-2890, Class ZA................................... 5.00% 11/15/34 219,253
525,991 Series 2004-2891, Class ZA................................... 6.50% 11/15/34 764,881
430,900 Series 2004-2907, Class DZ................................... 4.00% 12/15/34 450,369
2,124,171 Series 2005-233, Class 12, IO, STRIPS........................ 5.00% 09/15/35 373,106
573,593 Series 2005-234, Class IO, IO, STRIPS........................ 4.50% 10/01/35 84,626
1,015,962 Series 2005-2923, Class PO, PO............................... (b) 01/15/35 944,044
5,518 Series 2005-2934, Class EC, PO............................... (b) 02/15/20 5,507
638,000 Series 2005-2973, Class GE................................... 5.50% 05/15/35 787,058
610,734 Series 2005-2980, Class AO, PO............................... (b) 11/15/34 529,674
221,706 Series 2005-2990, Class GO, PO............................... (b) 02/15/35 200,218
119,657 Series 2005-3001, Class OK, PO............................... (b) 02/15/35 108,608
69,297 Series 2005-3027, Class AP, PO............................... (b) 05/15/29 64,228
170,998 Series 2005-3031, Class BI, IO,
1 Mo. LIBOR (x) -1 + 6.69% (d)............................ 4.77% 08/15/35 40,372
19,315 Series 2005-3074, Class ZH................................... 5.50% 11/15/35 26,541
259,901 Series 2005-3077, Class TO, PO............................... (b) 04/15/35 245,514
84,579 Series 2006-237, Class PO, PO, STRIPS........................ (b) 05/15/36 76,324
499,441 Series 2006-238, Class 8, IO, STRIPS......................... 5.00% 04/15/36 91,276
412,161 Series 2006-243, Class 11, IO, STRIPS (f).................... 7.00% 08/15/36 96,142
213,689 Series 2006-3100, Class PO, PO............................... (b) 01/15/36 195,006
486,801 Series 2006-3114, Class GI, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 4.68% 02/15/36 85,549
263,101 Series 2006-3117, Class EO, PO............................... (b) 02/15/36 237,256
64,283 Series 2006-3117, Class OK, PO............................... (b) 02/15/36 58,202
855,525 Series 2006-3117, Class SO, PO............................... (b) 02/15/36 751,350
32,039 Series 2006-3117, Class ZU................................... 6.00% 02/15/36 48,270
20,820 Series 2006-3122, Class OH, PO............................... (b) 03/15/36 19,051
20,645 Series 2006-3122, Class OP, PO............................... (b) 03/15/36 19,130
9,018 Series 2006-3122, Class ZW................................... 6.00% 03/15/36 12,928
82,749 Series 2006-3134, Class PO, PO............................... (b) 03/15/36 76,576
156,742 Series 2006-3138, Class PO, PO............................... (b) 04/15/36 142,811
205,089 Series 2006-3140, Class XO, PO............................... (b) 03/15/36 193,117
39,547 Series 2006-3150, Class DZ................................... 5.50% 05/15/36 45,344
23,665 Series 2006-3150, Class PO, PO............................... (b) 05/15/36 22,272
371,012 Series 2006-3152, Class MO, PO............................... (b) 03/15/36 337,443
787,804 Series 2006-3153, Class EO, PO............................... (b) 05/15/36 704,635
91,165 Series 2006-3171, Class MO, PO............................... (b) 06/15/36 83,803
2,860,664 Series 2006-3174, Class LF, 1 Mo. LIBOR + 0.35% (a).......... 2.27% 05/15/36 2,864,161
33,066 Series 2006-3178, Class BO, PO............................... (b) 06/15/36 29,623
118,236 Series 2006-3179, Class OA, PO............................... (b) 07/15/36 108,361
50,750 Series 2006-3181, Class LO, PO............................... (b) 07/15/36 46,873
334,401 Series 2006-3200, Class PO, PO............................... (b) 08/15/36 305,714
71,166 Series 2006-3206, Class EO, PO............................... (b) 08/15/36 63,154
2,228,900 Series 2006-3210, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 4.68% 09/15/36 358,131
106,928 Series 2006-3211, Class SO, PO............................... (b) 09/15/36 97,789
59,012 Series 2006-3217, Class CO, PO............................... (b) 09/15/36 54,757
</TABLE>
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 638,447 Series 2006-3218, Class AO, PO............................... (b) 09/15/36 $ 532,530
208,163 Series 2006-3219, Class AO, PO............................... (b) 09/15/36 186,002
662,775 Series 2006-3223, Class FC, 1 Mo. LIBOR + 0.55% (a).......... 2.58% 04/15/32 669,137
105,132 Series 2006-3225, Class EO, PO............................... (b) 10/15/36 95,297
1,295,431 Series 2006-3240, Class GO, PO............................... (b) 11/15/36 1,217,037
239,313 Series 2006-3242, Class CO, PO............................... (b) 11/15/36 220,394
170,560 Series 2006-3244, Class GO, PO............................... (b) 11/15/36 150,439
358,440 Series 2006-3244, Class QO, PO............................... (b) 11/15/36 349,218
242,033 Series 2006-3245, Class PO, PO............................... (b) 11/15/36 221,847
565,918 Series 2006-3252, Class LO, PO............................... (b) 12/15/36 498,863
468,144 Series 2006-3256, Class PO, PO............................... (b) 12/15/36 421,136
183,169 Series 2007-3260, Class BO, PO............................... (b) 01/15/37 162,253
378,947 Series 2007-3261, Class OA, PO............................... (b) 01/15/37 338,350
1,473,080 Series 2007-3262, Class KS, IO,
1 Mo. LIBOR (x) -1 + 6.41% (d)............................ 4.49% 01/15/37 162,633
72,371 Series 2007-3274, Class B.................................... 6.00% 02/15/37 80,793
36,852 Series 2007-3292, Class DO, PO............................... (b) 03/15/37 35,944
120,683 Series 2007-3296, Class OK, PO............................... (b) 03/15/37 114,915
327,682 Series 2007-3300, Class OC, PO............................... (b) 04/15/37 299,284
1,612,379 Series 2007-3300, Class XO, PO............................... (b) 03/15/37 1,426,869
20,763 Series 2007-3301, Class OY, PO............................... (b) 04/15/37 18,007
49,451 Series 2007-3305, Class PO, PO............................... (b) 04/15/37 46,766
77,154 Series 2007-3314, Class OW, PO............................... (b) 05/15/37 66,174
130,518 Series 2007-3317, Class CO, PO............................... (b) 05/15/37 119,978
385,576 Series 2007-3322, Class NF,
1 Mo. LIBOR (x) 2,566.67 - 16,683.33%, 0.00% Floor (a).... 0.00% 05/15/37 367,936
161,598 Series 2007-3325, Class OB, PO............................... (b) 06/15/37 151,027
47,622 Series 2007-3326, Class KO, PO............................... (b) 06/15/37 42,067
319,143 Series 2007-3331, Class PO, PO............................... (b) 06/15/37 291,677
57,385 Series 2007-3340, Class PF, 1 Mo. LIBOR + 0.30% (a).......... 2.22% 07/15/37 57,237
68,943 Series 2007-3349, Class MY................................... 5.50% 07/15/37 77,636
189,393 Series 2007-3360, Class CB................................... 5.50% 08/15/37 207,174
79,770 Series 2007-3369, Class BO, PO............................... (b) 09/15/37 72,843
1,421,021 Series 2007-3370, Class FM, 1 Mo. LIBOR + 0.62% (a).......... 2.54% 10/15/47 1,420,885
90,637 Series 2007-3373, Class TO, PO............................... (b) 04/15/37 81,190
440,004 Series 2007-3376, Class OX, PO............................... (b) 10/15/37 413,496
140,671 Series 2007-3380, Class FS, 1 Mo. LIBOR + 0.35% (a).......... 2.27% 11/15/36 140,750
38,513 Series 2007-3383, Class OP, PO............................... (b) 11/15/37 34,671
712,165 Series 2007-3384, Class TO, PO............................... (b) 11/15/37 628,289
391,365 Series 2007-3387, Class PO, PO............................... (b) 11/15/37 349,831
865,337 Series 2007-3391, Class PO, PO............................... (b) 04/15/37 820,295
785,397 Series 2007-3393, Class JO, PO............................... (b) 09/15/32 740,726
131,875 Series 2007-3403, Class OB, PO............................... (b) 12/15/37 118,154
270,665 Series 2007-3403, Class PO, PO............................... (b) 12/15/37 258,901
498,600 Series 2008-3406, Class B.................................... 6.00% 01/15/38 530,356
72,377 Series 2008-3413, Class B.................................... 5.50% 04/15/37 79,104
487,414 Series 2008-3419, Class LO, PO............................... (b) 07/15/37 452,610
379,048 Series 2008-3420, Class AZ................................... 5.50% 02/15/38 427,166
30,932 Series 2008-3444, Class DO, PO............................... (b) 01/15/37 27,903
</TABLE>
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 218,058 Series 2008-3448, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (d)............................ 4.13% 05/15/38 $ 13,833
188,923 Series 2008-3469, Class DO, PO............................... (b) 07/15/38 176,447
418,469 Series 2008-3469, Class EO, PO............................... (b) 07/15/38 390,813
4,355,850 Series 2009-3522, Class SE, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.18% 04/15/39 753,307
42,679 Series 2009-3523, Class SD,
1 Mo. LIBOR (x) -2.75 + 19.66% (d)........................ 14.38% 06/15/36 55,728
1,090,900 Series 2009-3542, Class ZP.................................. 5.00% 06/15/39 1,270,767
177,000 Series 2009-3550, Class LL................................... 4.50% 07/15/39 199,968
498,229 Series 2009-3563, Class ZP................................... 5.00% 08/15/39 601,464
20,062 Series 2009-3571, Class OC, PO............................... (b) 05/15/37 18,172
3,465,059 Series 2009-3572, Class JS, IO,
1 Mo. LIBOR (x) -1 + 6.80% (d)............................ 4.88% 09/15/39 484,418
29,643 Series 2009-3585, Class QZ................................... 5.00% 08/15/39 39,044
194,207 Series 2009-3587, Class FX, 1 Mo. LIBOR (a).................. 1.92% 12/15/37 191,064
970,333 Series 2009-3591, Class PO, PO............................... (b) 10/15/39 915,929
1,241,475 Series 2009-3593, Class F, 1 Mo. LIBOR + 0.50% (a)........... 2.60% 03/15/36 1,243,559
2,396,317 Series 2009-3605, Class NC................................... 5.50% 06/15/37 2,697,520
311,610 Series 2009-3606, Class BO, PO............................... (b) 12/15/39 279,921
355,553 Series 2009-3607, Class BO, PO............................... (b) 04/15/36 325,102
1,165,999 Series 2009-3607, Class OP, PO............................... (b) 07/15/37 1,021,924
159,535 Series 2009-3611, Class PO, PO............................... (b) 07/15/34 146,369
205,925 Series 2010-3621, Class BO, PO............................... (b) 01/15/40 186,770
163,231 Series 2010-3621, Class PO, PO............................... (b) 01/15/40 147,402
500,000 Series 2010-3622, Class PB................................... 5.00% 01/15/40 567,962
332,631 Series 2010-3623, Class LO, PO............................... (b) 01/15/40 301,137
126,000 Series 2010-3626, Class ME................................... 5.00% 01/15/40 143,401
700,649 Series 2010-3632, Class BS,
1 Mo. LIBOR (x) -3.33 + 17.50% (d)........................ 11.10% 02/15/40 921,107
4,534 Series 2010-3637, Class LJ................................... 3.50% 02/15/25 4,529
107,000 Series 2010-3645, Class WD................................... 4.50% 02/15/40 121,731
661,000 Series 2010-3667, Class PL................................... 5.00% 05/15/40 738,673
111,575 Series 2010-3687, Class HB................................... 2.50% 07/15/38 111,718
195,434 Series 2010-3688, Class HI, IO............................... 5.00% 11/15/21 4,339
116,471 Series 2010-3699, Class FD, 1 Mo. LIBOR + 0.60% (a).......... 2.52% 07/15/40 117,463
2,112,136 Series 2010-3704, Class ED................................... 4.00% 12/15/36 2,181,712
400,000 Series 2010-3714, Class PB................................... 4.75% 08/15/40 480,279
15,999 Series 2010-3716, Class PC................................... 2.50% 04/15/38 16,035
452,549 Series 2010-3722, Class AI, IO............................... 3.50% 09/15/20 5,459
2,530,874 Series 2010-3726, Class BI, IO............................... 6.00% 07/15/30 70,488
1,168,031 Series 2010-3735, Class IK, IO............................... 3.50% 10/15/25 76,697
172,223 Series 2010-3735, Class JI, IO............................... 4.50% 10/15/30 20,901
89,883 Series 2010-3739, Class MB................................... 4.00% 06/15/37 91,024
610,244 Series 2010-3740, Class SC, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 4.08% 10/15/40 85,868
600,299 Series 2010-3755, Class AI, IO (e)........................... 3.50% 11/15/20 7,897
893,993 Series 2010-3764, Class QA................................... 4.00% 10/15/29 905,060
74,349 Series 2010-3770, Class GZ................................... 4.50% 10/15/40 95,179
64,391 Series 2010-3773, Class PH................................... 2.50% 06/15/25 64,389
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 75,816 Series 2010-3775, Class LD................................... 3.00% 12/15/20 $ 76,139
220,323 Series 2010-3775, Class LI, IO............................... 3.50% 12/15/20 3,013
312,000 Series 2010-3780, Class AV................................... 4.00% 04/15/31 340,342
159,988 Series 2011-3795, Class ED................................... 3.00% 10/15/39 162,524
600,000 Series 2011-3796, Class PB................................... 5.00% 01/15/41 712,909
386,647 Series 2011-3819, Class ZQ................................... 6.00% 04/15/36 445,818
417 Series 2011-3820, Class DA................................... 4.00% 11/15/35 416
1,864,696 Series 2011-3820, Class GZ................................... 5.00% 03/15/41 2,219,080
300,000 Series 2011-3820, Class NC................................... 4.50% 03/15/41 344,103
431,076 Series 2011-3827, Class BM................................... 5.50% 08/15/39 442,479
153,801 Series 2011-3828, Class SY,
1 Mo. LIBOR (x) -3 + 13.20% (d)........................... 7.44% 02/15/41 237,945
1,681,064 Series 2011-3841, Class JZ................................... 5.00% 04/15/41 1,952,846
103,547 Series 2011-3842, Class BS,
1 Mo. LIBOR (x) -5 + 22.75% (d)........................... 12.59% 04/15/41 201,777
300,000 Series 2011-3844, Class PC................................... 5.00% 04/15/41 371,465
1,111,832 Series 2011-3852, Class SW, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 4.08% 05/15/41 169,733
1,552,337 Series 2011-3860, Class PZ................................... 5.00% 05/15/41 1,813,120
181,825 Series 2011-3862, Class TO, PO............................... (b) 05/15/41 162,041
278,771 Series 2011-3868, Class PO, PO............................... (b) 05/15/41 252,348
273,014 Series 2011-3884, Class DL................................... 3.00% 02/15/25 273,879
525,000 Series 2011-3890, Class ME................................... 5.00% 07/15/41 640,672
1,387,000 Series 2011-3895, Class PW................................... 4.50% 07/15/41 1,678,646
5,597 Series 2011-3902, Class MA................................... 4.50% 07/15/39 5,595
1,641,595 Series 2011-3925, Class ZD................................... 4.50% 09/15/41 1,962,498
1,570,227 Series 2011-3926, Class SH, IO,
1 Mo. LIBOR (x) -1 + 6.55% (d)............................ 4.63% 05/15/40 95,323
613,604 Series 2011-3935, Class LI, IO............................... 3.00% 10/15/21 11,220
2,453,657 Series 2011-3951, Class AO, PO............................... (b) 03/15/32 2,258,708
51,287 Series 2011-3954, Class JE................................... 5.00% 08/15/29 51,885
1,845,764 Series 2011-3956, Class KI, IO............................... 3.00% 11/15/21 40,404
624,577 Series 2011-3960, Class BU................................... 3.50% 02/15/30 635,621
642,200 Series 2011-3968, Class AI, IO............................... 3.00% 12/15/21 13,857
962,923 Series 2012-267, Class S5, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 4.08% 08/15/42 152,765
116,418 Series 2012-278, Class F1, STRIPS,
1 Mo. LIBOR + 0.45% (a)................................... 2.37% 09/15/42 116,903
1,453,256 Series 2012-3994, Class AI, IO............................... 3.00% 02/15/22 33,113
916,920 Series 2012-3999, Class WA (f)............................... 5.37% 08/15/40 1,022,611
1,678,000 Series 2012-4000, Class PY................................... 4.50% 02/15/42 2,104,245
1,241,507 Series 2012-4002, Class DE................................... 2.50% 03/15/30 1,246,371
59,000 Series 2012-4012, Class GC................................... 3.50% 06/15/40 61,619
37,891 Series 2012-4015, Class KB................................... 1.75% 05/15/41 37,209
970,996 Series 2012-4021, Class IP, IO............................... 3.00% 03/15/27 60,230
1,005,770 Series 2012-4026, Class GZ................................... 4.50% 04/15/42 1,259,259
1,852,309 Series 2012-4030, Class IL, IO............................... 3.50% 04/15/27 131,590
241,132 Series 2012-4038, Class CS,
1 Mo. LIBOR (x) -3 + 12.00% (d)........................... 5.91% 04/15/42 269,916
1,416,085 Series 2012-4048, Class FJ, 1 Mo. LIBOR + 0.40% (a).......... 2.50% 07/15/37 1,413,614
3,257,887 Series 2012-4054, Class AI, IO............................... 3.00% 04/15/27 220,243
3,876,394 Series 2012-4057, Class ZC................................... 3.50% 06/15/42 4,121,852
467,411 Series 2012-4076, Class QB................................... 1.75% 11/15/41 454,242
</TABLE>
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 3,363,469 Series 2012-4077, Class TS, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d) (e)........................ 4.08% 05/15/41 $ 532,711
586,959 Series 2012-4090, Class YZ................................... 4.50% 08/15/42 764,259
65,983 Series 2012-4097, Class ES, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.18% 08/15/42 11,467
611,293 Series 2012-4097, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.05% (d)............................ 4.13% 08/15/42 111,091
1,447,000 Series 2012-4098, Class PE................................... 4.00% 08/15/42 1,626,386
628,895 Series 2012-4103, Class HI, IO............................... 3.00% 09/15/27 47,130
74,640 Series 2012-4116, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.15% (d)............................ 4.23% 10/15/42 13,357
32,413,385 Series 2012-4117, Class PA................................... 1.25% 02/15/42 31,580,365
3,569,548 Series 2012-4121, Class HI, IO............................... 3.50% 10/15/27 299,574
3,310,719 Series 2012-4132, Class AI, IO............................... 4.00% 10/15/42 534,791
831,079 Series 2012-4136, Class TU, IO,
1 Mo. LIBOR (x) -22.50 + 139.50%, 4.50% Cap (d)........... 4.50% 08/15/42 136,064
760,158 Series 2012-4145, Class YI, IO............................... 3.00% 12/15/27 55,510
739,809 Series 2013-299, Class S1, IO, STRIPS,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 4.08% 01/15/43 115,899
873,692 Series 2013-303, Class C2, IO, STRIPS........................ 3.50% 01/15/28 74,409
12,264,248 Series 2013-303, Class C12, IO, STRIPS....................... 4.00% 12/15/32 1,407,002
748,768 Series 2013-304, Class C37, IO, STRIPS....................... 3.50% 12/15/27 46,964
3,671,064 Series 2013-304, Class C40, IO, STRIPS....................... 3.50% 09/15/26 257,826
4,104,914 Series 2013-4151, Class DI, IO............................... 3.50% 11/15/31 268,685
7,914,242 Series 2013-4154, Class IB, IO............................... 3.50% 01/15/28 695,285
655,000 Series 2013-4176, Class HE................................... 4.00% 03/15/43 752,326
702,650 Series 2013-4177, Class GL................................... 3.00% 03/15/33 737,843
8,226,841 Series 2013-4193, Class AI, IO............................... 3.00% 04/15/28 642,004
826,035 Series 2013-4193, Class PB................................... 4.00% 04/15/43 969,299
21,532,466 Series 2013-4194, Class GI, IO............................... 4.00% 04/15/43 3,213,159
6,429,021 Series 2013-4203, Class US,
1 Mo. LIBOR (x) -1.50 + 6.00% (d)......................... 3.12% 05/15/33 6,659,402
500,000 Series 2013-4211, Class PB................................... 3.00% 05/15/43 525,489
1,674,101 Series 2013-4213, Class MZ................................... 4.00% 06/15/43 1,854,188
415,289 Series 2013-4226, Class NS,
1 Mo. LIBOR (x) -3 + 10.50% (d)........................... 4.41% 01/15/43 475,654
589,563 Series 2013-4239, Class IO, IO............................... 3.50% 06/15/27 45,878
1,450,000 Series 2013-4247, Class AY................................... 4.50% 09/15/43 1,735,719
501,402 Series 2013-4249, Class KO, PO............................... (b) 11/15/42 458,969
877,343 Series 2013-4261, Class GS,
1 Mo. LIBOR (x) -2.75 + 10.98% (d)........................ 5.71% 01/15/41 1,100,501
1,453,182 Series 2013-4265, Class IB, IO............................... 4.50% 12/15/24 100,984
161,512 Series 2013-4270, Class AP................................... 2.50% 04/15/40 161,902
296,434 Series 2014-4300, Class IM, IO............................... 3.00% 03/15/37 17,268
644,832 Series 2014-4314, Class CI, IO............................... 6.00% 03/15/44 151,783
533,286 Series 2014-4316, Class XZ................................... 4.50% 03/15/44 628,553
791,712 Series 2014-4318, Class CI, IO............................... 4.00% 03/15/22 15,787
13,694,695 Series 2014-4329, Class VZ................................... 4.00% 04/15/44 15,056,625
2,163,116 Series 2014-4332, Class PO, PO............................... (b) 01/15/33 2,124,273
727,927 Series 2014-4337, Class TV................................... 4.00% 10/15/45 732,597
7,473,980 Series 2014-4387, Class IE, IO............................... 2.50% 11/15/28 482,458
</TABLE>
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 809,144 Series 2015-343, Class F4, STRIPS,
1 Mo. LIBOR + 0.35% (a)................................... 2.45% 10/15/37 $ 810,592
28,833,652 Series 2015-4483, Class ZX................................... 4.15% 06/15/44 32,506,799
1,677,884 Series 2015-4487, Class CB................................... 3.50% 06/15/45 1,693,948
1,277,120 Series 2015-4503, Class MI, IO............................... 5.00% 08/15/45 242,218
1,003,815 Series 2015-4512, Class W (c) (f)............................ 5.38% 05/15/38 1,113,807
204,552 Series 2015-4520, Class AI, IO............................... 3.50% 10/15/35 23,989
535,701 Series 2015-4522, Class JZ................................... 2.00% 01/15/45 553,075
247,884 Series 2016-4546, Class PZ................................... 4.00% 12/15/45 312,121
419,606 Series 2016-4546, Class ZT................................... 4.00% 01/15/46 517,432
128,801 Series 2016-4568, Class MZ................................... 4.00% 04/15/46 160,265
8,076,372 Series 2016-4572, Class LI, IO............................... 4.00% 08/15/45 1,206,774
3,197,888 Series 2016-4591, Class GI, IO............................... 4.00% 12/15/44 531,822
1,864,920 Series 2016-4596, Class FL, 1 Mo. LIBOR + 0.50% (a).......... 2.60% 11/15/41 1,865,752
771,702 Series 2016-4600, Class WT................................... 3.50% 07/15/36 858,150
424,625 Series 2016-4605, Class KS,
1 Mo. LIBOR (x) -1.57 + 4.71% (d)......................... 1.52% 08/15/43 452,048
1,350,861 Series 2016-4609, Class YI, IO............................... 4.00% 04/15/54 85,894
535,981 Series 2016-4613, Class AF, 1 Mo. LIBOR + 1.10% (a).......... 3.02% 11/15/37 547,610
1,366,688 Series 2016-4615, Class GT,
1 Mo. LIBOR (x) -4 + 16.00%, 4.00% Cap (d)................ 4.00% 10/15/42 1,401,080
32,816,495 Series 2016-4619, Class IB, IO............................... 4.00% 12/15/47 1,941,795
4,258,841 Series 2016-4641, Class DI, IO............................... 5.00% 05/15/41 633,281
1,173,000 Series 2017-4650, Class JH................................... 3.00% 01/15/47 1,217,588
600,000 Series 2017-4681, Class JY................................... 2.50% 05/15/47 593,819
2,801,348 Series 2018-4780, Class VA................................... 4.00% 05/15/29 3,028,118
9,924,000 Series 2018-4826, Class ME................................... 3.50% 09/15/48 10,292,645
10,001,000 Series 2018-4858, Class EK................................... 4.00% 01/15/49 10,659,976
2,895,147 Series 2019-4872, Class BZ................................... 4.00% 04/15/49 3,327,420
Federal National Mortgage Association
430 Series 1990-13, Class E...................................... 9.00% 02/25/20 432
94 Series 1990-108, Class G..................................... 7.00% 09/25/20 95
210 Series 1990-109, Class J..................................... 7.00% 09/25/20 211
4,178 Series 1991-30, Class PN..................................... 9.00% 10/25/21 4,241
4 Series 1991-130, Class D, PO................................. (b) 09/25/21 4
183,345 Series 1992-38, Class GZ..................................... 7.50% 07/25/22 193,873
37 Series 1992-44, Class ZQ..................................... 8.00% 07/25/22 38
5,903 Series 1992-185, Class ZB.................................... 7.00% 10/25/22 6,227
1,027 Series 1993-3, Class K....................................... 7.00% 02/25/23 1,072
11,855 Series 1993-39, Class Z...................................... 7.50% 04/25/23 12,570
1,592 Series 1993-46, Class FH, 7 Yr. Constant Maturity Treasury
Rate - 0.20% (a).......................................... 1.54% 04/25/23 1,581
151,955 Series 1993-169, Class L..................................... 6.50% 09/25/23 161,472
51,346 Series 1993-171, Class SB, 10 Yr. Constant Maturity Treasury
Rate (x) -2.17 + 21.99% (d)............................... 18.09% 09/25/23 62,328
43,167 Series 1993-214, Class 2, IO, STRIPS......................... 7.50% 03/25/23 3,941
344,577 Series 1993-222, Class 2, IO, STRIPS......................... 7.00% 06/25/23 32,116
21,895 Series 1993-230, Class FA, 1 Mo. LIBOR + 0.60% (a)........... 2.42% 12/25/23 22,044
234 Series 1994-24, Class H, PO.................................. (b) 11/25/23 226
236,555 Series 1994-61, Class FG, 1 Mo. LIBOR + 1.50% (a)............ 3.32% 04/25/24 240,068
</TABLE>
Page 14 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 53,010 Series 1996-51, Class AY, IO................................. 7.00% 12/18/26 $ 7,912
126,715 Series 1998-37, Class VZ..................................... 6.00% 06/17/28 133,505
742,209 Series 2000-45, Class SD, IO,
1 Mo. LIBOR (x) -1 + 7.95% (d)............................ 6.07% 12/18/30 87,718
1,503 Series 2001-8, Class SE, IO,
1 Mo. LIBOR (x) -1 + 8.60% (d) (e)........................ 6.71% 02/17/31 42
139,461 Series 2001-34, Class SR, IO,
1 Mo. LIBOR (x) -1 + 8.10% (d)............................ 6.22% 08/18/31 12,166
48,867 Series 2001-37, Class PO, PO................................. (b) 08/25/31 45,742
3,247 Series 2001-42, Class SB,
1 Mo. LIBOR (x) -16 + 128.00%, 8.50% Cap (d).............. 8.50% 09/25/31 3,674
229,338 Series 2001-46, Class F, 1 Mo. LIBOR + 0.40% (a)............. 2.28% 09/18/31 227,179
155,467 Series 2001-314, Class 1, PO, STRIPS......................... (b) 07/25/31 144,036
9,927 Series 2002-22, Class G...................................... 6.50% 04/25/32 11,481
117,685 Series 2002-30, Class Z...................................... 6.00% 05/25/32 131,497
212,880 Series 2002-41, Class PO, PO................................. (b) 07/25/32 197,925
64,377 Series 2002-80, Class CZ..................................... 4.50% 09/25/32 74,357
133,885 Series 2002-320, Class 2, IO, STRIPS......................... 7.00% 04/25/32 29,485
138,725 Series 2002-323, Class 6, IO, STRIPS......................... 6.00% 01/25/32 26,176
342,260 Series 2002-324, Class 2, IO, STRIPS......................... 6.50% 07/25/32 64,161
145,069 Series 2002-329, Class 1, PO, STRIPS......................... (b) 01/25/33 131,979
41,671 Series 2003-14, Class AT..................................... 4.00% 03/25/33 42,929
113,700 Series 2003-21, Class OA..................................... 4.00% 03/25/33 120,624
125,559 Series 2003-32, Class UI, IO................................. 6.00% 05/25/33 25,265
467,580 Series 2003-45, Class JB..................................... 5.50% 06/25/33 530,568
88,539 Series 2003-52, Class NA..................................... 4.00% 06/25/23 89,767
44,457 Series 2003-63, Class F1, 1 Mo. LIBOR + 0.30% (a)............ 2.12% 11/25/27 44,457
2,136,001 Series 2003-63, Class IP, IO................................. 6.00% 07/25/33 427,378
355,000 Series 2003-71, Class NH..................................... 4.29% 08/25/33 407,382
1,097,865 Series 2003-75, Class GI, IO................................. 5.00% 08/25/23 50,471
172,506 Series 2003-109, Class YB.................................... 6.00% 11/25/33 207,277
461,527 Series 2003-343, Class 2, IO, STRIPS......................... 4.50% 10/25/33 74,395
365,332 Series 2003-345, Class 14, IO, STRIPS........................ 6.00% 03/25/34 71,348
69,704 Series 2003-348, Class 17, IO, STRIPS........................ 7.50% 12/25/33 15,145
98,885 Series 2003-348, Class 18, IO, STRIPS (f).................... 7.50% 12/25/33 22,506
102,451 Series 2003-W3, Class 2A5.................................... 5.36% 06/25/42 114,630
132,451 Series 2003-W6, Class 1A41................................... 5.40% 10/25/42 147,726
37,141 Series 2003-W10, Class 1A4................................... 4.51% 06/25/43 40,386
75,586 Series 2003-W12, Class 1A8................................... 4.55% 06/25/43 81,648
296,740 Series 2004-10, Class ZB..................................... 6.00% 02/25/34 335,276
1,024,952 Series 2004-18, Class EZ..................................... 6.00% 04/25/34 1,177,453
322,807 Series 2004-25, Class LC..................................... 5.50% 04/25/34 369,636
304,979 Series 2004-25, Class UC..................................... 5.50% 04/25/34 353,133
37,455 Series 2004-28, Class ZH..................................... 5.50% 05/25/34 51,249
4,881 Series 2004-36, Class TA..................................... 5.50% 08/25/33 4,887
38,478 Series 2004-59, Class BG, PO................................. (b) 12/25/32 35,265
602,039 Series 2004-60, Class AC..................................... 5.50% 04/25/34 677,230
189,081 Series 2004-61, Class DO, PO................................. (b) 05/25/33 173,322
156,404 Series 2004-69, Class PO, PO................................. (b) 05/25/33 148,286
14,688 Series 2004-W9, Class 1A3.................................... 6.05% 02/25/44 16,506
1,784,798 Series 2004-W10, Class A6.................................... 5.75% 08/25/34 1,991,077
3,011,769 Series 2005-2, Class S, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 4.78% 02/25/35 560,055
</TABLE>
See Notes to Financial Statements Page 15
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 599,940 Series 2005-2, Class TB, IO,
1 Mo. LIBOR (x) -1 + 5.90%, 0.40% Cap (d)................. 0.40% 07/25/33 $ 6,915
51,755 Series 2005-29, Class ZT..................................... 5.00% 04/25/35 65,477
131,531 Series 2005-40, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.70% (d)............................ 4.88% 05/25/35 23,316
1,997 Series 2005-43, Class PB..................................... 5.00% 02/25/34 1,995
797 Series 2005-48, Class AR..................................... 5.50% 02/25/35 796
618,251 Series 2005-52, Class PO, PO................................. (b) 06/25/35 566,646
254,608 Series 2005-52, Class TZ..................................... 6.50% 06/25/35 374,948
21,914 Series 2005-52, Class WZ..................................... 6.50% 06/25/35 22,118
281,249 Series 2005-56, Class PO, PO................................. (b) 07/25/35 253,439
933,337 Series 2005-57, Class KZ..................................... 6.00% 07/25/35 1,233,933
14,482 Series 2005-67, Class SC,
1 Mo. LIBOR (x) -2.15 + 14.41% (d)........................ 10.49% 08/25/35 18,990
4,629 Series 2005-68, Class BC..................................... 5.25% 06/25/35 4,642
70,454 Series 2005-79, Class NS, IO,
1 Mo. LIBOR (x) -1 + 6.09% (d)............................ 4.27% 09/25/35 13,058
7,149,746 Series 2005-86, Class WZ..................................... 5.50% 10/25/35 7,955,217
20,773 Series 2005-87, Class SC,
1 Mo. LIBOR (x) -1.67 + 13.83% (d)........................ 10.80% 10/25/35 28,302
43,086 Series 2005-90, Class ES,
1 Mo. LIBOR (x) -2.50 + 16.88% (d)........................ 12.32% 10/25/35 56,523
48,542 Series 2005-95, Class WZ..................................... 6.00% 11/25/35 72,031
55,030 Series 2005-102, Class DS,
1 Mo. LIBOR (x) -2.75 + 19.80% (d)........................ 14.79% 11/25/35 68,752
637,000 Series 2005-104, Class UE.................................... 5.50% 12/25/35 736,059
12,048 Series 2005-113, Class DO, PO................................ (b) 01/25/36 10,850
218,916 Series 2005-359, Class 6, IO, STRIPS......................... 5.00% 11/25/35 30,224
628,078 Series 2005-359, Class 12, IO, STRIPS........................ 5.50% 10/25/35 118,656
173,418 Series 2005-362, Class 13, IO, STRIPS........................ 6.00% 08/25/35 33,580
90,438 Series 2005-W1, Class 1A2.................................... 6.50% 10/25/44 105,657
51,765 Series 2006-5, Class 2A2 (c)................................. 4.57% 02/25/35 54,947
41,608,476 Series 2006-5, Class N2, IO (c).............................. 0.00% 02/25/35 416
247,883 Series 2006-8, Class HK, PO.................................. (b) 03/25/36 216,391
103,194 Series 2006-8, Class WQ, PO.................................. (b) 03/25/36 90,121
92,518 Series 2006-15, Class IS, IO,
1 Mo. LIBOR (x) -1 + 6.58% (d)............................ 4.76% 03/25/36 18,350
2,145,795 Series 2006-20, Class PI, IO,
1 Mo. LIBOR (x) -1 + 6.68% (d)............................ 4.86% 11/25/30 260,337
145,357 Series 2006-22, Class AO, PO................................. (b) 04/25/36 132,457
89,247 Series 2006-27, Class OH, PO................................. (b) 04/25/36 82,327
22,434 Series 2006-31, Class PZ..................................... 6.00% 05/25/36 33,704
32,311 Series 2006-36, Class CO, PO................................. (b) 05/25/36 30,063
266,083 Series 2006-36, Class NO, PO................................. (b) 05/25/36 240,405
60,482 Series 2006-42, Class CF, 1 Mo. LIBOR + 0.45% (a)............ 2.27% 06/25/36 60,610
2,450,537 Series 2006-42, Class EI, IO,
1 Mo. LIBOR (x) -1 + 6.55% (d)............................ 4.73% 06/25/36 358,326
229,472 Series 2006-44, Class GO, PO................................. (b) 06/25/36 209,414
151,544 Series 2006-44, Class P, PO.................................. (b) 12/25/33 138,623
80,999 Series 2006-50, Class PS, PO................................. (b) 06/25/36 76,346
995,383 Series 2006-56, Class OM, PO................................. (b) 07/25/36 909,647
111,232 Series 2006-56, Class PO, PO................................. (b) 07/25/36 101,157
171,109 Series 2006-58, Class AP, PO................................. (b) 07/25/36 154,441
311,378 Series 2006-58, Class PO, PO................................. (b) 07/25/36 283,861
501,059 Series 2006-59, Class KO, PO................................. (b) 07/25/36 457,232
653,767 Series 2006-59, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.57% (d) (e)........................ 4.75% 07/25/36 97,384
27,176 Series 2006-60, Class DO, PO................................. (b) 04/25/35 26,907
</TABLE>
Page 16 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 364,458 Series 2006-60, Class OG, PO................................. (b) 07/25/36 $ 327,451
205,133 Series 2006-65, Class QO, PO................................. (b) 07/25/36 187,722
554,743 Series 2006-69, Class GO, PO................................. (b) 08/25/36 505,162
104,644 Series 2006-72, Class TO, PO................................. (b) 08/25/36 93,650
39,513 Series 2006-75, Class AO, PO................................. (b) 08/25/36 35,651
154,974 Series 2006-79, Class DO, PO................................. (b) 08/25/36 146,303
726,339 Series 2006-80, Class PH..................................... 6.00% 08/25/36 811,535
50,779 Series 2006-81, Class EO, PO................................. (b) 09/25/36 47,771
41,312 Series 2006-84, Class OT, PO................................. (b) 09/25/36 37,653
140,153 Series 2006-84, Class PK..................................... 5.50% 02/25/36 141,278
128,139 Series 2006-85, Class MZ..................................... 6.50% 09/25/36 144,987
90,943 Series 2006-91, Class PO, PO................................. (b) 09/25/36 81,646
99,232 Series 2006-109, Class PO, PO................................ (b) 11/25/36 89,096
3,083,642 Series 2006-110, Class PI, IO................................ 5.50% 11/25/36 647,227
125,510 Series 2006-110, Class PO, PO................................ (b) 11/25/36 113,984
318,928 Series 2006-114, Class AO, PO................................ (b) 12/25/36 307,849
3,042,241 Series 2006-116, Class ES, IO,
1 Mo. LIBOR (x) -1 + 6.65% (d)............................ 4.83% 12/25/36 593,098
295,922 Series 2006-117, Class GF, 1 Mo. LIBOR + 0.35% (a)........... 2.17% 12/25/36 294,771
3,481,196 Series 2006-118, Class A1, 1 Mo. LIBOR + 0.06% (a)........... 2.08% 12/25/36 3,461,037
112,953 Series 2006-124, Class LO, PO................................ (b) 01/25/37 101,405
44,010 Series 2006-124, Class UO, PO................................ (b) 01/25/37 39,512
1,416 Series 2006-126, Class DZ.................................... 5.50% 01/25/37 1,480
137,352 Series 2006-126, Class PO, PO................................ (b) 01/25/37 123,001
327,267 Series 2006-128, Class PO, PO................................ (b) 01/25/37 293,523
23,689 Series 2006-377, Class 1, PO, STRIPS......................... (b) 10/25/36 21,327
66,404 Series 2006-378, Class 31, IO, STRIPS........................ 4.50% 06/25/21 817
313,274 Series 2007-7, Class KA...................................... 5.75% 08/25/36 383,390
162,218 Series 2007-14, Class OP, PO................................. (b) 03/25/37 147,876
37,692 Series 2007-25, Class FB, 1 Mo. LIBOR + 0.33% (a)............ 2.15% 04/25/37 37,597
1,227,433 Series 2007-28, Class ZA..................................... 6.00% 04/25/37 1,353,203
806,424 Series 2007-30, Class WO, PO................................. (b) 04/25/37 731,803
64,273 Series 2007-32, Class KT..................................... 5.50% 04/25/37 73,181
236,784 Series 2007-36, Class GO, PO................................. (b) 04/25/37 217,939
881,458 Series 2007-36, Class PO, PO................................. (b) 04/25/37 804,049
796,779 Series 2007-39, Class LO, PO................................. (b) 05/25/37 709,503
158,933 Series 2007-42, Class CO, PO................................. (b) 05/25/37 138,670
298,107 Series 2007-44, Class AO, PO................................. (b) 05/25/37 280,719
36,810 Series 2007-44, Class KO, PO................................. (b) 05/25/37 33,163
340,546 Series 2007-44, Class LO, PO................................. (b) 05/25/37 305,960
389,309 Series 2007-44, Class OB, PO................................. (b) 05/25/37 366,385
70,478 Series 2007-48, Class PO, PO................................. (b) 05/25/37 66,578
750,631 Series 2007-57, Class ZG..................................... 4.75% 06/25/37 895,202
488,044 Series 2007-60, Class ZS..................................... 4.75% 07/25/37 602,652
194 Series 2007-67, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.75% (d)............................ 4.93% 04/25/37 0
505,051 Series 2007-68, Class AE..................................... 6.50% 07/25/37 641,528
88,872 Series 2007-102, Class OT, PO................................ (b) 11/25/37 80,575
431,607 Series 2007-116, Class PB.................................... 5.50% 08/25/35 490,091
234,727 Series 2007-117, Class MD.................................... 5.50% 07/25/37 247,865
118,207 Series 2008-3, Class FZ, 1 Mo. LIBOR + 0.55% (a)............. 2.37% 02/25/38 122,619
17,973 Series 2008-8, Class ZA...................................... 5.00% 02/25/38 21,077
</TABLE>
See Notes to Financial Statements Page 17
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 21,763 Series 2008-16, Class AB..................................... 5.50% 12/25/37 $ 22,158
22,568 Series 2008-17, Class IP, IO................................. 6.50% 02/25/38 3,322
8,424 Series 2008-64, Class EO, PO................................. (b) 08/25/38 7,490
344,564 Series 2008-65, Class PE..................................... 5.75% 08/25/38 394,187
1,021,737 Series 2008-92, Class PO, PO................................. (b) 12/25/38 897,108
1,229,674 Series 2008-389, Class 4, IO, STRIPS......................... 6.00% 03/25/38 200,323
27,923 Series 2009-10, Class AB..................................... 5.00% 03/25/24 28,911
1,426,456 Series 2009-11, Class PI, IO................................. 5.50% 03/25/36 300,924
45,170 Series 2009-14, Class BS, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 4.43% 03/25/24 1,714
106,998 Series 2009-47, Class PE..................................... 4.00% 07/25/39 108,987
4,400,000 Series 2009-50, Class GX..................................... 5.00% 07/25/39 5,426,278
800,520 Series 2009-64, Class ZD..................................... 8.00% 08/25/39 1,024,427
157,140 Series 2009-69, Class PO, PO................................. (b) 09/25/39 141,275
82,243 Series 2009-70, Class CO, PO................................. (b) 01/25/37 72,098
3 Series 2009-81, Class GC..................................... 3.50% 12/25/19 3
4,548,766 Series 2009-85, Class J...................................... 4.50% 10/25/39 4,966,553
876,403 Series 2009-86, Class OT, PO................................. (b) 10/25/37 822,056
342,481 Series 2009-91, Class HL..................................... 5.00% 11/25/39 356,058
47,000 Series 2009-92, Class DB..................................... 5.00% 11/25/39 56,783
689,741 Series 2009-103, Class PZ.................................... 6.00% 12/25/39 995,096
1,076,272 Series 2009-106, Class PO, PO................................ (b) 01/25/40 964,488
341,212 Series 2009-106, Class SN, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 4.43% 01/25/40 58,949
243,306 Series 2009-109, Class PZ.................................... 4.50% 01/25/40 292,640
115,327 Series 2009-115, Class HZ.................................... 5.00% 01/25/40 119,898
2,102,075 Series 2009-397, Class 2, IO, STRIPS......................... 5.00% 09/25/39 384,674
641,345 Series 2009-398, Class C13, IO, STRIPS....................... 4.00% 06/25/24 39,848
1,701,412 Series 2009-399, Class 1, PO, STRIPS......................... (b) 11/25/39 1,599,321
550,000 Series 2010-2, Class LC...................................... 5.00% 02/25/40 637,634
175,093 Series 2010-3, Class DZ...................................... 4.50% 02/25/40 214,028
307,425 Series 2010-21, Class KO, PO................................. (b) 03/25/40 276,656
500,000 Series 2010-35, Class EP..................................... 5.50% 04/25/40 624,677
136,651 Series 2010-35, Class SJ,
1 Mo. LIBOR (x) -3.33 + 17.67% (d)........................ 11.59% 04/25/40 174,190
400,000 Series 2010-38, Class KC..................................... 4.50% 04/25/40 454,800
417,000 Series 2010-45, Class WB..................................... 5.00% 05/25/40 498,087
65,995 Series 2010-49, Class SC,
1 Mo. LIBOR (x) -2 + 12.66% (d)........................... 9.01% 03/25/40 79,779
2,107,267 Series 2010-55, Class YP..................................... 4.50% 10/25/38 2,151,182
606,408 Series 2010-68, Class BI, IO................................. 5.50% 07/25/50 108,711
392,586 Series 2010-68, Class CO, PO................................. (b) 07/25/40 370,968
63,833 Series 2010-75, Class MT (c)................................. 2.76% 12/25/39 65,106
49,903 Series 2010-106, Class BI, IO (e)............................ 3.50% 09/25/20 546
890,808 Series 2010-110, Class KI, IO................................ 5.50% 10/25/25 59,438
460,783 Series 2010-115, Class PO, PO................................ (b) 04/25/40 424,036
305,009 Series 2010-117, Class EO, PO................................ (b) 10/25/40 261,363
379,428 Series 2010-120, Class PD.................................... 4.00% 02/25/39 383,383
437,576 Series 2010-129, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 4.18% 11/25/40 57,290
65,872 Series 2010-137, Class IM, IO................................ 5.00% 10/25/38 457
2,821,000 Series 2010-142, Class DL.................................... 4.00% 12/25/40 3,254,727
640 Series 2010-145, Class PE.................................... 3.25% 10/25/24 643
</TABLE>
Page 18 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 3,125,563 Series 2010-147, Class KS, IO,
1 Mo. LIBOR (x) -1 + 5.95% (d) (e)........................ 4.13% 01/25/41 $ 341,529
466,050 Series 2011-9, Class AZ...................................... 5.00% 05/25/40 528,249
507,000 Series 2011-10, Class AY..................................... 6.00% 02/25/41 656,551
24,981 Series 2011-17, Class CD..................................... 2.00% 03/25/21 24,941
199,847 Series 2011-17, Class CJ..................................... 2.75% 03/25/21 200,416
48 Series 2011-23, Class AB..................................... 2.75% 06/25/20 48
257,216 Series 2011-30, Class LS, IO (f)............................. 2.13% 04/25/41 14,931
3,006,023 Series 2011-30, Class MD..................................... 4.00% 02/25/39 3,037,348
115,096 Series 2011-30, Class ZB..................................... 5.00% 04/25/41 137,545
1,164,090 Series 2011-47, Class AI, IO................................. 5.50% 01/25/40 41,182
390,648 Series 2011-52, Class GB..................................... 5.00% 06/25/41 436,062
123,553 Series 2011-60, Class OA, PO................................. (b) 08/25/39 109,364
88,058 Series 2011-67, Class EI, IO (e)............................. 4.00% 07/25/21 297
96,475 Series 2011-72, Class TI, IO................................. 4.00% 09/25/40 2,135
3,567,722 Series 2011-73, Class PI, IO................................. 4.50% 05/25/41 313,330
449,652 Series 2011-74, Class TQ, IO,
1 Mo. LIBOR (x) -6.43 + 55.93%, 4.50% Cap (d) (e)......... 4.50% 12/25/33 53,491
156,963 Series 2011-75, Class BL..................................... 3.50% 08/25/21 158,340
267,370 Series 2011-86, Class DI, IO................................. 3.50% 09/25/21 6,542
3,061,118 Series 2011-87, Class YI, IO................................. 5.00% 09/25/41 565,550
9,414 Series 2011-90, Class QI, IO................................. 5.00% 05/25/34 185
5,868,855 Series 2011-101, Class EI, IO................................ 3.50% 10/25/26 391,814
189,708 Series 2011-103, Class JL.................................... 6.50% 11/25/29 191,745
750,000 Series 2011-105, Class MB.................................... 4.00% 10/25/41 833,104
28,244 Series 2011-107, Class CA.................................... 3.50% 11/25/29 28,334
36,157 Series 2011-111, Class DG.................................... 2.25% 12/25/38 36,115
24,086 Series 2011-111, Class DH.................................... 2.50% 12/25/38 24,061
1,569,871 Series 2011-111, Class PZ.................................... 4.50% 11/25/41 1,895,269
32,042 Series 2011-113, Class GA.................................... 2.00% 11/25/21 32,038
2,788,049 Series 2011-118, Class IC, IO................................ 3.50% 11/25/21 61,700
9,884,001 Series 2011-123, Class JS, IO,
1 Mo. LIBOR (x) -1 + 6.65% (d)............................ 4.83% 03/25/41 1,432,285
335,348 Series 2011-123, Class ZP.................................... 4.50% 12/25/41 400,494
103,553 Series 2011-124, Class CG.................................... 3.00% 09/25/29 103,929
39 Series 2011-134, Class PA.................................... 4.00% 09/25/40 40
1,568,998 Series 2011-137, Class AI, IO................................ 3.00% 01/25/22 37,109
2,386,870 Series 2011-145, Class IO, IO................................ 3.00% 01/25/22 55,232
787,663 Series 2012-8, Class TI, IO.................................. 3.00% 10/25/21 15,700
2,063,096 Series 2012-28, Class PT..................................... 4.00% 03/25/42 2,174,177
776,952 Series 2012-39, Class PB..................................... 4.25% 04/25/42 913,368
153,807 Series 2012-52, Class BZ..................................... 4.00% 05/25/42 186,814
3,062,348 Series 2012-53, Class CI, IO................................. 3.00% 05/25/22 79,164
1,394,707 Series 2012-65, Class IO, IO................................. 5.50% 07/25/40 266,485
373,786 Series 2012-66, Class DI, IO................................. 3.50% 06/25/27 31,988
179,118 Series 2012-79, Class QA..................................... 2.00% 03/25/42 178,573
1,329,725 Series 2012-101, Class AI, IO................................ 3.00% 06/25/27 77,672
8,859,604 Series 2012-103, Class HI, IO................................ 3.00% 09/25/27 636,787
417,349 Series 2012-111, Class B..................................... 7.00% 10/25/42 486,240
6,682,860 Series 2012-118, Class DI, IO................................ 3.50% 01/25/40 399,226
189,255 Series 2012-118, Class IB, IO................................ 3.50% 11/25/42 28,115
</TABLE>
See Notes to Financial Statements Page 19
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 898,073 Series 2012-122, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.28% 11/25/42 $ 168,431
435,138 Series 2012-133, Class KO, PO................................ (b) 12/25/42 296,928
1,789,666 Series 2012-134, Class GI, IO................................ 4.50% 03/25/29 146,150
1,091,245 Series 2012-138, Class MA.................................... 1.00% 12/25/42 1,067,382
4,068,341 Series 2012-146, Class QA.................................... 1.00% 01/25/43 3,926,721
52,242,307 Series 2012-151, Class PA.................................... 1.50% 01/25/43 51,238,967
653,167 Series 2012-409, Class 49, IO, STRIPS (f).................... 3.50% 11/25/41 79,641
898,838 Series 2012-409, Class 53, IO, STRIPS (f).................... 3.50% 04/25/42 112,580
162,819 Series 2012-409, Class C17, IO, STRIPS....................... 4.00% 11/25/41 27,085
690,000 Series 2013-10, Class HQ..................................... 2.50% 02/25/43 674,795
947,019 Series 2013-13, Class IK, IO................................. 2.50% 03/25/28 56,466
164,195 Series 2013-22, Class TS,
1 Mo. LIBOR (x) -1.50 + 6.08% (d)......................... 3.03% 03/25/43 176,611
46,402 Series 2013-23, Class ZB..................................... 3.00% 03/25/43 53,490
750,000 Series 2013-41, Class DB..................................... 3.00% 05/25/43 781,743
2,022,238 Series 2013-43, Class IX, IO................................. 4.00% 05/25/43 382,173
718,944 Series 2013-51, Class PI, IO................................. 3.00% 11/25/32 63,753
209,908 Series 2013-52, Class MD..................................... 1.25% 06/25/43 198,944
1,305,807 Series 2013-55, Class AI, IO................................. 3.00% 06/25/33 135,197
120,896 Series 2013-70, Class JZ..................................... 3.00% 07/25/43 126,256
262,873 Series 2013-75, Class FC, 1 Mo. LIBOR + 0.25% (a)............ 2.07% 07/25/42 263,319
567,219 Series 2013-94, Class CA..................................... 3.50% 08/25/38 575,525
188,224 Series 2013-103, Class IO, IO................................ 3.50% 03/25/38 9,656
379,979 Series 2013-105, Class BN.................................... 4.00% 05/25/43 424,200
362,422 Series 2013-105, Class KO, PO................................ (b) 10/25/43 346,571
195,852 Series 2013-106, Class KN.................................... 3.00% 10/25/43 193,635
540,750 Series 2013-117, Class AC.................................... 2.50% 04/25/36 541,518
517,105 Series 2013-128, Class PO, PO................................ (b) 12/25/43 461,701
1,003,000 Series 2013-130, Class QY.................................... 4.50% 06/25/41 1,184,402
5,094,865 Series 2013-417, Class C21, IO, STRIPS....................... 4.00% 12/25/42 774,376
255,686 Series 2014-29, Class GI, IO................................. 3.00% 05/25/29 20,079
9,563,000 Series 2014-44, Class NI, IO................................. 4.50% 08/25/29 701,622
1,750,193 Series 2014-46, Class KA (f)................................. 4.75% 08/25/44 1,941,527
360,231 Series 2014-68, Class GI, IO................................. 4.50% 10/25/43 42,089
534,041 Series 2014-82, Class GZ..................................... 4.00% 12/25/44 653,219
2,093,993 Series 2014-84, Class LI, IO................................. 3.50% 12/25/26 136,889
622,769 Series 2014-91, Class PB..................................... 3.00% 02/25/38 626,592
875,000 Series 2015-16, Class MY..................................... 3.50% 04/25/45 998,631
500,105 Series 2015-38, Class GI, IO................................. 3.00% 09/25/43 26,763
2,848,414 Series 2015-76, Class BI, IO................................. 4.00% 10/25/39 238,131
525,846 Series 2015-93, Class KI, IO................................. 3.00% 09/25/44 39,124
7,964,197 Series 2015-97, Class AI, IO................................. 4.00% 09/25/41 711,478
5,235,165 Series 2016-2, Class EZ...................................... 2.50% 02/25/46 5,288,784
11,235,815 Series 2016-44, Class Z...................................... 3.50% 07/25/46 12,245,340
14,470,463 Series 2016-62, Class SB, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.28% 09/25/46 2,314,574
1,563,034 Series 2016-71, Class NI, IO................................. 3.50% 04/25/46 195,888
12,082,417 Series 2016-73, Class PI, IO................................. 3.00% 08/25/46 1,347,452
612,249 Series 2016-74, Class HI, IO................................. 3.50% 10/25/46 92,214
707,437 Series 2016-84, Class DF, 1 Mo. LIBOR + 0.42% (a)............ 2.52% 11/25/46 706,733
1,762,595 Series 2016-87, Class AF, 1 Mo. LIBOR + 0.40% (a)............ 2.50% 11/25/46 1,755,372
</TABLE>
Page 20 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (Continued)
$ 597,364 Series 2017-46, Class BY..................................... 3.00% 06/25/47 $ 606,842
2,339,526 Series 2018-17, Class Z...................................... 3.50% 03/25/48 2,583,070
456,804 Series 2018-19, Class MA..................................... 3.00% 03/25/29 456,436
27,606,944 Series 2018-76, Class ZL..................................... 4.00% 10/25/58 34,090,888
12,557,063 Series 2018-86, Class DL..................................... 3.50% 12/25/48 13,149,997
16,120,384 Series 2018-92, Class DA..................................... 3.50% 11/25/46 16,496,771
3,957,386 Series 2018-92, Class DB..................................... 3.50% 01/25/49 4,155,942
5,466,787 Series 2018-94, Class AZ..................................... 4.00% 01/25/49 6,127,688
26,699,189 Series 2019-8, Class DY...................................... 3.50% 03/25/49 27,535,290
7,362,274 Series 2019-17, Class GZ..................................... 4.00% 11/25/56 8,613,822
31,779,506 Series 2019-26, Class GA..................................... 3.50% 06/25/49 32,808,221
15,107,583 Series 2019-27, Class HA..................................... 3.00% 06/25/49 15,322,234
17,985,588 Series 2019-29, Class HT..................................... 3.00% 06/25/49 18,262,174
19,470,836 Series 2019-34, Class JA..................................... 3.00% 07/25/49 19,911,916
35,526,924 Series 2019-34, Class LA..................................... 3.00% 07/25/49 36,025,736
15,054,783 Series 2019-37, Class A...................................... 3.00% 07/25/49 15,374,500
7,805,000 Series 2019-45, Class BU..................................... 3.00% 08/25/49 8,026,937
31,504,558 Series 2019-57, Class JA..................................... 2.50% 10/25/49 31,393,640
19,723,089 Series 2019-59, Class PT..................................... 2.50% 10/25/49 19,812,797
31,187,500 Series 2019-66, Class C...................................... 3.00% 11/25/49 31,550,460
50,000,000 Series 2019-68, Class KP..................................... 2.50% 11/25/49 49,525,391
Government National Mortgage Association
527,977 Series 2001-22, Class SE, IO,
1 Mo. LIBOR (x) -1 + 8.15%, 0.65% Cap (d)................. 0.65% 05/16/31 480
98,035 Series 2001-51, Class FA, 1 Mo. LIBOR + 0.50% (a)............ 2.41% 10/16/31 98,042
37,189 Series 2001-60, Class PZ..................................... 6.00% 12/20/31 37,183
164,309 Series 2002-72, Class ZB..................................... 6.00% 10/20/32 171,982
372,716 Series 2002-75, Class PJ..................................... 5.50% 11/20/32 391,575
321,744 Series 2003-4, Class MZ...................................... 5.50% 01/20/33 352,276
498,885 Series 2003-11, Class SM, IO,
1 Mo. LIBOR (x) -1 + 7.70% (d)............................ 5.79% 02/16/33 17,881
569,709 Series 2003-18, Class PG..................................... 5.50% 03/20/33 628,038
1,288,315 Series 2003-35, Class TZ..................................... 5.75% 04/16/33 1,420,626
280,791 Series 2003-42, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d)............................ 4.69% 07/16/31 23,321
1,188,133 Series 2003-42, Class SH, IO,
1 Mo. LIBOR (x) -1 + 6.55% (d)............................ 4.70% 05/20/33 76,940
109,768 Series 2003-62, Class MZ..................................... 5.50% 07/20/33 132,387
343,456 Series 2003-84, Class Z...................................... 5.50% 10/20/33 380,607
175,916 Series 2004-37, Class B...................................... 6.00% 04/17/34 199,474
461,070 Series 2004-49, Class MZ..................................... 6.00% 06/20/34 548,566
76,492 Series 2004-68, Class ZC..................................... 6.00% 08/20/34 85,830
96,409 Series 2004-71, Class ST,
1 Mo. LIBOR (x) -6.25 + 44.50%, 7.00% Cap (d)............. 7.00% 09/20/34 104,419
156,542 Series 2004-83, Class AK,
1 Mo. LIBOR (x) -3.00 + 16.49% (d)........................ 10.82% 10/16/34 207,861
751,440 Series 2004-88, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.21% 10/16/34 97,798
67,843 Series 2004-92, Class AK,
1 Mo. LIBOR (x) -3 + 16.50% (d)........................... 10.83% 11/16/34 93,313
1,463,010 Series 2004-92, Class BZ..................................... 5.50% 11/16/34 1,682,953
209,620 Series 2004-105, Class JZ.................................... 5.00% 12/20/34 239,618
63,749 Series 2004-105, Class KA.................................... 5.00% 12/16/34 70,554
68,241 Series 2004-109, Class BC.................................... 5.00% 11/20/33 69,298
208,750 Series 2005-3, Class JZ...................................... 5.00% 01/16/35 222,580
208,750 Series 2005-3, Class KZ...................................... 5.00% 01/16/35 234,688
</TABLE>
See Notes to Financial Statements Page 21
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 31,584 Series 2005-7, Class AJ,
1 Mo. LIBOR (x) -4 + 22.00% (d)........................... 14.44% 02/16/35 $ 48,269
200,490 Series 2005-7, Class KA,
1 Mo. LIBOR (x) -2.81 + 18.95% (d)........................ 13.64% 12/17/34 222,461
529,185 Series 2005-7, Class MA,
1 Mo. LIBOR (x) -2.81 + 18.95% (d)........................ 13.64% 12/17/34 620,836
168,716 Series 2005-33, Class AY..................................... 5.50% 04/16/35 187,129
169,667 Series 2005-41, Class PA..................................... 4.00% 05/20/35 183,357
501,510 Series 2005-44, Class IO, IO................................. 5.50% 07/20/35 78,688
398,076 Series 2005-93, Class PO, PO................................. (b) 06/20/35 376,595
435,732 Series 2006-17, Class TW..................................... 6.00% 04/20/36 491,120
500,000 Series 2006-38, Class OH..................................... 6.50% 08/20/36 599,509
167,642 Series 2006-61, Class ZA..................................... 5.00% 11/20/36 188,344
384,913 Series 2007-16, Class OZ..................................... 6.00% 04/20/37 462,801
240,174 Series 2007-27, Class SD, IO,
1 Mo. LIBOR (x) -1 + 6.20% (d)............................ 4.35% 05/20/37 34,144
188,110 Series 2007-41, Class OL, PO................................. (b) 07/20/37 175,671
335,100 Series 2007-42, Class SB, IO,
1 Mo. LIBOR (x) -1 + 6.75% (d)............................ 4.90% 07/20/37 52,534
164,043 Series 2007-68, Class NA..................................... 5.00% 11/20/37 179,343
974,262 Series 2007-71, Class ZD..................................... 6.00% 11/20/37 1,079,355
147,418 Series 2007-81, Class FZ, 1 Mo. LIBOR + 0.35% (a)............ 2.20% 12/20/37 146,936
32,100 Series 2008-6, Class CK...................................... 4.25% 10/20/37 32,106
159,113 Series 2008-16, Class PO, PO................................. (b) 02/20/38 148,505
15,313 Series 2008-20, Class PO, PO................................. (b) 09/20/37 14,964
64,689 Series 2008-29, Class PO, PO................................. (b) 02/17/33 63,976
139,760 Series 2008-33, Class XS, IO,
1 Mo. LIBOR (x) -1 + 7.70% (d)............................ 5.81% 04/16/38 23,097
40,566 Series 2008-47, Class MI, IO (e)............................. 6.00% 10/16/37 269
794,000 Series 2008-47, Class ML..................................... 5.25% 06/16/38 891,772
187,500 Series 2008-54, Class PE..................................... 5.00% 06/20/38 219,399
739,528 Series 2008-71, Class JI, IO................................. 6.00% 04/20/38 114,387
171,728 Series 2009-10, Class PA..................................... 4.50% 12/20/38 178,831
609,459 Series 2009-14, Class KF, 1 Mo. LIBOR + 0.70% (a)............ 2.55% 03/20/39 620,299
204,860 Series 2009-14, Class KI, IO................................. 6.50% 03/20/39 36,692
67,220 Series 2009-14, Class KS, IO,
1 Mo. LIBOR (x) -1 + 6.30% (d)............................ 4.45% 03/20/39 7,267
161,276 Series 2009-25, Class SE, IO,
1 Mo. LIBOR (x) -1 + 7.60% (d)............................ 5.75% 09/20/38 22,079
2,307,830 Series 2009-29, Class PC..................................... 7.00% 05/20/39 3,054,523
354,527 Series 2009-32, Class SZ..................................... 5.50% 05/16/39 439,335
629,996 Series 2009-42, Class BI, IO................................. 6.00% 06/20/39 99,720
77,335 Series 2009-53, Class AB..................................... 4.50% 10/16/38 78,104
3,732,581 Series 2009-57, Class VB..................................... 5.00% 06/16/39 4,355,617
894,726 Series 2009-61, Class OW, PO................................. (b) 11/16/35 820,426
226,436 Series 2009-61, Class PZ..................................... 7.50% 08/20/39 331,487
918,818 Series 2009-69, Class ZB..................................... 6.00% 08/20/39 1,072,572
1,216,081 Series 2009-72, Class SM, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 4.36% 08/16/39 232,374
455,000 Series 2009-75, Class JN..................................... 5.50% 09/16/39 565,552
106,848 Series 2009-76, Class PC..................................... 4.00% 03/16/39 108,127
532,137 Series 2009-78, Class KZ..................................... 5.50% 09/16/39 723,426
209,520 Series 2009-79, Class OK, PO................................. (b) 11/16/37 193,623
125,209 Series 2009-81, Class TZ..................................... 5.50% 09/20/39 160,564
1,544,049 Series 2009-87, Class EI, IO................................. 5.50% 08/20/39 205,857
136,570 Series 2009-93, Class WG..................................... 4.00% 09/20/38 137,019
39,000 Series 2009-94, Class AL..................................... 5.00% 10/20/39 45,885
253,307 Series 2009-106, Class DZ.................................... 5.50% 11/20/39 324,837
</TABLE>
Page 22 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 7,430,178 Series 2009-106, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d) (e)........................ 4.25% 04/20/36 $ 1,304,677
43,079 Series 2009-106, Class WZ.................................... 5.50% 11/16/39 57,650
392,117 Series 2009-116, Class MS, IO,
1 Mo. LIBOR (x) -1 + 6.50% (d)............................ 4.61% 11/16/38 10,098
6,377 Series 2009-118, Class KP.................................... 4.50% 05/20/38 6,448
732,000 Series 2009-126, Class LB.................................... 5.00% 12/20/39 871,345
116,580 Series 2010-3, Class MF, 1 Mo. LIBOR + 0.45% (a)............. 2.30% 11/20/38 116,703
52,000 Series 2010-4, Class WA...................................... 3.00% 01/16/40 53,165
181,174 Series 2010-7, Class BC...................................... 4.00% 09/16/24 183,754
151,330 Series 2010-11, Class HE..................................... 4.00% 04/20/39 153,344
25,862 Series 2010-14, Class AO, PO................................. (b) 12/20/32 25,596
1,914,827 Series 2010-14, Class BV, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 4.36% 02/16/40 315,236
30,364 Series 2010-29, Class CB..................................... 5.00% 12/20/38 30,548
917,566 Series 2010-42, Class CO, PO................................. (b) 06/16/39 899,252
2,509,031 Series 2010-46, Class FC, 1 Mo. LIBOR + 0.80% (a)............ 2.65% 03/20/35 2,558,014
773,315 Series 2010-59, Class ZD..................................... 6.50% 05/20/40 1,119,627
2,161,136 Series 2010-85, Class SL, IO,
1 Mo. LIBOR (x) -1 + 6.60% (d) (e)........................ 4.75% 07/20/37 281,410
87,000 Series 2010-116, Class BM.................................... 4.50% 09/16/40 106,951
2,722,797 Series 2010-116, Class JB.................................... 5.00% 06/16/40 3,107,511
449,009 Series 2010-129, Class PQ.................................... 3.00% 04/20/39 453,171
87,858 Series 2010-138, Class PD.................................... 3.50% 08/20/38 88,417
1,172,932 Series 2010-157, Class OP, PO................................ (b) 12/20/40 1,061,653
110,183 Series 2010-162, Class PQ.................................... 4.50% 06/16/39 111,229
447,944 Series 2010-166, Class DI, IO................................ 4.50% 02/20/39 38,516
134,626 Series 2011-4, Class PZ...................................... 5.00% 01/20/41 163,158
1,902,491 Series 2011-19, Class MI, IO................................. 5.00% 06/16/40 119,380
771,202 Series 2011-35, Class BP..................................... 4.50% 03/16/41 910,922
532,902 Series 2011-48, Class LI, IO................................. 5.50% 01/16/41 96,707
458,472 Series 2011-50, Class PZ..................................... 5.00% 04/20/41 588,073
141,311 Series 2011-63, Class BI, IO................................. 6.00% 02/20/38 16,760
110,308 Series 2011-69, Class HC..................................... 2.25% 05/20/38 110,352
1,122,009 Series 2011-71, Class ZC..................................... 5.50% 07/16/34 1,253,394
3,009,011 Series 2011-81, Class IC, IO,
1 Mo. LIBOR (x) -1 + 6.72%, 0.62% Cap (d)................. 0.62% 07/20/35 47,120
1,233,964 Series 2011-112, Class IP, IO................................ 0.50% 08/16/26 4,663
239,265 Series 2011-129, Class CL.................................... 5.00% 03/20/41 269,631
5,318 Series 2011-136, Class GB.................................... 2.50% 05/20/40 5,351
286,359 Series 2011-137, Class WA (f)................................ 5.56% 07/20/40 327,668
419,750 Series 2011-146, Class EI, IO................................ 5.00% 11/16/41 84,136
88,934 Series 2011-151, Class TB, IO,
1 Mo. LIBOR (x) -70 + 465.50%, 3.50% Cap (d).............. 3.50% 04/20/41 8,412
2,787,816 Series 2012-10, Class LI, IO................................. 3.50% 07/20/40 181,777
131,971 Series 2012-16, Class AG..................................... 2.50% 10/20/38 132,296
4,282,850 Series 2012-18, Class IA, IO,
1 Mo. LIBOR (x) -1 + 6.68%, 0.58% Cap (d)................. 0.58% 07/20/39 59,187
1,826,440 Series 2012-48, Class MI, IO................................. 5.00% 04/16/42 352,665
15,402,120 Series 2012-84, Class QS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.21% 07/16/42 2,535,648
6,711,842 Series 2012-84, Class SJ,
1 Mo. LIBOR (x) -0.57 + 2.51% (d)......................... 1.43% 07/16/42 6,282,443
</TABLE>
See Notes to Financial Statements Page 23
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 251,623 Series 2012-108, Class KB.................................... 2.75% 09/16/42 $ 255,678
5,512,352 Series 2012-143, Class IB, IO................................ 3.50% 12/20/39 161,847
10,108,840 Series 2012-143, Class TI, IO................................ 3.00% 12/16/27 769,504
3,109,824 Series 2012-149, Class PC (f)................................ 6.30% 12/20/42 3,655,733
25,177,800 Series 2013-4, Class IC, IO.................................. 4.00% 09/20/42 4,666,292
146,006 Series 2013-5, Class IA, IO.................................. 3.50% 10/16/42 20,716
1,593,976 Series 2013-10, Class DI, IO................................. 3.50% 09/20/42 186,131
392,376 Series 2013-20, Class KI, IO................................. 5.00% 01/20/43 57,293
2,223,000 Series 2013-20, Class QM..................................... 2.63% 02/16/43 2,233,458
2,635,878 Series 2013-22, Class IO, IO................................. 3.00% 02/20/43 350,553
8,042,757 Series 2013-23, Class IP, IO................................. 3.50% 08/20/42 1,147,989
4,152,507 Series 2013-53, Class OI, IO................................. 3.50% 04/20/43 541,313
3,534,609 Series 2013-69, Class AI, IO................................. 3.50% 05/20/43 613,308
438,334 Series 2013-69, Class PI, IO................................. 5.00% 05/20/43 60,433
953,680 Series 2013-70, Class PM..................................... 2.50% 05/20/43 913,771
4,629,000 Series 2013-91, Class PB..................................... 3.50% 09/20/42 4,803,702
1,905,702 Series 2013-130, Class WS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.25% 09/20/43 351,289
8,303,592 Series 2013-170, Class IG, IO................................ 5.50% 11/16/43 1,246,192
688,000 Series 2013-183, Class PB.................................... 4.50% 12/20/43 787,065
161,724 Series 2013-188, Class CF, 1 Mo. LIBOR + 0.45% (a)........... 2.30% 03/20/43 161,783
7,382,738 Series 2014-6, Class IJ, IO.................................. 4.50% 06/16/43 786,138
24,447,548 Series 2014-30, Class EA (f)................................. 2.02% 02/16/44 24,756,589
5,911,697 Series 2014-44, Class IC, IO................................. 3.00% 04/20/28 409,804
13,568,874 Series 2014-44, Class ID, IO (c) (f)......................... 0.34% 03/16/44 152,962
66,507 Series 2014-91, Class JI, IO................................. 4.50% 01/20/40 6,148
902,182 Series 2014-94, Class Z...................................... 4.50% 01/20/44 1,042,231
5,956,638 Series 2014-99, Class HI, IO................................. 4.50% 06/20/44 894,379
9,803,919 Series 2014-115, Class QI, IO................................ 3.00% 03/20/29 634,113
5,205,901 Series 2014-116, Class SB, IO,
1 Mo. LIBOR (x) -1 + 5.60% (d)............................ 3.75% 08/20/44 950,398
3,388,399 Series 2014-118, Class TV, IO,
1 Mo. LIBOR (x) -1 + 6.25% (d)............................ 4.40% 05/20/44 585,368
5,955,666 Series 2014-178, Class LT.................................... 2.00% 11/20/43 5,966,482
6,503,707 Series 2015-3, Class ZD...................................... 4.00% 01/20/45 7,711,026
20,608,821 Series 2015-40, Class IO, IO................................. 4.00% 03/20/45 3,382,419
10,084,888 Series 2015-66, Class LI, IO................................. 5.00% 05/16/45 1,548,356
69,456 Series 2015-95, Class IK, IO (e) (f)......................... 1.24% 05/16/37 2,010
20,166,584 Series 2015-99, Class EI, IO................................. 5.50% 07/16/45 4,529,302
440,039 Series 2015-100, Class AI, IO................................ 3.50% 03/20/39 9,611
29,274,030 Series 2015-119, Class TI, IO................................ 3.50% 05/20/41 1,938,011
22,579,541 Series 2015-124, Class DI, IO................................ 3.50% 01/20/38 1,887,376
495,837 Series 2015-137, Class WA (c) (f)............................ 5.48% 01/20/38 567,337
1,114,702 Series 2015-138, Class MI, IO................................ 4.50% 08/20/44 138,797
288,855 Series 2015-151, Class KW (f)................................ 5.79% 04/20/34 311,512
7,697,774 Series 2015-168, Class GI, IO................................ 5.50% 02/16/33 1,728,210
178,580 Series 2016-16, Class KZ..................................... 3.00% 02/16/46 182,520
506,162 Series 2016-55, Class PB (f)................................. 6.07% 03/20/31 547,637
2,339,232 Series 2016-69, Class WI, IO................................. 4.50% 05/20/46 430,943
1,140,225 Series 2016-75, Class SA, IO,
1 Mo. LIBOR (x) -1 + 6.00% (d)............................ 4.15% 05/20/40 181,893
1,505,358 Series 2016-78, Class UI, IO................................. 4.00% 06/20/46 189,325
5,403,611 Series 2016-89, Class HI, IO................................. 3.50% 07/20/46 823,958
</TABLE>
Page 24 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association (Continued)
$ 651,987 Series 2016-99, Class JA (f)................................. 5.53% 11/20/45 $ 745,938
928,251 Series 2016-109, Class ZM.................................... 3.50% 08/20/36 1,002,672
12,039,688 Series 2016-111, Class PI, IO................................ 3.50% 06/20/45 1,396,976
1,452,334 Series 2016-118, Class GI, IO................................ 4.50% 02/16/40 244,286
15,387,161 Series 2016-120, Class AS, IO,
1 Mo. LIBOR (x) -1 + 6.10% (d)............................ 4.25% 09/20/46 3,477,128
464,000 Series 2016-141, Class PC.................................... 5.00% 10/20/46 592,743
300,863 Series 2016-145, Class LZ.................................... 3.00% 10/20/46 310,249
1,850,300 Series 2016-154, Class WF, 1 Mo. LIBOR + 0.40% (a)........... 2.43% 11/20/45 1,847,222
303,000 Series 2016-160, Class LE.................................... 2.50% 11/20/46 281,938
376,897 Series 2016-167, Class KI, IO................................ 6.00% 12/16/46 74,595
839,124 Series 2017-17, Class KZ..................................... 4.50% 02/20/47 1,044,641
5,201,850 Series 2017-32, Class IB, IO................................. 5.00% 02/16/47 852,142
9,175,869 Series 2017-56, Class BI, IO................................. 6.00% 04/16/47 2,031,403
20,933,184 Series 2017-57, Class IO, IO................................. 5.00% 04/20/47 3,571,754
6,235,340 Series 2017-113, Class IE, IO................................ 5.50% 07/20/47 1,186,874
9,486,423 Series 2017-130, Class LS, IO,
1 Mo. LIBOR (x) -1 + 6.20% (d)............................ 4.31% 08/16/47 2,115,995
10,254,204 Series 2017-133, Class JI, IO................................ 7.00% 06/20/41 2,196,979
8,443,518 Series 2017-186, Class TI, IO,
1 Mo. LIBOR (x) -1 + 6.50%, 0.50% Cap (d)................. 0.50% 05/20/40 109,857
849,073 Series 2018-44, Class Z...................................... 2.50% 09/20/47 797,303
3,711,000 Series 2018-53, Class VA..................................... 3.50% 07/20/29 3,971,161
4,947,767 Series 2018-78, Class EZ..................................... 3.00% 04/20/48 5,041,823
10,279,321 Series 2018-79, Class IO, IO................................. 5.00% 06/20/48 2,039,132
13,175,797 Series 2018-89, Class A...................................... 3.50% 06/20/39 13,321,154
3,202,321 Series 2018-120, Class G..................................... 3.50% 09/20/48 3,196,336
12,433,246 Series 2018-131, Class IA, IO................................ 5.00% 04/20/44 2,095,170
10,000,000 Series 2018-134, Class KB.................................... 3.50% 10/20/48 10,442,360
10,556,000 Series 2018-155, Class KD.................................... 4.00% 11/20/48 11,327,969
10,908,217 Series 2018-160, Class GY.................................... 4.50% 11/20/48 12,049,220
7,464,267 Series 2019-6, Class EI, IO.................................. 5.00% 09/20/39 1,186,233
12,488,006 Series 2019-18, Class TP..................................... 3.50% 02/20/49 13,159,611
2,181,361 Series 2019-27, Class DI, IO................................. 5.50% 01/20/40 394,208
4,657,345 Series 2019-98, Class UZ..................................... 2.50% 08/20/49 4,581,532
Vendee Mortgage Trust
3,454,576 Series 2003-2, Class Z....................................... 5.00% 05/15/33 3,803,801
39,094 Series 2010-1, Class DA...................................... 4.25% 02/15/35 39,964
----------------
1,068,464,612
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 11.2%
Fannie Mae - Aces
50,000 Series 2013-M6, Class 1AC (c)................................ 3.55% 02/25/43 54,069
Freddie Mac Multifamily Structured Pass Through Certificates
221,507 Series 2010-K005, Class A2................................... 4.32% 11/25/19 221,153
89,717,360 Series 2011-K016, Class X1, IO (c)........................... 1.48% 10/25/21 2,220,908
61,062,092 Series 2012-K019, Class X1, IO (c)........................... 1.60% 03/25/22 1,991,790
67,612,359 Series 2012-K020, Class X1, IO (c)........................... 1.39% 05/25/22 2,021,319
126,127,513 Series 2013-K030, Class X1, IO (c)........................... 0.19% 04/25/23 761,293
79,885,985 Series 2014-K036, Class X1, IO (c)........................... 0.74% 10/25/23 2,076,948
21,598,714 Series 2014-K714, Class X3, IO (c)........................... 1.79% 01/25/42 388,829
96,155,388 Series 2015-K721, Class X1, IO (c)........................... 0.33% 08/25/22 808,888
</TABLE>
See Notes to Financial Statements Page 25
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
Freddie Mac Multifamily Structured Pass Through Certificates
(Continued)
$ 188,321,077 Series 2016-KIR1, Class X, IO (c)............................ 1.07% 03/25/26 $ 10,934,506
7,703,829 Series 2017-KIR2, Class A1................................... 2.75% 03/25/27 7,927,103
282,947,727 Series 2018-K086, Class X1, IO (c)........................... 0.24% 11/25/28 6,216,475
144,773,251 Series 2018-K156, Class X1, IO (c)........................... 0.07% 06/25/33 1,674,867
353,334,174 Series 2018-K158, Class X1, IO (c)........................... 0.07% 10/25/33 4,579,564
113,713,222 Series 2018-K159, Class X1, IO (c)........................... 0.11% 11/25/33 1,775,166
5,840,000 Series 2018-K731, Class A2 (c)............................... 3.60% 02/25/25 6,236,204
28,675,531 Series 2019-1510, Class X1, IO (c)........................... 0.48% 01/25/34 1,527,001
123,474,099 Series 2019-1511, Class X1, IO (c)........................... 0.78% 03/25/34 10,298,542
159,136,118 Series 2019-1512, Class X1, IO (c)........................... 0.91% 04/25/34 15,058,510
57,749,423 Series 2019-1513, Class X1, IO (c)........................... 1.00% 08/25/34 5,289,501
40,631,053 Series 2019-K094, Class X1, IO (c)........................... 0.88% 06/25/29 2,961,797
57,000,000 Series 2019-K099, Class X1, IO (c)........................... 1.01% 09/25/29 4,276,750
57,790,000 Series 2019-K099, Class XAM, IO (c).......................... 1.26% 09/25/29 5,859,426
104,414,228 Series 2019-K734, Class X1, IO (c)........................... 0.65% 02/25/26 3,730,835
68,018,000 Series 2019-K734, Class XAM, IO (c).......................... 0.42% 02/25/26 1,808,174
44,989,410 Series 2019-K735, Class X1, IO (c)........................... 0.97% 05/25/26 2,502,729
116,271,882 Series 2019-K736, Class X1, IO (c)........................... 1.31% 07/25/26 8,576,435
FREMF Mortgage Trust
7,074,000 Series 2010-K9, Class B (c) (g).............................. 5.21% 09/25/45 7,214,464
8,877,000 Series 2011-K10, Class B (c) (g)............................. 4.62% 11/25/49 9,064,132
23,000,906 Series 2011-K11, Class B (c) (g)............................. 4.42% 12/25/48 23,510,933
7,590,000 Series 2011-K14, Class B (c) (g)............................. 5.18% 02/25/47 7,907,304
3,000,000 Series 2011-K15, Class B (c) (g)............................. 4.96% 08/25/44 3,128,251
12,750,000 Series 2013-K712, Class B (c) (g)............................ 3.26% 05/25/45 12,737,826
5,805,000 Series 2013-K713, Class B (c) (g)............................ 3.15% 04/25/46 5,815,043
11,771,000 Series 2014-K715, Class B (c) (g)............................ 3.97% 02/25/46 12,001,987
2,260,829 Series 2015-K721, Class B (c) (g)............................ 3.57% 11/25/47 2,329,373
10,000,000 Series 2019-K736, Class B (c) (g)............................ 3.76% 07/25/26 10,466,498
Government National Mortgage Association
3,211,783 Series 2011-31, Class Z (f).................................. 3.85% 09/16/52 3,419,568
17,517,197 Series 2012-120, Class Z (f)................................. 2.60% 01/16/55 16,598,324
614,262 Series 2013-32, Class A...................................... 1.90% 06/16/36 612,843
532,000 Series 2013-57, Class D (f).................................. 2.35% 06/16/46 522,129
100,000 Series 2013-74, Class AG (c)................................. 2.81% 12/16/53 100,162
23,585 Series 2013-194, Class AE (f)................................ 2.75% 11/16/44 23,884
23,000,000 Series 2014-153, Class D (f)................................. 3.00% 04/16/56 23,498,953
14,916,188 Series 2015-30, Class DZ..................................... 2.95% 05/16/55 15,243,108
68,071,450 Series 2015-30, Class IO, IO (f)............................. 1.02% 07/16/56 4,258,482
24,094,908 Series 2015-70, Class IO, IO (f)............................. 1.03% 12/16/49 1,440,914
62,843,175 Series 2015-107, Class IO, IO (f)............................ 0.88% 03/16/57 3,176,546
5,817,879 Series 2015-125, Class VA (f)................................ 2.70% 05/16/35 5,932,287
53,886,715 Series 2016-2, Class IO, IO (f).............................. 0.91% 04/16/57 3,628,704
36,614,229 Series 2016-11, Class IO, IO (f)............................. 0.88% 01/16/56 2,210,778
24,644,441 Series 2016-26, Class IO, IO (f)............................. 0.95% 02/16/58 1,670,568
94,005,402 Series 2016-28, Class IO, IO (f)............................. 0.91% 12/16/57 6,041,069
64,348,574 Series 2016-34, Class IO, IO (f)............................. 0.98% 01/16/58 4,653,547
68,066,504 Series 2016-35, Class IO, IO (f)............................. 0.87% 03/16/58 4,537,783
45,204,197 Series 2016-36, Class IO, IO (f)............................. 0.94% 08/16/57 3,160,393
63,583,350 Series 2016-50, Class IO, IO (f)............................. 1.04% 08/16/57 4,336,353
</TABLE>
Page 26 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
Government National Mortgage Association (Continued)
$ 37,839,902 Series 2016-52, Class IO, IO (f)............................. 0.92% 03/16/58 $ 2,537,453
63,373,810 Series 2016-64, Class IO, IO (f)............................. 0.96% 12/16/57 4,149,159
4,652,333 Series 2016-110, Class VA.................................... 2.10% 01/16/38 4,530,336
24,614,829 Series 2016-127, Class IO, IO (f)............................ 0.95% 05/16/58 1,814,475
249,195,474 Series 2016-131, Class IO, IO (f)............................ 0.99% 08/16/58 19,587,587
131,445,645 Series 2016-133, Class IO, IO (f)............................ 1.06% 12/16/57 9,408,853
111,948,760 Series 2016-143, Class IO, IO................................ 0.96% 10/16/56 8,781,149
40,988,770 Series 2016-152, Class IO, IO (c)............................ 0.91% 08/15/58 2,835,033
72,837,097 Series 2016-158, Class IO, IO (f)............................ 0.91% 06/16/58 5,191,784
102,613,078 Series 2016-166, Class IO, IO (f)............................ 1.09% 04/16/58 8,187,836
3,845,621 Series 2017-35, Class Z (f).................................. 2.50% 05/16/59 3,516,503
7,390,000 Series 2017-90, Class B...................................... 2.75% 12/16/57 7,397,553
28,821,132 Series 2018-2, Class IO, IO (f).............................. 0.79% 12/16/59 1,939,662
8,752,685 Series 2018-150, Class Z..................................... 3.20% 02/16/60 8,765,793
16,992,780 Series 2019-7, Class Z....................................... 2.50% 01/16/61 15,297,052
1,731,305 Series 2019-104, Class Z..................................... 2.80% 05/16/61 1,675,264
2,244,645 Series 2019-113, Class Z..................................... 3.00% 06/16/61 2,169,943
1,481,615 Series 2019-122, Class Z..................................... 3.00% 07/16/61 1,463,153
----------------
420,269,576
----------------
PASS-THROUGH SECURITIES -- 37.8%
Federal Home Loan Mortgage Corporation
3,776,777 Pool 760043, 5 Yr. Constant Maturity Treasury Rate +
1.39% (a)................................................. 3.00% 12/01/48 3,848,055
12,190,068 Pool 840359, 12 Mo. LIBOR + 1.63% (a)........................ 4.46% 06/01/46 12,592,366
167,244 Pool A19763.................................................. 5.00% 04/01/34 185,754
74,955 Pool A47333.................................................. 5.00% 10/01/35 82,845
672,117 Pool A47828.................................................. 3.50% 08/01/35 692,545
370,205 Pool A47829.................................................. 4.00% 08/01/35 386,425
371,207 Pool A47937.................................................. 5.50% 08/01/35 414,576
129,032 Pool A48972.................................................. 5.50% 05/01/36 145,119
94,640 Pool A54675.................................................. 5.50% 01/01/36 106,675
250,854 Pool A65324.................................................. 5.50% 09/01/37 277,993
84,763 Pool A86143.................................................. 5.00% 05/01/39 93,568
29,828 Pool A90319.................................................. 5.00% 12/01/39 33,007
441,412 Pool A92197.................................................. 5.00% 05/01/40 488,069
12,204 Pool A93093.................................................. 4.50% 07/01/40 13,243
16,848 Pool A93891.................................................. 4.00% 09/01/40 18,159
25,721 Pool A94729.................................................. 4.00% 11/01/40 27,712
89,963 Pool A94843.................................................. 4.00% 11/01/40 96,935
338,684 Pool A95441.................................................. 4.00% 12/01/40 358,747
35,985 Pool A95653.................................................. 4.00% 12/01/40 38,778
57,734 Pool A95728.................................................. 4.00% 12/01/40 62,210
76,132 Pool A96380.................................................. 4.00% 01/01/41 81,552
225,529 Pool A97294.................................................. 4.00% 02/01/41 241,546
990,737 Pool B70791.................................................. 4.00% 06/01/39 1,058,262
6,045 Pool C01310.................................................. 6.50% 03/01/32 6,855
19,135 Pool C01574.................................................. 5.00% 06/01/33 21,159
21,767 Pool C03458.................................................. 5.00% 02/01/40 24,075
70,585 Pool C03949.................................................. 3.50% 05/01/42 74,234
</TABLE>
See Notes to Financial Statements Page 27
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 177,738 Pool C04269.................................................. 3.00% 10/01/42 $ 183,508
341,775 Pool C91167.................................................. 5.00% 04/01/28 365,314
246,609 Pool C91353.................................................. 3.50% 01/01/31 253,369
538,736 Pool C91366.................................................. 4.50% 04/01/31 578,811
41,387 Pool C91482.................................................. 3.50% 07/01/32 43,137
38,627 Pool E02883.................................................. 4.00% 04/01/26 40,396
28,503 Pool G01443.................................................. 6.50% 08/01/32 32,212
72,454 Pool G01737.................................................. 5.00% 12/01/34 80,114
39,547 Pool G01840.................................................. 5.00% 07/01/35 43,724
440,386 Pool G02017.................................................. 5.00% 12/01/35 492,452
88,655 Pool G03072.................................................. 5.00% 11/01/36 97,944
421,563 Pool G04593.................................................. 5.50% 01/01/37 474,997
43,291 Pool G04632.................................................. 5.00% 11/01/36 47,857
203,600 Pool G04814.................................................. 5.50% 10/01/38 228,689
45,426 Pool G04913.................................................. 5.00% 03/01/38 50,228
45,097 Pool G05173.................................................. 4.50% 11/01/31 47,974
627,246 Pool G05275.................................................. 5.50% 02/01/39 685,711
135,633 Pool G05449.................................................. 4.50% 05/01/39 147,163
515,083 Pool G05792.................................................. 4.50% 02/01/40 559,048
401,003 Pool G05927.................................................. 4.50% 07/01/40 438,912
32,515 Pool G06252.................................................. 4.00% 02/01/41 34,826
630,968 Pool G06359.................................................. 4.00% 02/01/41 675,837
99,241 Pool G06501.................................................. 4.00% 04/01/41 106,295
99,725 Pool G06583.................................................. 5.00% 06/01/41 112,146
172,990 Pool G06687.................................................. 5.00% 07/01/41 192,511
98,649 Pool G06739.................................................. 4.50% 09/01/41 107,068
541,535 Pool G07025.................................................. 5.00% 02/01/42 597,331
742,983 Pool G07100.................................................. 5.50% 07/01/40 834,423
17,081 Pool G07219.................................................. 5.00% 10/01/41 18,659
100,274 Pool G07266.................................................. 4.00% 12/01/42 107,245
633,011 Pool G07329.................................................. 4.00% 01/01/43 676,993
690,353 Pool G07683.................................................. 4.00% 03/01/44 732,539
740,439 Pool G07806.................................................. 5.00% 06/01/41 818,501
3,578 Pool G08113.................................................. 6.50% 02/01/36 4,019
4,796,538 Pool G08854.................................................. 5.00% 12/01/48 5,128,120
3,085 Pool G11713.................................................. 5.50% 06/01/20 3,092
11,861 Pool G11769.................................................. 5.00% 10/01/20 12,260
16,062 Pool G11833.................................................. 5.00% 11/01/20 16,558
2,289 Pool G11880.................................................. 5.00% 12/01/20 2,363
63,166 Pool G12312.................................................. 6.00% 09/01/21 64,696
47,420 Pool G12797.................................................. 6.50% 02/01/22 48,312
105,675 Pool G12959.................................................. 6.50% 10/01/22 110,201
4,316 Pool G12978.................................................. 5.50% 12/01/22 4,466
1,813 Pool G13044.................................................. 4.50% 06/01/21 1,870
1,628 Pool G13581.................................................. 5.50% 11/01/21 1,633
51,821 Pool G13623.................................................. 4.50% 08/01/24 53,992
66,424 Pool G13625.................................................. 5.50% 01/01/24 69,186
107,641 Pool G13733.................................................. 5.00% 11/01/24 111,850
94,616 Pool G14088.................................................. 4.00% 02/01/26 98,739
168,011 Pool G14106.................................................. 6.00% 10/01/24 173,474
</TABLE>
Page 28 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 45,041 Pool G14167.................................................. 5.50% 07/01/23 $ 46,841
116,791 Pool G14233.................................................. 6.00% 01/01/24 119,165
974,598 Pool G14348.................................................. 4.00% 10/01/26 1,017,084
43,110 Pool G14376.................................................. 4.00% 09/01/25 44,951
56,561 Pool G14676.................................................. 4.50% 09/01/26 58,957
293 Pool G14791.................................................. 6.00% 05/01/21 294
355,994 Pool G14995.................................................. 5.50% 12/01/24 368,202
137,756 Pool G15019.................................................. 4.50% 07/01/26 142,078
52,883 Pool G15039.................................................. 4.50% 09/01/26 55,122
53,177 Pool G15725.................................................. 4.50% 09/01/26 55,877
12,088 Pool G15821.................................................. 5.00% 07/01/25 12,473
232,698 Pool G15949.................................................. 4.00% 01/01/29 242,798
223,757 Pool G15957.................................................. 5.50% 12/01/24 228,509
15,303 Pool G18100.................................................. 5.00% 02/01/21 15,777
390,683 Pool G18264.................................................. 5.00% 07/01/23 405,206
316,625 Pool G18287.................................................. 5.50% 12/01/23 331,098
108,697 Pool G18306.................................................. 4.50% 04/01/24 113,254
17,459 Pool G60020.................................................. 4.50% 12/01/43 18,966
824,910 Pool G60114.................................................. 5.50% 06/01/41 929,018
1,284,402 Pool G60168.................................................. 4.50% 07/01/45 1,383,105
446,296 Pool G60194.................................................. 3.50% 08/01/45 470,428
425,548 Pool G60737.................................................. 4.50% 08/01/42 461,728
1,244,476 Pool G60762.................................................. 5.00% 07/01/41 1,375,457
302,749 Pool G60806.................................................. 5.00% 12/01/44 333,667
479,441 Pool G60808.................................................. 3.00% 10/01/46 492,802
7,596,974 Pool G60921.................................................. 4.50% 02/01/47 8,062,659
19,506,978 Pool G60940.................................................. 4.00% 09/01/46 20,759,827
7,818,527 Pool G61160.................................................. 4.50% 11/01/45 8,402,690
17,655 Pool H09034.................................................. 5.50% 05/01/37 19,397
3,362 Pool J03523.................................................. 5.00% 09/01/21 3,466
45,954 Pool J05364.................................................. 6.00% 08/01/22 47,150
250,641 Pool J09465.................................................. 4.00% 04/01/24 261,345
112,672 Pool J09504.................................................. 4.00% 04/01/24 117,484
35,533 Pool J09798.................................................. 4.00% 05/01/24 37,051
65,190 Pool J10623.................................................. 4.00% 09/01/24 67,974
778,394 Pool J10827.................................................. 4.50% 10/01/24 811,228
241,860 Pool N70075.................................................. 5.00% 01/01/35 259,571
469,474 Pool N70081.................................................. 5.50% 07/01/38 522,760
70,703 Pool O20138.................................................. 5.00% 11/01/30 76,456
1,083,111 Pool Q00841.................................................. 4.50% 05/01/41 1,175,181
130,948 Pool Q03139.................................................. 4.00% 09/01/41 140,303
47,742 Pool Q04031.................................................. 4.00% 10/01/41 51,987
36,729 Pool Q04905.................................................. 4.00% 12/01/41 40,010
67,307 Pool Q05035.................................................. 4.00% 12/01/41 72,097
62,183 Pool Q05173.................................................. 4.00% 12/01/41 67,634
46,273 Pool Q05181.................................................. 4.00% 12/01/41 50,407
33,521 Pool Q05445.................................................. 4.00% 01/01/42 36,501
130,486 Pool Q07189.................................................. 4.00% 04/01/42 139,637
45,017 Pool Q07479.................................................. 3.50% 04/01/42 47,289
143,640 Pool Q11791.................................................. 3.50% 10/01/42 150,889
</TABLE>
See Notes to Financial Statements Page 29
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Continued)
$ 93,267 Pool Q11836.................................................. 3.50% 10/01/42 $ 98,435
673,815 Pool Q14034.................................................. 3.50% 12/01/42 715,716
2,649,373 Pool Q43309.................................................. 4.00% 09/01/46 2,831,277
6,624,639 Pool Q45763.................................................. 4.00% 01/01/47 7,078,164
4,983,391 Pool Q50564.................................................. 4.50% 09/01/47 5,264,623
13,126,985 Pool Q53219.................................................. 4.50% 12/01/47 14,209,373
8,275,973 Pool Q53875.................................................. 4.00% 01/01/48 8,750,574
980,450 Pool Q54651.................................................. 4.50% 03/01/48 1,088,312
1,775,909 Pool Q55037.................................................. 4.50% 04/01/48 1,976,398
17,897,388 Pool Q55152.................................................. 4.50% 04/01/48 19,115,694
5,248,607 Pool Q56260.................................................. 5.00% 05/01/48 5,780,148
7,651,411 Pool Q58363.................................................. 5.00% 09/01/48 8,194,097
25,396,562 Pool Q63173.................................................. 4.00% 04/01/49 26,543,164
5,385,845 Pool QA0162.................................................. 4.50% 06/01/49 5,673,070
29,996,215 Pool RA1624.................................................. 4.00% 08/01/49 32,036,327
19,929,236 Pool SD8021.................................................. 2.50% 09/01/49 19,823,383
606,722 Pool U50165.................................................. 4.00% 05/01/32 636,108
3,086,080 Pool U59020.................................................. 4.00% 06/01/35 3,235,315
2,601,191 Pool U64762.................................................. 4.50% 10/01/45 2,817,332
12,831,529 Pool U69020.................................................. 5.00% 07/01/44 14,055,797
13,989,157 Pool U69040.................................................. 4.00% 05/01/45 14,863,583
7,429,536 Pool U69041.................................................. 5.00% 11/01/43 8,128,170
30,145,947 Pool U69055.................................................. 4.50% 10/01/47 32,651,617
4,434,250 Pool U79023.................................................. 3.50% 10/01/28 4,605,606
231,569 Pool U80068.................................................. 3.50% 10/01/32 239,788
126,999 Pool U80212.................................................. 3.50% 02/01/33 131,507
159,816 Pool U90245.................................................. 3.50% 10/01/42 167,708
76,779 Pool U90291.................................................. 4.00% 10/01/42 81,614
766,308 Pool U90316.................................................. 4.00% 10/01/42 814,562
747,503 Pool U90490.................................................. 4.00% 06/01/42 794,805
1,927,824 Pool U90690.................................................. 3.50% 06/01/42 2,022,944
22,352 Pool U90932.................................................. 3.00% 02/01/43 23,062
223,473 Pool U90975.................................................. 4.00% 06/01/42 237,466
527,567 Pool U91254.................................................. 4.00% 04/01/43 560,973
1,903,498 Pool U91619.................................................. 4.00% 06/01/43 2,025,112
59,392 Pool U92272.................................................. 4.50% 12/01/43 64,100
745,704 Pool U92432.................................................. 4.00% 02/01/44 792,666
50,377 Pool U95137.................................................. 4.00% 08/01/43 53,561
201,956 Pool U99045.................................................. 3.50% 03/01/43 211,887
238,561 Pool U99084.................................................. 4.50% 02/01/44 257,447
113,682 Pool U99091.................................................. 4.50% 03/01/44 122,699
328,682 Pool U99096.................................................. 4.50% 05/01/44 354,561
3,452,815 Pool U99134.................................................. 4.00% 01/01/46 3,679,751
8,604,340 Pool U99184.................................................. 4.00% 08/01/43 9,148,742
825,533 Pool V80910.................................................. 4.00% 12/01/43 878,694
Federal National Mortgage Association
79,773 Pool 190371.................................................. 6.50% 07/01/36 92,671
29,271 Pool 254636.................................................. 5.00% 02/01/33 32,017
44,904 Pool 255190.................................................. 5.50% 05/01/34 50,561
33,281 Pool 255984.................................................. 4.50% 11/01/25 34,965
</TABLE>
Page 30 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 215,711 Pool 256181.................................................. 5.50% 03/01/36 $ 234,721
661,812 Pool 256576.................................................. 5.50% 01/01/37 725,567
36,619 Pool 256808.................................................. 5.50% 07/01/37 39,724
119,420 Pool 256936.................................................. 6.00% 10/01/37 129,191
36,565 Pool 257281.................................................. 5.00% 07/01/28 39,073
90,020 Pool 545759.................................................. 6.50% 07/01/32 102,336
20,644 Pool 555851.................................................. 6.50% 01/01/33 23,511
363,210 Pool 683246.................................................. 5.50% 02/01/33 409,175
275,013 Pool 725014.................................................. 5.50% 12/01/33 309,546
434,423 Pool 734922.................................................. 4.50% 09/01/33 468,915
610,224 Pool 735415.................................................. 6.50% 12/01/32 696,722
5,591 Pool 745875.................................................. 6.50% 09/01/36 6,522
51,313 Pool 747097.................................................. 6.00% 10/01/29 55,238
546,193 Pool 788149.................................................. 5.50% 05/01/33 605,019
294,029 Pool 812741.................................................. 5.50% 02/01/35 320,912
457,457 Pool 827948.................................................. 5.50% 05/01/35 502,841
432,094 Pool 850000.................................................. 5.50% 01/01/36 487,361
86,563 Pool 871039.................................................. 5.50% 02/01/37 94,765
1,860,270 Pool 879015.................................................. 4.00% 10/01/35 1,970,006
208,848 Pool 888001.................................................. 5.50% 10/01/36 236,260
168,756 Pool 888163.................................................. 7.00% 12/01/33 197,781
37,509 Pool 888435.................................................. 5.50% 06/01/22 38,657
580,298 Pool 889610.................................................. 5.50% 06/01/38 648,486
416,172 Pool 889834.................................................. 5.00% 12/01/35 459,826
20,347 Pool 890149.................................................. 6.50% 10/01/38 23,618
51,945 Pool 890231.................................................. 5.00% 07/01/25 53,880
100,313 Pool 890314.................................................. 5.50% 12/01/22 102,900
23,335 Pool 890378.................................................. 6.00% 05/01/24 24,416
1,306,096 Pool 890556.................................................. 4.50% 10/01/43 1,454,139
486,031 Pool 890561.................................................. 4.50% 01/01/27 504,249
1,169,171 Pool 890736.................................................. 5.00% 07/01/30 1,250,128
248,661 Pool 905917.................................................. 5.50% 01/01/37 281,125
128,231 Pool 922386.................................................. 5.50% 01/01/37 136,523
17,650 Pool 930562.................................................. 5.00% 02/01/39 19,786
186,631 Pool 931808.................................................. 5.50% 08/01/39 209,857
199,132 Pool 953115.................................................. 5.50% 11/01/38 214,700
145,813 Pool 962556.................................................. 5.00% 04/01/23 150,313
59,218 Pool 973561.................................................. 5.00% 03/01/23 61,333
74,245 Pool 976871.................................................. 6.50% 08/01/36 84,148
71,682 Pool 995002.................................................. 5.00% 07/01/37 79,190
22,563 Pool 995097.................................................. 6.50% 10/01/37 26,032
143,013 Pool 995149.................................................. 6.50% 10/01/38 164,757
60,086 Pool 995228.................................................. 6.50% 11/01/38 69,910
214,312 Pool 995252.................................................. 5.00% 12/01/23 221,544
77,155 Pool 995259.................................................. 6.50% 11/01/23 81,240
31,050 Pool AA0916.................................................. 5.00% 08/01/37 34,277
141,085 Pool AA3303.................................................. 5.50% 06/01/38 159,479
777,691 Pool AB0460.................................................. 5.50% 02/01/37 883,535
312,067 Pool AB0731.................................................. 4.00% 06/01/39 332,719
8,924 Pool AB1576.................................................. 4.00% 10/01/20 9,301
</TABLE>
See Notes to Financial Statements Page 31
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 86,708 Pool AB1953.................................................. 4.00% 12/01/40 $ 92,844
68,312 Pool AB2092.................................................. 4.00% 01/01/41 73,231
55,442 Pool AB2133.................................................. 4.00% 01/01/26 57,827
205,322 Pool AB2265.................................................. 4.00% 02/01/41 221,254
32,342 Pool AB2467.................................................. 4.50% 03/01/41 35,405
1,182,165 Pool AB2506.................................................. 5.00% 03/01/41 1,301,285
2,003,853 Pool AB2959.................................................. 4.50% 07/01/40 2,192,283
144,867 Pool AB5174.................................................. 3.50% 05/01/42 152,264
156,313 Pool AB5919.................................................. 3.00% 08/01/42 161,388
104,908 Pool AB6632.................................................. 3.50% 10/01/42 110,129
317,827 Pool AB6671.................................................. 3.00% 10/01/42 327,951
376,769 Pool AB7765.................................................. 3.00% 02/01/43 388,772
266,517 Pool AB7859.................................................. 3.50% 02/01/43 280,124
1,712,587 Pool AB8289.................................................. 4.50% 04/01/42 1,847,941
572,083 Pool AB8676.................................................. 3.50% 05/01/42 606,823
39,085 Pool AB9382.................................................. 4.00% 05/01/43 41,904
1,055,430 Pool AB9551.................................................. 3.00% 06/01/43 1,089,056
423,009 Pool AB9615.................................................. 4.00% 06/01/33 445,947
76,418 Pool AB9959.................................................. 4.00% 07/01/43 81,584
72,529 Pool AC1232.................................................. 5.00% 07/01/24 74,837
115,196 Pool AC3236.................................................. 5.00% 09/01/39 127,317
350,887 Pool AC3267.................................................. 5.50% 09/01/39 394,631
407,387 Pool AD0889.................................................. 6.00% 09/01/24 422,933
685,137 Pool AD4317.................................................. 4.00% 04/01/40 733,486
26,119 Pool AD5222.................................................. 4.50% 05/01/30 27,824
127,031 Pool AD5583.................................................. 5.00% 04/01/40 137,039
186,886 Pool AD6369.................................................. 4.50% 05/01/40 202,691
91,891 Pool AD6938.................................................. 4.50% 06/01/40 100,459
134,437 Pool AD7110.................................................. 5.00% 07/01/40 143,810
101,081 Pool AD7137.................................................. 5.50% 07/01/40 115,277
36,842 Pool AD8526.................................................. 4.50% 08/01/40 39,945
362,719 Pool AE0137.................................................. 4.50% 03/01/36 393,031
36,021 Pool AE0383.................................................. 4.50% 09/01/25 37,844
141,018 Pool AE4476.................................................. 4.00% 03/01/41 150,905
194,015 Pool AE7005.................................................. 4.00% 10/01/40 207,664
42,960 Pool AE9284.................................................. 4.00% 11/01/40 45,987
703,732 Pool AE9959.................................................. 5.00% 03/01/41 776,764
32,466 Pool AH0057.................................................. 4.50% 02/01/41 35,246
496,299 Pool AH0943.................................................. 4.00% 12/01/40 531,336
722,605 Pool AH0979.................................................. 3.50% 01/01/41 741,990
383,258 Pool AH1089.................................................. 4.00% 11/01/40 410,262
154,502 Pool AH1141.................................................. 4.50% 12/01/40 167,576
177,162 Pool AH4404.................................................. 4.00% 01/01/41 189,643
120,064 Pool AH7204.................................................. 4.00% 03/01/41 128,561
56,103 Pool AI1190.................................................. 4.50% 04/01/41 60,910
77,826 Pool AI1969.................................................. 4.50% 05/01/41 84,417
470,259 Pool AI4268.................................................. 5.00% 06/01/41 517,667
13,796,583 Pool AI5614.................................................. 5.00% 07/01/41 15,197,314
288,072 Pool AI6093.................................................. 4.50% 06/01/31 309,387
94,032 Pool AI6503.................................................. 5.00% 11/01/39 100,864
</TABLE>
Page 32 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 39,840 Pool AI6581.................................................. 4.50% 07/01/41 $ 43,215
30,831 Pool AI7800.................................................. 4.50% 07/01/41 33,473
205,501 Pool AI8779.................................................. 4.00% 11/01/41 220,036
393,871 Pool AI9114.................................................. 4.00% 06/01/42 420,553
2,062,349 Pool AI9124.................................................. 4.00% 08/01/42 2,202,056
1,349,232 Pool AI9158.................................................. 6.50% 01/01/41 1,645,538
2,356,868 Pool AJ2311.................................................. 5.00% 10/01/41 2,589,049
29,275 Pool AJ4756.................................................. 4.00% 10/01/41 31,772
42,516 Pool AJ5424.................................................. 4.00% 11/01/41 46,177
24,901 Pool AJ5736.................................................. 4.00% 12/01/41 27,004
29,705 Pool AJ6061.................................................. 4.00% 12/01/41 32,301
33,497 Pool AJ7538.................................................. 4.00% 01/01/42 36,467
44,607 Pool AJ8104.................................................. 4.00% 12/01/41 48,430
17,124 Pool AJ8203.................................................. 4.50% 01/01/42 18,534
30,842 Pool AJ8341.................................................. 4.00% 12/01/41 33,576
28,915 Pool AJ8369.................................................. 4.00% 01/01/42 31,393
44,703 Pool AJ8436.................................................. 4.00% 12/01/41 48,629
26,036 Pool AJ9162.................................................. 4.00% 01/01/42 28,279
1,094,039 Pool AJ9332.................................................. 4.00% 01/01/42 1,171,357
49,045 Pool AK0543.................................................. 4.00% 01/01/42 53,393
1,595,500 Pool AK0765.................................................. 4.00% 03/01/42 1,694,459
36,319 Pool AK1827.................................................. 4.00% 01/01/42 39,509
252,281 Pool AK4520.................................................. 4.00% 03/01/42 269,427
200,394 Pool AK5555.................................................. 4.00% 04/01/42 213,937
20,771 Pool AL0147.................................................. 4.00% 04/01/41 22,368
147,159 Pool AL0212.................................................. 5.50% 02/01/38 165,842
338,480 Pool AL0241.................................................. 4.00% 04/01/41 362,376
59,164 Pool AL0399.................................................. 6.00% 08/01/24 61,235
27,012 Pool AL0446.................................................. 6.00% 05/01/24 27,934
49,328 Pool AL0815.................................................. 4.00% 09/01/41 53,576
25,607 Pool AL1195.................................................. 6.00% 09/01/23 26,655
655,046 Pool AL1850.................................................. 5.50% 07/01/40 738,017
46,456 Pool AL1948.................................................. 4.00% 01/01/42 49,693
51,245 Pool AL1953.................................................. 4.50% 01/01/27 53,276
120,599 Pool AL2142.................................................. 6.50% 09/01/38 138,501
620,230 Pool AL2551.................................................. 3.50% 10/01/42 651,671
213,103 Pool AL2589.................................................. 5.50% 05/01/25 219,973
107,092 Pool AL2892.................................................. 3.50% 12/01/42 112,827
797,361 Pool AL3093.................................................. 3.50% 02/01/43 840,970
29,189 Pool AL3154.................................................. 3.00% 02/01/43 30,137
2,891,340 Pool AL4703.................................................. 3.50% 12/01/28 2,980,742
9,707,461 Pool AL4741.................................................. 4.50% 01/01/44 10,465,162
36,961 Pool AL4962.................................................. 6.00% 05/01/24 38,498
184,912 Pool AL5616.................................................. 5.50% 09/01/41 207,743
1,028,329 Pool AL5760.................................................. 4.00% 09/01/43 1,097,761
711,824 Pool AL5890.................................................. 4.50% 03/01/43 772,032
622,473 Pool AL6031.................................................. 4.00% 10/01/44 667,569
48,926 Pool AL6057.................................................. 6.00% 08/01/24 49,920
98,227 Pool AL6449.................................................. 4.50% 01/01/27 102,132
3,867,949 Pool AL6513.................................................. 5.00% 07/01/44 4,232,997
</TABLE>
See Notes to Financial Statements Page 33
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 451,308 Pool AL6948.................................................. 5.00% 09/01/25 $ 466,152
148,338 Pool AL7046.................................................. 3.50% 06/01/45 156,613
7,144,930 Pool AL7162, 12 Mo. LIBOR + 1.73% (a)........................ 4.49% 09/01/42 7,404,378
413,631 Pool AL7231.................................................. 3.50% 08/01/45 436,706
696,377 Pool AL7449.................................................. 8.50% 12/01/37 839,599
973,253 Pool AL7637.................................................. 5.00% 01/01/42 1,064,277
2,762,411 Pool AL7905.................................................. 4.50% 03/01/34 2,957,653
173,572 Pool AL8139.................................................. 4.00% 02/01/32 180,018
12,562,582 Pool AL8263.................................................. 4.50% 02/01/44 13,548,936
104,663 Pool AL8353.................................................. 3.50% 08/01/44 109,981
10,873,595 Pool AL8640, 12 Mo. LIBOR + 1.80% (a)........................ 4.59% 12/01/41 11,389,771
5,782,310 Pool AL8652.................................................. 5.00% 07/01/44 6,494,345
636,914 Pool AL9143.................................................. 3.50% 09/01/36 663,437
207,083 Pool AL9226.................................................. 5.50% 12/01/41 234,304
2,044,416 Pool AL9777.................................................. 4.50% 01/01/47 2,192,707
6,511,259 Pool AO3529.................................................. 4.00% 06/01/42 6,918,506
2,288,853 Pool AO5527.................................................. 4.00% 07/01/42 2,433,210
1,738,823 Pool AO8106.................................................. 4.00% 08/01/42 1,847,745
688,801 Pool AO8167.................................................. 4.00% 09/01/42 732,206
206,957 Pool AP1197.................................................. 3.50% 09/01/42 217,271
1,431,233 Pool AP2109.................................................. 4.00% 08/01/32 1,507,934
126,923 Pool AP5113.................................................. 4.00% 09/01/42 135,515
398,699 Pool AP7963.................................................. 4.00% 09/01/42 431,114
2,878,465 Pool AQ0411.................................................. 3.50% 10/01/42 3,032,584
1,170,908 Pool AQ0535.................................................. 3.00% 11/01/42 1,208,203
921,136 Pool AQ1534.................................................. 3.50% 10/01/32 953,372
1,089,913 Pool AQ1584.................................................. 4.00% 11/01/42 1,159,041
793,297 Pool AQ1607.................................................. 3.50% 11/01/32 821,076
580,846 Pool AQ3310.................................................. 4.00% 11/01/42 616,724
2,022,675 Pool AQ4086.................................................. 4.00% 06/01/43 2,150,502
83,369 Pool AQ9715.................................................. 3.00% 01/01/43 85,976
537,286 Pool AQ9999.................................................. 3.00% 02/01/43 554,085
2,534,390 Pool AR7582.................................................. 3.50% 03/01/33 2,622,798
382,698 Pool AR7961.................................................. 3.50% 03/01/33 396,051
4,713,441 Pool AS1719.................................................. 5.00% 02/01/44 5,262,054
616,256 Pool AS5236.................................................. 4.00% 05/01/45 664,010
1,360,225 Pool AS5515.................................................. 3.50% 06/01/30 1,411,827
344,950 Pool AS5635.................................................. 3.00% 08/01/45 357,207
1,145,907 Pool AS7211.................................................. 3.00% 04/01/46 1,181,847
1,931,689 Pool AS7537.................................................. 3.00% 07/01/46 2,000,351
1,279,919 Pool AS9244.................................................. 4.50% 08/01/39 1,380,139
772,947 Pool AS9990.................................................. 4.50% 07/01/47 816,487
280,712 Pool AS9994.................................................. 4.50% 04/01/47 297,550
151,323 Pool AT0332.................................................. 3.00% 04/01/43 154,265
783,750 Pool AT1747.................................................. 3.00% 04/01/43 809,204
793,477 Pool AT3892.................................................. 3.00% 06/01/43 818,018
453,267 Pool AT4180.................................................. 3.50% 05/01/33 469,098
147,342 Pool AT5915.................................................. 4.00% 06/01/43 156,634
816,852 Pool AT6303.................................................. 4.00% 06/01/43 889,148
53,920 Pool AT6306.................................................. 4.00% 06/01/43 58,294
</TABLE>
Page 34 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 169,481 Pool AU5787.................................................. 4.50% 09/01/43 $ 186,631
710,043 Pool AU6278.................................................. 5.00% 11/01/43 780,918
201,821 Pool AY0013.................................................. 4.50% 01/01/45 213,745
816,305 Pool BA4113.................................................. 3.00% 04/01/46 838,902
2,206,489 Pool BD4509, 12 Mo. LIBOR + 1.71% (a)........................ 2.80% 01/01/44 2,273,430
4,053,351 Pool BD4533, 12 Mo. LIBOR + 1.66% (a)........................ 4.03% 09/01/44 4,186,785
434,869 Pool BD8660, 1 Yr. Constant Maturity Treasury Rate +
1.67% (a)................................................. 2.23% 12/01/45 439,996
18,443,971 Pool BE2973.................................................. 4.00% 01/01/47 19,693,911
888,925 Pool BE3631.................................................. 4.50% 05/01/47 940,232
3,746,722 Pool BH2633.................................................. 5.00% 08/01/47 4,095,871
45,998 Pool BH9428.................................................. 4.50% 09/01/47 48,563
247,856 Pool BJ6232.................................................. 5.00% 04/01/48 265,762
22,762 Pool BJ6234.................................................. 5.00% 05/01/48 24,405
705,348 Pool BJ7573.................................................. 5.00% 12/01/48 754,537
1,260,978 Pool BJ9100.................................................. 4.50% 02/01/48 1,398,823
1,107,732 Pool BJ9111.................................................. 4.50% 03/01/48 1,228,845
1,856,405 Pool BJ9124.................................................. 4.50% 04/01/48 2,059,346
994,126 Pool BJ9258.................................................. 5.00% 06/01/48 1,062,659
813,731 Pool BK1163.................................................. 5.00% 06/01/48 872,981
265,816 Pool BK2023.................................................. 5.00% 04/01/48 284,442
23,217,400 Pool BK4133.................................................. 4.50% 10/01/48 24,402,892
9,488,492 Pool BK4769.................................................. 5.00% 08/01/48 10,150,872
873,516 Pool BK4851.................................................. 5.00% 05/01/48 936,165
1,039,572 Pool BK4933.................................................. 5.00% 06/01/48 1,112,597
469,778 Pool BK5211.................................................. 5.00% 08/01/48 502,199
50,832 Pool BK5722.................................................. 5.00% 05/01/48 54,337
293,334 Pool BK7094.................................................. 5.00% 06/01/48 313,729
855,742 Pool BK7097.................................................. 5.00% 06/01/48 915,084
841,366 Pool BK7114.................................................. 5.00% 07/01/48 898,762
35,658 Pool BK7173.................................................. 5.00% 06/01/48 38,182
416,807 Pool BK7616.................................................. 5.00% 09/01/48 446,134
14,735,008 Pool BK7797.................................................. 5.00% 07/01/48 15,784,101
8,659,543 Pool BK8883.................................................. 5.00% 09/01/48 9,531,248
17,504 Pool BK8919.................................................. 5.00% 07/01/48 18,763
6,020,557 Pool BK9563.................................................. 4.50% 12/01/48 6,348,909
10,339,566 Pool BK9599.................................................. 5.00% 08/01/48 11,082,644
505,443 Pool BM1880.................................................. 4.00% 02/01/45 540,615
1,666,847 Pool BM3013, 12 Mo. LIBOR + 1.54% (a)........................ 4.22% 07/01/44 1,718,814
20,386,905 Pool BM3076.................................................. 4.50% 07/01/47 22,076,771
9,442,421 Pool BM3625.................................................. 3.00% 03/01/48 9,725,126
23,868,617 Pool BM3980, 12 Mo. LIBOR + 1.78% (a)........................ 4.58% 02/01/43 24,945,948
1,853,415 Pool BM4644.................................................. 5.00% 09/01/48 1,981,596
30,815,530 Pool BM5039.................................................. 4.50% 12/01/48 32,987,035
21,309,707 Pool BM5130.................................................. 4.50% 08/01/47 23,109,973
24,484,752 Pool BM5667.................................................. 4.00% 12/01/48 25,770,498
8,406,317 Pool BM5671.................................................. 4.50% 01/01/49 9,114,585
24,973,132 Pool BM6018.................................................. 5.00% 05/01/49 26,046,071
814,807 Pool BN0628.................................................. 5.00% 09/01/48 872,303
840,641 Pool BN0647.................................................. 5.00% 09/01/48 897,961
</TABLE>
See Notes to Financial Statements Page 35
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 6,037,305 Pool BN0948.................................................. 4.50% 11/01/48 $ 6,364,473
1,069,511 Pool BN1027.................................................. 5.50% 03/01/49 1,195,349
1,631,892 Pool BN1361.................................................. 5.00% 09/01/48 1,753,705
6,147,525 Pool BN4059.................................................. 4.00% 12/01/48 6,379,255
11,559,393 Pool BN4328.................................................. 5.00% 01/01/49 12,585,902
117,324 Pool BN4404.................................................. 5.00% 12/01/48 125,540
1,743,649 Pool BN5809.................................................. 5.00% 02/01/49 1,863,116
43,142,924 Pool BN6068.................................................. 4.00% 05/01/49 44,855,418
58,791,257 Pool BN6078.................................................. 4.00% 06/01/49 61,146,091
35,064,700 Pool BN6097.................................................. 4.00% 06/01/49 36,479,409
11,514,275 Pool BN8210.................................................. 4.50% 07/01/49 12,450,240
4,907,788 Pool BO4132.................................................. 2.50% 08/01/49 4,881,720
2,979,197 Pool BO4481.................................................. 2.50% 08/01/49 2,963,373
6,920,947 Pool CA0843.................................................. 3.00% 12/01/47 7,145,581
17,159,311 Pool CA1576.................................................. 5.00% 01/01/48 18,368,176
10,054,542 Pool CA1917.................................................. 5.00% 06/01/48 11,112,591
271,972 Pool CA2317.................................................. 5.00% 06/01/48 290,861
20,529,772 Pool CA2375.................................................. 4.00% 09/01/48 21,387,348
1,363,970 Pool CA2505.................................................. 5.00% 07/01/48 1,458,474
3,079,974 Pool CA2520.................................................. 4.00% 10/01/33 3,242,230
23,367 Pool CA2652.................................................. 5.00% 11/01/48 25,001
3,853,810 Pool CA2653.................................................. 5.00% 08/01/48 4,119,259
816,801 Pool CA2820.................................................. 5.00% 12/01/48 872,892
6,910,103 Pool CA2947.................................................. 4.00% 12/01/48 7,367,680
3,947,583 Pool FM1284.................................................. 3.50% 02/01/46 4,141,991
3,737,238 Pool FM1285.................................................. 4.00% 10/01/43 3,996,034
8,553,242 Pool FM1286.................................................. 4.50% 06/01/46 9,203,220
3,420,808 Pool FM1287.................................................. 5.00% 11/01/44 3,735,215
92,372,325 Pool FM1725.................................................. 2.50% 11/01/47 92,453,485
113,644 Pool MA0096.................................................. 4.50% 06/01/29 120,997
4,163 Pool MA0293.................................................. 4.50% 01/01/30 4,435
67,084 Pool MA0295.................................................. 5.00% 01/01/30 71,742
61,450 Pool MA0353.................................................. 4.50% 03/01/30 65,837
1,643,231 Pool MA0443.................................................. 5.00% 05/01/30 1,758,328
62,675 Pool MA0444.................................................. 5.00% 06/01/40 68,658
303,412 Pool MA0575.................................................. 4.50% 11/01/30 325,006
303,730 Pool MA0633.................................................. 5.00% 01/01/41 333,883
7,563 Pool MA0777.................................................. 5.00% 06/01/31 8,093
596,953 Pool MA1125.................................................. 4.00% 07/01/42 634,189
1,964,402 Pool MA1217.................................................. 4.00% 10/01/42 2,087,268
57,486 Pool MA1222.................................................. 4.00% 10/01/32 60,927
103,881 Pool MA1228.................................................. 3.00% 09/01/42 107,129
667,212 Pool MA1510.................................................. 4.00% 07/01/43 709,083
102,636 Pool MA1591.................................................. 4.50% 09/01/43 110,670
21,576,905 Pool MA1629.................................................. 4.50% 10/01/43 23,271,860
597,797 Pool MA1664.................................................. 4.50% 11/01/43 644,613
540,229 Pool MA1711.................................................. 4.50% 12/01/43 582,673
885,738 Pool MA1866.................................................. 4.50% 04/01/44 955,325
754,280 Pool MA1900.................................................. 4.50% 04/01/44 813,652
897,123 Pool MA2024.................................................. 4.00% 07/01/29 939,733
</TABLE>
Page 36 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 1,300,126 Pool MA2099.................................................. 3.50% 11/01/29 $ 1,349,577
542,519 Pool MA2454.................................................. 3.50% 09/01/30 563,236
12,015 Pool MA2509.................................................. 3.00% 01/01/46 12,126
2,218,208 Pool MA2695.................................................. 4.00% 07/01/46 2,363,650
2,535,517 Pool MA2916.................................................. 4.00% 02/01/47 2,693,840
666,393 Pool MA3101.................................................. 4.50% 08/01/47 707,563
256,374 Pool MA3123.................................................. 5.00% 08/01/47 274,416
994,667 Pool MA3205.................................................. 5.00% 10/01/47 1,067,090
1,537,693 Pool MA3348.................................................. 5.00% 04/01/48 1,647,603
1,050,247 Pool MA3472.................................................. 5.00% 09/01/48 1,123,185
20,954 Pool MA3501.................................................. 5.00% 10/01/48 22,415
700,377 Pool MA3565.................................................. 5.00% 01/01/49 748,393
41,868,372 Pool MA3765.................................................. 2.50% 09/01/49 41,645,989
10,000,000 Pool TBA..................................................... 5.00% 12/01/48 10,703,906
Government National Mortgage Association
103,724 Pool 3149.................................................... 6.00% 10/20/31 115,967
66,533 Pool 3172.................................................... 6.00% 12/20/31 75,760
71,173 Pool 3227.................................................... 6.00% 04/20/32 79,389
524,731 Pool 3345.................................................... 5.00% 02/20/33 577,094
171,517 Pool 3389.................................................... 5.00% 05/20/33 189,150
28,429 Pool 3390.................................................... 5.50% 05/20/33 32,033
813,780 Pool 3428.................................................... 5.00% 08/20/33 899,853
71,525 Pool 3442.................................................... 5.00% 09/20/33 79,361
29,093 Pool 3459.................................................... 5.50% 10/20/33 32,776
14,683 Pool 3474.................................................... 6.00% 11/20/33 16,842
100,455 Pool 3487.................................................... 5.00% 12/20/33 110,913
512,924 Pool 3529.................................................... 5.00% 03/20/34 569,130
75,922 Pool 3555.................................................... 5.00% 05/20/34 84,251
112,515 Pool 3596.................................................... 5.50% 08/20/34 126,758
99,055 Pool 3786.................................................... 5.50% 11/20/35 110,954
69,257 Pool 3807.................................................... 5.50% 01/20/36 77,430
502,955 Pool 4029.................................................... 6.50% 09/20/37 587,569
373,784 Pool 4251.................................................... 5.50% 10/20/23 390,516
195,155 Pool 455986.................................................. 5.25% 07/15/25 210,917
185,603 Pool 487108.................................................. 6.00% 04/15/29 208,351
70,426 Pool 553144.................................................. 5.50% 04/15/33 78,405
20,996 Pool 589331.................................................. 6.00% 10/15/22 22,059
206,507 Pool 604338.................................................. 5.00% 05/15/33 229,265
180,512 Pool 604897.................................................. 5.00% 12/15/33 200,448
191,022 Pool 605389.................................................. 5.00% 04/15/34 212,080
351,984 Pool 615403.................................................. 4.50% 08/15/33 385,968
17,259 Pool 627123.................................................. 5.50% 03/15/34 19,170
112,802 Pool 638704.................................................. 5.50% 11/15/36 124,091
228,834 Pool 653143.................................................. 4.90% 04/15/36 248,060
270,510 Pool 658324.................................................. 5.50% 03/15/37 292,211
270,161 Pool 677190.................................................. 5.00% 06/15/38 303,321
30,008 Pool 687833.................................................. 6.00% 08/15/38 34,450
55,572 Pool 706840.................................................. 4.50% 05/15/40 62,276
206,672 Pool 706855.................................................. 4.50% 09/15/40 231,500
381,482 Pool 711483.................................................. 4.00% 01/15/40 414,167
</TABLE>
See Notes to Financial Statements Page 37
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Government National Mortgage Association (Continued)
$ 162,116 Pool 711543.................................................. 4.00% 11/15/40 $ 178,269
1,076,870 Pool 711563.................................................. 4.50% 03/15/41 1,206,180
9,650,194 Pool 720225.................................................. 4.50% 07/15/39 10,614,142
548,462 Pool 723216.................................................. 4.50% 08/15/40 601,085
118,400 Pool 723248.................................................. 5.00% 10/15/39 132,889
426,554 Pool 724230.................................................. 5.00% 08/15/39 478,464
129,676 Pool 724267.................................................. 5.00% 09/15/39 145,389
373,706 Pool 724340.................................................. 4.50% 09/15/39 411,123
136,613 Pool 725272.................................................. 4.50% 11/15/39 146,821
85,994 Pool 726394.................................................. 4.50% 10/15/39 94,178
60,508 Pool 728921.................................................. 4.50% 12/15/24 62,413
330,188 Pool 733595.................................................. 4.50% 04/15/40 361,850
176,632 Pool 733733.................................................. 5.00% 06/15/40 197,896
1,020,967 Pool 736317.................................................. 4.25% 06/20/36 1,079,314
181,176 Pool 736617.................................................. 4.00% 12/15/35 191,850
1,574,538 Pool 737673.................................................. 4.50% 11/15/40 1,723,547
334,953 Pool 737996.................................................. 4.00% 02/15/41 363,570
117,220 Pool 739341.................................................. 3.50% 10/15/41 123,993
264,187 Pool 743673.................................................. 4.50% 07/15/40 289,945
498,741 Pool 745478.................................................. 5.00% 08/20/40 538,147
949,559 Pool 748939.................................................. 4.00% 09/20/40 1,021,929
141,493 Pool 754384.................................................. 4.50% 03/20/42 149,577
718,038 Pool 762905.................................................. 4.50% 04/15/41 781,957
2,054,693 Pool 769102.................................................. 4.50% 07/20/41 2,218,940
360,072 Pool 781623.................................................. 5.00% 06/15/33 399,714
84,510 Pool 781697.................................................. 6.00% 11/15/33 96,923
538,712 Pool 781824.................................................. 5.50% 11/15/34 604,661
18,009 Pool 781862.................................................. 5.50% 01/15/35 20,226
82,727 Pool 782070.................................................. 7.00% 06/15/32 92,204
133,658 Pool 782133.................................................. 6.00% 01/15/22 136,898
182,002 Pool 782259.................................................. 5.00% 02/15/36 202,044
96,628 Pool 782810.................................................. 4.50% 11/15/39 105,294
1,609,326 Pool 783009.................................................. 6.10% 12/20/33 1,821,845
158,209 Pool 783091.................................................. 5.50% 06/15/40 177,539
78,621 Pool 783220.................................................. 5.50% 09/15/24 82,276
266,627 Pool 783375.................................................. 5.00% 08/15/41 299,000
18,075,100 Pool 783590.................................................. 4.50% 06/20/41 19,554,117
382,803 Pool 783760.................................................. 5.00% 02/15/42 429,566
6,524,872 Pool 784063.................................................. 5.00% 09/20/45 6,977,082
309,246 Pool 784343.................................................. 5.00% 02/15/41 346,679
4,588,074 Pool 784573.................................................. 5.00% 12/15/43 5,128,739
5,371,137 Pool 784752.................................................. 4.00% 03/15/45 5,809,758
5,611,555 Pool AC0197.................................................. 4.00% 12/20/42 5,872,188
567,951 Pool AD0026.................................................. 3.50% 06/20/33 595,882
132,566 Pool AD0856.................................................. 3.75% 08/20/33 138,412
95,202 Pool AG8899.................................................. 4.00% 12/20/43 100,964
1,877,949 Pool AI6317.................................................. 4.50% 06/20/44 1,985,292
722,450 Pool AK2389.................................................. 4.50% 11/20/44 774,648
582,336 Pool AN4469.................................................. 5.00% 12/15/40 627,251
649,112 Pool AR8421.................................................. 5.00% 10/20/41 689,005
</TABLE>
Page 38 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Government National Mortgage Association (Continued)
$ 1,870,192 Pool BB1216.................................................. 4.50% 06/20/47 $ 2,029,500
1,271,164 Pool BB4731.................................................. 4.00% 07/20/47 1,350,389
976,484 Pool BB4757.................................................. 4.00% 08/20/47 1,031,555
832,069 Pool BB4769.................................................. 4.00% 08/20/47 887,284
982,225 Pool BD0483.................................................. 4.50% 11/20/47 1,060,455
898,289 Pool BF0415.................................................. 5.00% 06/20/35 956,363
924,333 Pool BL1291.................................................. 5.50% 01/20/49 980,667
924,792 Pool BL6909.................................................. 5.00% 03/20/49 997,297
784,034 Pool BL6923.................................................. 6.00% 03/20/49 856,194
234,684 Pool MA1017.................................................. 6.00% 05/20/43 268,802
129,797 Pool MA1162.................................................. 6.00% 07/20/43 148,971
328,263 Pool MA2077.................................................. 5.50% 07/20/44 364,522
58,735 Pool MA2215.................................................. 3.50% 09/20/44 60,589
188,871 Pool MA2683.................................................. 6.00% 03/20/45 213,965
197,297 Pool MA2759.................................................. 6.00% 01/20/45 226,458
529,629 Pool MA2829.................................................. 5.00% 05/20/45 585,188
77,014 Pool MA2897.................................................. 6.00% 03/20/45 84,878
461,431 Pool MA2966.................................................. 6.00% 09/20/39 529,689
370,154 Pool MA3249.................................................. 6.00% 04/20/40 424,843
73,013 Pool MA3380.................................................. 5.50% 01/20/46 81,257
690,295 Pool MA3459.................................................. 6.00% 08/20/39 791,322
483,209 Pool MA3525.................................................. 5.50% 03/20/46 537,597
462,261 Pool MA3941.................................................. 5.50% 09/20/46 514,227
872,664 Pool MA4076.................................................. 7.00% 01/20/39 996,724
12,481,578 Pool MA5714.................................................. 6.00% 01/20/49 13,642,403
----------------
1,423,629,918
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................................... 2,912,736,513
(Cost $2,859,422,414) ----------------
ASSET-BACKED SECURITIES -- 8.3%
Aegis Asset Backed Securities Trust
1,508,730 Series 2005-2, Class M2, 1 Mo. LIBOR + 0.44% (a)............. 2.26% 06/25/35 1,498,308
AFC Trust
1,191 Series 1999-4, Class 3A, 1 Mo. LIBOR + 0.95% (a) (g)......... 2.77% 12/26/29 1,195
Bear Stearns Asset-Backed Securities Trust
23,259 Series 2002-1, Class M1, 1 Mo. LIBOR + 1.20% (a)............. 3.02% 12/25/34 23,295
Carrington Mortgage Loan Trust
1,699,131 Series 2006-RFC1, Class A4, 1 Mo. LIBOR + 0.24% (a).......... 2.06% 03/25/36 1,697,903
CIT Home Equity Loan Trust
3,878 Series 2003-1, Class A6 (h).................................. 4.56% 10/20/32 3,894
Citicorp Residential Mortgage Trust
37,890 Series 2007-2, Class A6 (h).................................. 4.96% 06/25/37 38,451
Citigroup Global Markets Mortgage Securities VII, Inc.
2,384 Series 1998-AQ1, Class A6.................................... 6.63% 06/25/28 2,430
Countrywide Asset-Backed Certificates
7,983,447 Series 2005-9, Class M1, 1 Mo. LIBOR + 0.52% (a)............. 2.34% 01/25/36 8,025,947
Credit-Based Asset Servicing & Securitization LLC
7,684,580 Series 2007-MX1, Class A3, steps up to 6.33% after
Redemption Date (g) (i)................................... 5.83% 12/25/36 7,839,183
</TABLE>
See Notes to Financial Statements Page 39
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
FBR Securitization Trust
$ 2,952,846 Series 2005-2, Class M2, 1 Mo. LIBOR + 0.75% (a)............. 2.57% 09/25/35 $ 2,967,962
Fieldstone Mortgage Investment Trust
1,377,823 Series 2005-3, Class 2A2, 1 Mo. LIBOR + 0.52% (a)............ 2.34% 02/25/36 1,364,239
First Alliance Mortgage Loan Trust
41,416 Series 1999-1, Class A1...................................... 7.18% 06/20/30 41,675
Fremont Home Loan Trust
1,687,986 Series 2005-1, Class M4, 1 Mo. LIBOR + 1.02% (a)............. 2.84% 06/25/35 1,697,658
1,070 Series 2005-A, Class M2, 1 Mo. LIBOR + 0.69% (a)............. 2.51% 01/25/35 1,073
GMACM Home Equity Loan Trust
84,653 Series 2000-HE2, Class A1, 1 Mo. LIBOR + 0.44% (a)........... 2.84% 06/25/30 70,729
148,472 Series 2004-HE1, Class A3, 1 Mo. LIBOR + 0.50% (a)........... 2.32% 06/25/34 146,957
Mill City Mortgage Loan Trust
5,641,000 Series 2015-2, Class B1 (g).................................. 3.87% 09/25/57 5,882,745
1,417,131 Series 2016-1, Class A1 (g).................................. 2.50% 04/25/57 1,424,148
5,279,520 Series 2017-1, Class B1 (g).................................. 3.79% 11/25/58 5,651,161
15,968,535 Series 2017-2, Class B1 (g).................................. 3.90% 07/25/59 17,127,787
11,585,532 Series 2017-3, Class A1 (g).................................. 2.75% 01/25/61 11,726,029
14,265,289 Series 2017-3, Class B1 (g).................................. 3.25% 01/25/61 14,466,662
1,515,075 Series 2018-4, Class A1A (g)................................. 3.50% 04/25/66 1,517,438
Morgan Stanley Dean Witter Capital I, Inc. Trust
5,331 Series 2003-NC2, Class M2, 1 Mo. LIBOR + 3.00% (a)........... 4.82% 02/25/33 5,626
New Century Home Equity Loan Trust
20,448 Series 2003-5, Class AI7..................................... 5.05% 11/25/33 21,016
Park Place Securities, Inc. Asset-Backed Pass-Through
Certificates
3,566,724 Series 2004-WCW2, Class M2, 1 Mo. LIBOR + 0.98% (a).......... 2.80% 10/25/34 3,588,401
RASC Trust
1,332 Series 2004-KS1, Class AI6................................... 4.27% 02/25/34 1,341
RCO Mortgage LLC
3,430,246 Series 2018-1, Class A1, steps up 05/25/21
to 7.00% (g) (i).......................................... 4.00% 05/25/23 3,440,497
6,674,070 Series 2018-2, Class A1, steps up 10/25/21
to 7.46% (g) (i).......................................... 4.46% 10/25/23 6,741,497
Saxon Asset Securities Trust
3,783 Series 2004-2, Class MV3, 1 Mo. LIBOR + 1.91% (a)............ 3.73% 08/25/35 3,834
Structured Asset Securities Corp. Mortgage Pass-Through
Certificates
126 Series 2004-23XS, Class 1A4.................................. 5.43% 01/25/35 127
Towd Point Mortgage Trust
340,000 Series 2015-1, Class A2 (g).................................. 3.25% 10/25/53 342,031
1,843,416 Series 2015-2, Class 1A12 (g)................................ 2.75% 11/25/60 1,858,113
14,468,000 Series 2015-2, Class 1B1 (c) (g)............................. 3.80% 11/25/60 15,449,871
1,564,828 Series 2015-3, Class A1B (g)................................. 3.00% 03/25/54 1,575,695
10,000,000 Series 2015-3, Class A2 (g).................................. 4.00% 03/25/54 10,365,966
520,670 Series 2015-3, Class A4B (g)................................. 3.50% 03/25/54 528,500
6,049,742 Series 2015-4, Class A1 (g).................................. 3.50% 04/25/55 6,124,041
1,918,218 Series 2015-4, Class A1B (g)................................. 2.75% 04/25/55 1,928,014
1,500,000 Series 2015-4, Class A2A (g)................................. 3.50% 04/25/55 1,540,532
1,516,582 Series 2015-5, Class A1 (g).................................. 3.50% 05/25/55 1,540,387
2,575,931 Series 2015-5, Class A1B (g)................................. 2.75% 05/25/55 2,592,703
425,000 Series 2015-5, Class A2 (g).................................. 3.50% 05/25/55 434,802
4,085,445 Series 2015-6, Class A1 (g).................................. 3.50% 04/25/55 4,166,598
2,894,829 Series 2015-6, Class A1B (g)................................. 2.75% 04/25/55 2,917,565
583,051 Series 2016-1, Class A1 (g).................................. 3.50% 02/25/55 593,252
1,718,541 Series 2016-1, Class A1B (g)................................. 2.75% 02/25/55 1,731,871
</TABLE>
Page 40 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Towd Point Mortgage Trust (Continued)
$ 3,818,258 Series 2016-2, Class A1A (g)................................. 2.75% 08/25/55 $ 3,860,616
727,166 Series 2016-3, Class A1 (g).................................. 2.25% 04/25/56 727,357
363,745 Series 2016-5, Class A1 (g).................................. 2.50% 10/25/56 366,045
3,250,000 Series 2016-5, Class B2 (g).................................. 3.81% 10/25/56 3,320,887
28,399,473 Series 2017-1, Class A1 (g).................................. 2.75% 10/25/56 28,813,003
30,000,000 Series 2017-1, Class A2 (g).................................. 3.50% 10/25/56 31,338,246
2,582,481 Series 2017-2, Class A1 (g).................................. 2.75% 04/25/57 2,609,405
10,000,000 Series 2017-2, Class B2 (g).................................. 4.17% 04/25/57 10,613,870
13,504,748 Series 2017-3, Class A4 (c) (g).............................. 2.86% 07/25/57 13,702,881
8,032,124 Series 2017-5, Class A1, 1 Mo. LIBOR + 0.60% (a) (g)......... 2.42% 02/25/57 8,033,483
3,020,986 Series 2017-6, Class A1 (g).................................. 2.75% 10/25/57 3,048,104
10,032,340 Series 2018-5, Class M1 (g).................................. 3.25% 07/25/58 10,070,621
26,410,000 Series 2019-1, Class A2 (g).................................. 3.75% 03/25/58 28,242,733
2,120,000 Series 2019-2, Class A2 (g).................................. 3.75% 12/25/58 2,259,802
UCFC Home Equity Loan Trust
35,358 Series 1998-D, Class MF1..................................... 6.91% 04/15/30 36,107
VOLT LLC
6,062,275 Series 2017-NP11, Class A1, steps up 10/25/20
to 6.375% (g) (i)......................................... 3.38% 10/25/47 6,088,978
3,161,579 Series 2017-NPL9, Class A1, steps up 09/25/20
to 6.125% (g) (i)......................................... 3.13% 09/25/47 3,172,598
5,438,627 Series 2018-NPL5, Class A1A, steps up 08/25/21
to 7.21% (g) (i).......................................... 4.21% 08/25/48 5,450,548
----------------
TOTAL ASSET-BACKED SECURITIES............................................................... 312,464,433
(Cost $309,050,098) ----------------
MORTGAGE-BACKED SECURITIES -- 7.1%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 6.6%
Adjustable Rate Mortgage Trust
102,384 Series 2005-5, Class 6A21, 1 Mo. LIBOR + 0.23% (a)........... 2.05% 09/25/35 102,663
Alternative Loan Trust
64,734 Series 2003-J3, Class 2A1.................................... 6.25% 12/25/33 66,917
American Home Mortgage Investment Trust
3,396 Series 2004-3, Class 6A1..................................... 5.32% 10/25/34 3,447
Banc of America Funding Corp.
23,335 Series 2008-R2, Class 1A2 (g)................................ 6.00% 09/25/37 23,621
Banc of America Funding Trust
1,887 Series 2005-2, Class 2A4..................................... 5.75% 04/25/35 2,099
Banc of America Mortgage Trust
482,046 Series 2005-A, Class 2A2 (c)................................. 4.46% 02/25/35 491,432
BCAP LLC Trust
33,829 Series 2009-RR5, Class 8A1 (g)............................... 5.50% 11/26/34 34,814
14,016 Series 2011-R11, Class 20A5 (c) (g).......................... 4.84% 03/26/35 14,075
CHL Mortgage Pass-Through Trust
62,000 Series 2004-8, Class 1A7..................................... 5.75% 07/25/34 63,390
30,798 Series 2004-8, Class 2A1..................................... 4.50% 06/25/19 31,672
29 Series 2004-J1, Class 2A1.................................... 4.75% 01/25/19 29
Citigroup Global Markets Mortgage Securities VII, Inc.
256 Series 2003-UP2, Class PO1, PO............................... (b) 12/25/18 225
Citigroup Mortgage Loan Trust
8,527 Series 2003-1, Class WA2..................................... 6.50% 06/25/31 8,830
</TABLE>
See Notes to Financial Statements Page 41
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
COLT Mortgage Loan Trust
$ 125,193 Series 2018-1, Class A3 (g).................................. 3.08% 02/25/48 $ 125,611
2,358,823 Series 2018-2, Class A1 (g).................................. 3.47% 07/27/48 2,384,846
1,677,368 Series 2018-3, Class A1 (g).................................. 3.69% 10/26/48 1,693,352
Credit Suisse First Boston Mortgage Securities Corp.
4,648 Series 2003-11, Class 1A39................................... 5.25% 06/25/33 4,745
22,161 Series 2003-AR18, Class 2A3 (c).............................. 4.17% 07/25/33 22,910
5,946 Series 2004-AR8, Class 2A1 (c)............................... 4.21% 09/25/34 6,013
84,095 Series 2005-5, Class 3A2, 1 Mo. LIBOR + 0.30% (a)............ 2.12% 07/25/35 81,541
3,000 Series 2005-7, Class 1A5..................................... 5.15% 08/25/35 3,155
Credit Suisse Mortgage Capital Certificates
106,280 Series 2009-12R, Class 6A1 (g)............................... 6.00% 05/27/37 107,499
CSFB Mortgage-Backed Pass-Through Certificates
7,234 Series 2004-AR4, Class 5A2, 1 Mo. LIBOR + 0.74% (a).......... 2.56% 05/25/34 7,256
CSMC
8,505,480 Series 2014-WIN1, Class 1A1 (g).............................. 3.00% 08/25/29 8,692,912
2,427,058 Series 2017-HL1, Class A3 (g)................................ 3.50% 06/25/47 2,466,128
Deutsche Alt-A Securities, Inc. Mortgage Loan Trust
3,139 Series 2005-3, Class 1A1 (c)................................. 4.35% 06/25/20 3,136
Galton Funding Mortgage Trust
6,140,539 Series 2018-1, Class A43 (g)................................. 3.50% 11/25/57 6,231,473
8,801,849 Series 2018-2, Class A41 (g)................................. 4.50% 10/25/58 9,037,639
GMACM Mortgage Loan Trust
892 Series 2003-J10, Class A1.................................... 4.75% 01/25/19 903
GSR Mortgage Loan Trust
31,151 Series 2004-8F, Class 2A3.................................... 6.00% 09/25/34 32,023
278,529 Series 2004-12, Class 3A6 (c)................................ 4.20% 12/25/34 284,862
Impac CMB Trust
34,257 Series 2003-4, Class 1A1, 1 Mo. LIBOR + 0.64% (a)............ 2.46% 10/25/33 34,188
490,003 Series 2004-6, Class M3, 1 Mo. LIBOR + 1.05% (a)............. 2.87% 10/25/34 478,982
JP Morgan Resecuritization Trust
103,425 Series 2009-7, Class 11A1 (c) (g)............................ 3.98% 09/27/36 104,942
439,690 Series 2009-7, Class 17A1 (c) (g)............................ 5.43% 07/27/37 444,482
JPMorgan Mortgage Trust
1,416 Series 2004-S1, Class 1A2.................................... 4.50% 09/25/34 1,420
14,154 Series 2004-S2, Class 5A1.................................... 5.50% 12/25/19 13,919
15,490,960 Series 2014-5, Class A1 (g).................................. 2.98% 10/25/29 15,691,230
3,575,756 Series 2014-5, Class A2 (g).................................. 2.50% 10/25/29 3,576,561
99,129 Series 2014-IVR3, Class 2A1 (c) (g).......................... 3.00% 09/25/44 99,368
8,145,494 Series 2014-IVR6, Class B1 (c) (g)........................... 3.09% 07/25/44 8,158,779
2,472,394 Series 2015-3, Class A5 (g).................................. 3.50% 05/25/45 2,495,102
1,565,773 Series 2016-1, Class A5 (g).................................. 3.50% 05/25/46 1,581,134
1,522,528 Series 2016-3, Class 1A3 (g)................................. 3.50% 10/25/46 1,554,540
6,690,650 Series 2019-1, Class A11, 1 Mo. LIBOR + 0.95% (a) (g)........ 2.77% 05/25/49 6,695,195
6,411,608 Series 2019-2, Class A11, 1 Mo. LIBOR + 0.95% (a) (g)........ 2.77% 08/25/49 6,492,240
13,414,074 Series 2019-3, Class A11, 1 Mo. LIBOR + 0.95% (a) (g)........ 2.77% 09/25/49 13,406,798
8,685,862 Series 2019-5, Class A11, 1 Mo. LIBOR + 0.90% (a) (g)........ 2.72% 11/25/49 8,687,863
12,692,068 Series 2019-INV1, Class A11, 1 Mo. LIBOR + 0.95% (a) (g)..... 2.77% 10/25/49 12,622,745
14,390,591 Series 2019-INV1, Class B1 (c) (g)........................... 5.16% 10/25/49 16,175,206
1,482,399 Series 2019-INV2, Class A15 (g).............................. 3.50% 02/25/50 1,493,426
</TABLE>
Page 42 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
MASTR Alternative Loan Trust
$ 5,302 Series 2004-13, Class 8A1.................................... 5.50% 01/25/25 $ 5,360
MASTR Asset Securitization Trust
180,178 Series 2003-11, Class 7A5.................................... 5.25% 12/25/33 186,736
243,802 Series 2003-12, Class 1A1.................................... 5.25% 12/25/24 248,940
36,119 Series 2003-12, Class 1A2.................................... 5.25% 12/25/24 35,975
10,169 Series 2004-1, Class 30PO, PO................................ (b) 02/25/34 8,909
18,175 Series 2004-3, Class 1A3..................................... 5.25% 03/25/24 18,032
MASTR Seasoned Securitization Trust
63,042 Series 2005-1, Class 3A1 (c)................................. 4.44% 10/25/32 64,645
2,423 Series 2005-2, Class 3A1..................................... 6.00% 11/25/17 2,423
MetLife Securitization Trust
5,069,021 Series 2018-1A, Class A (g).................................. 3.75% 03/25/57 5,336,212
2,048,923 Series 2019-1A, Class A1A (g)................................ 3.75% 04/25/58 2,151,643
Morgan Stanley Mortgage Loan Trust
3,000,000 Series 2005-6AR, Class 1M1, 1 Mo. LIBOR + 0.46% (a).......... 2.28% 11/25/35 3,004,699
New Residential Mortgage Loan Trust
806,523 Series 2014-2A, Class A3 (g)................................. 3.75% 05/25/54 823,514
7,365,174 Series 2015-2A, Class B1 (g)................................. 4.50% 08/25/55 7,847,490
8,042,548 Series 2016-1A, Class A1 (g)................................. 3.75% 03/25/56 8,380,075
1,325,215 Series 2017-5A, Class A1, 1 Mo. LIBOR + 1.50% (a) (g)........ 3.32% 06/25/57 1,350,856
Nomura Asset Acceptance Corp. Alternative Loan Trust
7,448 Series 2004-AP3, Class A6.................................... 5.29% 10/25/34 7,469
6,031 Series 2005-WF1, Class 2A5, steps up to 5.66% after
Redemption Date (i)....................................... 5.16% 03/25/35 6,387
Oaks Mortgage Trust
14,047,473 Series 2015-2, Class A8 (g).................................. 3.50% 10/25/45 14,132,326
OBX Trust
8,516,865 Series 2018-EXP1, Class 1A3 (g).............................. 4.00% 04/25/48 8,680,554
2,716,703 Series 2018-EXP2, Class 1A1 (g).............................. 4.00% 11/25/48 2,753,259
Prime Mortgage Trust
25,705 Series 2004-2, Class A2...................................... 4.75% 11/25/19 26,110
50,275 Series 2004-2, Class A6...................................... 5.00% 11/25/19 52,498
RBSSP Resecuritization Trust
282,743 Series 2009-6, Class 9A4, 1 Mo. LIBOR + 0.45% (a) (g)........ 2.47% 11/26/36 280,039
6,067 Series 2009-12, Class 15A1 (c) (g)........................... 4.12% 10/26/35 6,110
Residential Accredit Loans, Inc.
4,829 Series 2003-QS20, Class CB................................... 5.00% 11/25/18 4,864
Residential Asset Securitization Trust
165 Series 2004-A3, Class A4..................................... 5.25% 06/25/34 165
RFMSI Trust
4,236 Series 2005-S3, Class A1..................................... 4.75% 03/25/20 4,230
Sequoia Mortgage Trust
388,110 Series 2000-4, Class A, 1 Mo. LIBOR + 0.72% (a).............. 2.77% 11/22/24 389,225
3,421,034 Series 2018-CH2, Class A12 (g)............................... 4.00% 06/25/48 3,465,112
3,617,166 Series 2018-CH3, Class A10 (g)............................... 4.50% 08/25/48 3,676,900
511,708 Series 2018-CH3, Class A11 (g)............................... 4.00% 08/25/48 517,631
2,434,741 Series 2018-CH4, Class A10 (g)............................... 4.50% 10/25/48 2,460,511
3,197,334 Series 2019-1, Class A4 (g).................................. 4.00% 02/25/49 3,233,304
Structured Asset Securities Corp.
2,366 Series 2004-4XS, Class A3A (h)............................... 5.16% 02/25/34 2,478
</TABLE>
See Notes to Financial Statements Page 43
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Structured Asset Securities Corp. Mortgage Loan Trust
$ 24,145 Series 2002-9, Class A2, 1 Mo. LIBOR + 0.60% (a)............. 2.42% 10/25/27 $ 24,143
Structured Asset Securities Corp. Mortgage Pass-Through
Certificates
26,730 Series 2004-11XS, Class 1A6 (h).............................. 5.24% 06/25/34 27,402
WaMu Mortgage Pass-Through Certificates Trust
32,441 Series 2003-S3, Class 3A1.................................... 5.50% 05/25/33 34,003
5 Series 2004-CB2, Class 5A.................................... 5.00% 07/25/19 5
11,969 Series 2004-RS1, Class A11................................... 5.50% 11/25/33 12,427
Wells Fargo Mortgage Backed Securities Trust
3,665 Series 2004-K, Class 2A12 (c)................................ 4.97% 07/25/34 3,709
117,199 Series 2004-X, Class 1A1 (c)................................. 4.58% 11/25/34 122,289
385,248 Series 2005-AR4, Class 1A3 (c)............................... 5.15% 04/25/35 400,045
46,533 Series 2005-AR10, Class 2A2 (c).............................. 4.93% 06/25/35 48,931
12,033,122 Series 2019-1, Class A7 (g).................................. 4.00% 11/25/48 12,101,174
4,734,446 Series 2019-3, Class A17 (g)................................. 3.50% 07/25/49 4,797,859
WinWater Mortgage Loan Trust
657,851 Series 2014-1, Class A4 (g).................................. 3.50% 06/20/44 659,357
4,084,209 Series 2015-2, Class A5 (g).................................. 3.00% 02/20/45 4,098,156
8,664,872 Series 2015-3, Class A17 (g)................................. 2.50% 03/20/45 8,610,916
6,165,114 Series 2016-1, Class 1A18 (g)................................ 3.50% 01/20/46 6,224,877
7,626,500 Series 2016-1, Class 2A3 (g)................................. 3.00% 12/20/30 7,649,495
4,944,267 Series 2016-1, Class B1 (c) (g).............................. 3.86% 01/20/46 5,179,541
----------------
250,996,348
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.5%
Morgan Stanley Capital Trust
2,745,000 Series 2017-CLS, Class C, 1 Mo. LIBOR + 1.00% (a) (g)........ 2.91% 11/15/34 2,747,006
Sutherland Commercial Mortgage Trust
9,215,341 Series 2019-SBC8, Class A (g)................................ 2.86% 12/25/35 9,275,172
Wells Fargo Re-REMIC Trust
6,000,000 Series 2013-FRR1, Class AK16, PO (g)......................... (b) 12/27/43 5,637,025
----------------
17,659,203
----------------
TOTAL MORTGAGE-BACKED SECURITIES............................................................ 268,655,551
(Cost $265,404,575) ----------------
U.S. GOVERNMENT BONDS AND NOTES -- 3.5%
10,000,000 U.S. Treasury Note.............................................. 1.00% 11/15/19 9,996,774
40,000,000 U.S. Treasury Note.............................................. 3.38% 11/15/19 40,022,906
10,000,000 U.S. Treasury Note.............................................. 1.00% 11/30/19 9,993,293
5,000,000 U.S. Treasury Note.............................................. 1.38% 02/15/20 4,995,801
20,000,000 U.S. Treasury Note.............................................. 1.38% 02/29/20 19,982,812
10,000,000 U.S. Treasury Note.............................................. 1.38% 03/31/20 9,990,234
35,000,000 U.S. Treasury Note.............................................. 2.25% 03/31/20 35,092,969
200,000 U.S. Treasury Note.............................................. 1.63% 06/30/20 200,012
----------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES....................................................... 130,274,801
(Cost $129,919,440) ----------------
</TABLE>
Page 44 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
EXCHANGE-TRADED FUNDS -- 0.0%
CAPITAL MARKETS -- 0.0%
11,750 First Trust Long Duration Opportunities ETF (j)............................................. $ 326,298
----------------
TOTAL EXCHANGE-TRADED FUNDS................................................................. 326,298
(Cost $305,193) ----------------
MONEY MARKET FUNDS -- 4.0%
150,903,988 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio -
Institutional Class - 1.68% (k).......................................................... 150,903,988
(Cost $150,903,988) ----------------
TOTAL INVESTMENTS -- 100.3%................................................................. 3,775,361,584
(Cost $3,715,005,708) (l) ----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- ------------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
CALL OPTIONS PURCHASED -- 0.0%
30 U.S. Treasury Long Bond Futures Call............. $ 4,817,814 $ 160.00 Jan-2020 68,437
(Cost $38,879) ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT -- (9.1%)
Federal National Mortgage Association
(5,000,000) Pool TBA (m)................................................. 3.50% 11/01/48 (5,133,984)
(70,000,000) Pool TBA (m)................................................. 4.00% 11/01/48 (72,701,562)
(70,000,000) Pool TBA (m)................................................. 4.00% 11/01/48 (72,646,874)
(40,000,000) Pool TBA (m)................................................. 4.50% 12/01/48 (42,118,750)
(70,000,000) Pool TBA (m)................................................. 3.00% 07/01/49 (71,134,850)
(10,000,000) Pool TBA (m)................................................. 3.00% 08/01/49 (10,151,740)
(69,000,000) Pool TBA..................................................... 2.50% 09/01/49 (68,614,570)
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT.......................... (342,502,330)
(Proceeds $342,207,773) ----------------
NET OTHER ASSETS AND LIABILITIES -- 8.8%.................................................... 332,541,311
----------------
NET ASSETS -- 100.0%........................................................................ $ 3,765,469,002
================
</TABLE>
FUTURES CONTRACTS AT OCTOBER 31, 2019 (See Note 2D - Futures Contracts in the
Notes to Financial Statements):
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
NUMBER OF EXPIRATION NOTIONAL (DEPRECIATION)/
FUTURES CONTRACTS POSITION CONTRACTS DATE VALUE VALUE
------------------------------------------------------- ----------- ----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
U.S. 2-Year Treasury Notes Long 757 Dec-2019 $ 163,210,383 $ (73,944)
U.S. 5-Year Treasury Notes Short 1,969 Dec-2019 (234,710,953) 10,890
U.S. 10-Year Treasury Notes Short 725 Dec-2019 (94,465,234) 313,275
U.S. 10-Year Ultra Treasury Notes Short 810 Dec-2019 (115,108,594) 1,367,061
U.S. Treasury Long Bond Futures Short 516 Dec-2019 (83,269,500) 910,774
U.S. Treasury Ultra Bond Futures Short 12 Dec-2019 (2,277,000) (25,615)
-------------- ----------------
$ (366,620,898) $ 2,502,441
============== ================
</TABLE>
See Notes to Financial Statements Page 45
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
-----------------------------
(a) Floating or variable rate security.
(b) Zero coupon security.
(c) Collateral Strip Rate bond. Coupon is based on the weighted net interest
rate of the investment's underlying collateral. The interest rate resets
periodically.
(d) Inverse floating rate security.
(e) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by First Trust Advisors L.P.,
the Fund's advisor (the "Advisor").
(f) 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.
(g) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Trust's Board of Trustees, this security has
been determined to be liquid by the Advisor. Although market instability
can result in periods of increased overall market illiquidity, liquidity
for each security is determined based on security specific factors and
assumptions, which require subjective judgment. At October 31, 2019,
securities noted as such amounted to $647,570,966 or 17.2% of net assets.
(h) Step security. The coupon rate is determined based on the underlying
investments. The coupon rate resets periodically.
(i) Step-up security. A security where the coupon increases or steps up at a
predetermined date.
(j) Investment in an affiliated fund.
(k) Rate shown reflects yield as of October 31, 2019.
(l) Aggregate cost for federal income tax purposes is $3,374,818,913. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$77,921,191 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$17,309,972. The net unrealized appreciation was $60,611,219. The amounts
presented are inclusive of investments sold short and derivative
contracts.
(m) 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).
IO - Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
LIBOR - London Interbank Offered Rate
PO - Principal-Only Security
STRIPS - Separate Trading of Registered Interest and Principal of Securities
TBA - To-Be-Announced Security
Page 46 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2019 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage-Backed Securities..... $ 2,912,736,513 $ -- $ 2,912,736,513 $ --
Asset-Backed Securities............................... 312,464,433 -- 312,464,433 --
Mortgage-Backed Securities............................ 268,655,551 -- 268,655,551 --
U.S. Government Bonds and Notes....................... 130,274,801 -- 130,274,801 --
Exchange-Traded Funds*................................ 326,298 326,298 -- --
Money Market Funds.................................... 150,903,988 150,903,988 -- --
--------------- --------------- --------------- ---------------
Total Investments..................................... 3,775,361,584 151,230,286 3,624,131,298 --
Call Options Purchased................................ 68,437 68,437 -- --
Futures Contracts**................................... 2,602,000 2,602,000 -- --
--------------- --------------- --------------- ---------------
Total................................................. $ 3,778,032,021 $ 153,900,723 $ 3,624,131,298 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2019 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
U.S. Government Agency Mortgage-Backed Securities
Sold Short......................................... $ (342,502,330) $ -- $ (342,502,330) $ --
Futures Contracts**................................... (99,559) (99,559) -- --
--------------- --------------- --------------- ---------------
Total................................................. $ (342,601,889) $ (99,559) $ (342,502,330) $ --
=============== =============== =============== ===============
</TABLE>
* See Portfolio of Investments for industry breakout.
** Includes cumulative appreciation/depreciation on futures contracts as
reported in the Futures Contracts table. Only the current day's variation margin
is presented on the Statement of Assets and Liabilities.
See Notes to Financial Statements Page 47
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value - Unaffiliated...................................... $3,775,035,286
Investments, at value - Affiliated........................................ 326,298
--------------
Total investments, at value............................................... 3,775,361,584
Options contracts purchased, at value..................................... 68,437
Cash...................................................................... 1,769,736
Cash segregated as collateral for open futures contracts.................. 15,463,543
Receivables:
Investment securities sold............................................. 565,234,876
Capital shares sold.................................................... 28,502,343
Interest............................................................... 14,278,601
Dividends.............................................................. 255,730
--------------
Total Assets........................................................ 4,400,934,850
--------------
LIABILITIES:
Investments sold short, at value (proceeds $342,207,773).................. 342,502,330
Payables:
Investment securities purchased........................................ 287,622,348
Investment advisory fees............................................... 2,011,284
Variation margin....................................................... 3,329,886
--------------
Total Liabilities................................................... 635,465,848
--------------
NET ASSETS................................................................ $3,765,469,002
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $3,735,130,007
Par value................................................................. 726,000
Accumulated distributable earnings (loss)................................. 29,612,995
--------------
NET ASSETS................................................................ $3,765,469,002
==============
NET ASSET VALUE, per share................................................ $ 51.87
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)............................................. 72,600,002
==============
Investments, at cost - Unaffiliated....................................... $3,714,700,515
==============
Investments, at cost - Affiliated......................................... $ 305,193
==============
Total investments, at cost................................................ $3,715,005,708
==============
Premiums paid on options contracts purchased.............................. $ 38,879
==============
</TABLE>
Page 48 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2019
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................................. $ 77,099,345
Dividends - Unaffiliated.................................................. 5,522,678
Dividends - Affiliated.................................................... 3,670
--------------
Total investment income................................................ 82,625,693
--------------
EXPENSES:
Investment advisory fees.................................................. 17,574,335
--------------
Total expenses......................................................... 17,574,335
--------------
NET INVESTMENT INCOME (LOSS).............................................. 65,051,358
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments - Unaffiliated............................................. 8,714,351
Investments - Affiliated............................................... --
Investments sold short................................................. (10,777,308)
Futures contracts...................................................... (27,055,069)
Purchased options contracts............................................ (609,373)
Written options contracts.............................................. 1,507,078
--------------
Net realized gain (loss).................................................. (28,220,321)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments - Unaffiliated............................................. 89,286,576
Investments - Affiliated............................................... 21,105
Investments sold short................................................. (853,357)
Futures contracts...................................................... (808,546)
Purchased options contracts............................................ 40,816
Written options contracts.............................................. (37,905)
--------------
Net change in unrealized appreciation (depreciation)...................... 87,648,689
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... 59,428,368
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 124,479,726
==============
</TABLE>
See Notes to Financial Statements Page 49
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/2019 10/31/2018
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................................. $ 65,051,358 $ 29,137,467
Net realized gain (loss).................................................. (28,220,321) 4,560,050
Net change in unrealized appreciation (depreciation)...................... 87,648,689 (23,638,622)
-------------- --------------
Net increase (decrease) in net assets resulting from operations........... 124,479,726 10,058,895
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (67,215,845) (34,897,503)
Return of capital......................................................... (4,340,158) --
-------------- --------------
Total distributions to shareholders....................................... (71,556,003) (34,897,503)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 1,983,467,078 910,174,583
Cost of shares redeemed................................................... -- (2,579,752)
-------------- --------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................... 1,983,467,078 907,594,831
-------------- --------------
Total increase (decrease) in net assets................................... 2,036,390,801 882,756,223
NET ASSETS:
Beginning of period....................................................... 1,729,078,201 846,321,978
-------------- --------------
End of period............................................................. $3,765,469,002 $1,729,078,201
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 34,050,002 16,350,002
Shares sold............................................................... 38,550,000 17,750,000
Shares redeemed........................................................... -- (50,000)
-------------- --------------
Shares outstanding, end of period......................................... 72,600,002 34,050,002
============== ==============
</TABLE>
Page 50 See Notes to Financial Statements
<PAGE>
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD
------------------------------------------------------------ ENDED
2019 2018 2017 2016 10/31/2015 (a)
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 50.78 $ 51.76 $ 52.54 $ 50.32 $ 50.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ................... 1.24 1.17 1.13 1.31 1.23 (b)
Net realized and unrealized gain (loss) ........ 1.21 (0.74) (0.50) 2.41 0.55
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 2.45 0.43 0.63 3.72 1.78
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (1.23) (1.13) (1.14) (1.50) (1.46)
Net realized gain............................... (0.05) (0.28) (0.02) -- --
Return of capital............................... (0.08) -- (0.25) -- --
---------- ---------- ---------- ---------- ----------
Total distributions............................. (1.36) (1.41) (1.41) (1.50) (1.46)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ................. $ 51.87 $ 50.78 $ 51.76 $ 52.54 $ 50.32
========== ========== ========== ========== ==========
TOTAL RETURN (c)................................ 4.88% 0.84% 1.22% 7.49% 3.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $3,765,469 $1,729,078 $ 846,322 $ 270,586 $ 10,065
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average
net assets (d)............................... 0.65% 0.65% 0.65% 0.65% 0.65% (e)
Ratio of net investment income (loss) to average
net assets .................................. 2.41% 2.32% 2.20% 2.06% 2.55% (e)
Portfolio turnover rate (f)..................... 373% (g) 331% (g) 190% (g) 92% 157%
</TABLE>
(a) Inception date is November 4, 2014, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) Based on average shares outstanding.
(c) 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.
(d) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. This ratio
does not include these indirect fees and expenses.
(e) Annualized.
(f) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(g) The portfolio turnover rate not including mortgage dollar rolls was 246%,
117% and 97% for the years ended October 31, 2019, 2018 and 2017,
respectively.
See Notes to Financial Statements Page 51
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Low Duration Opportunities ETF (the "Fund"), a
non-diversified series of the Trust, which trades under the ticker "LMBS" on The
Nasdaq Stock Market LLC ("Nasdaq"). Unlike conventional mutual funds, the Fund
issues and redeems shares on a continuous basis, at net asset value ("NAV"),
only in large specified blocks consisting of 50,000 shares called a "Creation
Unit." Creation Units are generally issued and redeemed for cash and, in certain
circumstances, in-kind for securities in which the Fund invests, and only to and
from broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's primary
investment objective is to generate current income. The Fund's secondary
investment objective is to provide capital appreciation. The Fund seeks to
achieve its investment objectives by investing, under normal market conditions,
at least 80% of its net assets (including investment borrowings) in
mortgage-related debt securities and other mortgage-related instruments
(collectively, "Mortgage-Related Investments"). The Fund normally expects to
invest in Mortgage-Related Investments tied to residential and commercial
mortgages. Mortgage-Related Investments include residential mortgage-backed
securities, commercial mortgage-backed securities, stripped mortgage-backed
securities, collateralized mortgage obligations and real estate mortgage
investment conduits. The Fund may also invest in investment companies, including
ETFs, that invest primarily in Mortgage-Related Investments. The Fund will limit
its investments in Mortgage-Related Investments that are not issued or
guaranteed by Government Entities(1) to 20% of its net assets (including
investment borrowings). The Fund may invest, without limitation, in mortgage
dollar rolls. The Fund intends to enter into mortgage dollar rolls only with
high quality securities dealers and banks, as determined by the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor").
The Fund may also invest in to-be-announced transactions ("TBA Transactions").
Further, the Fund may enter into short sales as part of its overall portfolio
management strategies or to offset a potential decline in the value of a
security; however, the Fund does not expect, under normal market conditions, to
engage in short sales with respect to more than 30% of the value of its net
assets (including investment borrowings). Although the Fund intends to invest
primarily in investment grade securities, the Fund may invest up to 20% of its
net assets (including investment borrowings) in securities of any credit
quality, including securities that are below investment grade, which are also
known as high yield securities, or commonly referred to as "junk" bonds, or
unrated securities that have not been judged by the Advisor to be of comparable
quality to rated investment grade securities. In the case of a split rating
between one or more of the nationally recognized statistical rating
organizations, the Fund will consider the highest rating. The Fund targets an
estimated effective duration of three years or less.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Advisor's Pricing Committee, in
-----------------------------
(1) "Government Entities" means the U.S. government, its agencies and
instrumentalities, and U.S. government-sponsored entities.
Page 52
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. The Fund's investments are valued as follows:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are fair valued on the basis of
valuations provided by dealers who make markets in such securities or by a
third-party pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Common stocks and other equity securities listed on any national or
foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Fixed income and other debt securities having a remaining maturity of
sixty days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
Page 53
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies; 8) the coupon
payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management (for corporate debt
only);
11) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); and
12) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2019, 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.
On July 27, 2017, the Financial Conduct Authority ("FCA") announced that it will
no longer persuade or compel banks to submit rates for the calculation of the
London Interbank Offered Rates ("LIBOR") after 2021 (the "FCA Announcement").
Furthermore, in the United States, efforts to identify a set of alternative U.S.
dollar reference interest rates include proposals by the Alternative Reference
Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New
York. On August 24, 2017, the Federal Reserve Board requested public comment on
a proposal by the Federal Reserve Bank of New York, in cooperation with the
Office of Financial Research, to produce three new reference rates intended to
serve as alternatives to LIBOR. These alternative rates are based on overnight
repurchase agreement transactions secured by U.S. Treasury Securities. On
December 12, 2017, following consideration of public comments, the Federal
Reserve Board concluded that the public would benefit if the Federal Reserve
Bank of New York published the three proposed reference rates as alternatives to
LIBOR (the "Federal Reserve Board Notice").
At this time, it is not possible to predict the effect of the FCA Announcement,
the Federal Reserve Board Notice, or other regulatory changes or announcements,
any establishment of alternative reference rates or any other reforms to LIBOR
that may be enacted in the United Kingdom, the United States or elsewhere. As
such, the potential effect of any such event on the Fund cannot yet be
determined.
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
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, 2019, the Fund had no when-issued or
delayed-delivery securities. At October 31, 2019, the Fund held $273,887,760 of
forward purchase commitments.
C. SHORT SALES
Short sales are utilized to manage interest rate and spread risk, and are
transactions in which securities or other instruments (such as options,
forwards, futures or other derivative contracts) are sold that are not currently
owned in the Fund's portfolio. When the Fund engages in a short sale, the Fund
must borrow the security sold short and deliver the security to the
counterparty. Short selling allows the Fund to profit from a decline in a market
price to the extent such decline exceeds the transaction costs and the costs of
borrowing the securities. The Fund is charged a fee or premium to borrow the
securities sold short and is obligated to repay the lenders of the securities.
Any dividends or interest that accrues on the securities during the period of
the loan are due to the lenders. A gain, limited to the price at which the
security was sold short, or a loss, unlimited in size, will be recognized upon
the termination of the short sale; which is effected by the Fund purchasing the
security sold short and delivering the security to the lender. Any such gain or
loss may be offset, completely or in part, by the change in the value of the
long portion of the Fund's portfolio. The Fund is subject to the risk it may be
unable to reacquire a security to terminate a short position except at a price
substantially in excess of the last quoted price. Also, there is the risk that
the counterparty to a short sale may fail to honor its contractual terms,
causing a loss to the Fund.
D. FUTURES CONTRACTS
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures
contracts to hedge against changes in interest rates (interest rate risk).
Futures contracts are agreements between the Fund and a counterparty to buy or
sell a specific quantity of an underlying instrument at a specified price and at
a specified date. Depending on the terms of the contract, futures contracts are
settled either through physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement amount on the settlement
date. Open futures contracts can also be closed out prior to settlement by
entering into an offsetting transaction in a matching futures contract. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain margin deposits on the futures contract. When the
contract is closed or expires, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed or expired. This gain or loss is included in
"Net realized gain (loss) on futures contracts" on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures
contracts are marked-to-market daily with the change in value recognized as a
component of "Net change in unrealized appreciation (depreciation) on futures
contracts" on the Statement of Operations. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are included in "Variation margin" receivable or payable on
the Statement of Assets and Liabilities. If market conditions change
unexpectedly, the Fund may not achieve the anticipated benefits of the futures
contract and may realize a loss. The use of futures contracts involves the risk
of imperfect correlation in movements in the price of the futures contracts,
interest rates and the underlying instruments.
E. OPTIONS CONTRACTS
In the normal course of pursuing its investment objectives, the Fund may invest
up to 20% of its net assets in derivative instruments in connection with hedging
strategies. The Fund may invest in exchange-listed options on U.S. Treasury
securities, exchange-listed options on U.S. Treasury futures contracts and
exchange-listed U.S. Treasury futures contracts. The Fund uses derivative
instruments primarily to hedge interest rate risk and actively manage interest
rate exposure. The primary risk exposure is interest rate risk.
The Fund may purchase (buy) or write (sell) put and call options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position. A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
Page 55
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
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.
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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
I. MORTGAGE DOLLAR ROLLS AND TBA TRANSACTIONS
The Fund may invest, without limitation, in mortgage dollar rolls. The Fund
intends to enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Fund's investment advisor. In a mortgage
dollar roll, the Fund will sell (or buy) mortgage-backed securities for delivery
on a specified date and simultaneously contract to repurchase (or sell)
substantially similar (same type, coupon and maturity) securities on a future
date. Mortgage dollar rolls are recorded as separate purchase and sales in the
Fund. The Fund may also invest in TBA Transactions. A TBA Transaction is a
method of trading mortgage-backed securities. TBA Transactions generally are
conducted in accordance with widely-accepted guidelines which establish commonly
observed terms and conditions for execution, settlement and delivery. In a TBA
Transaction, the buyer and the seller agree on general trade parameters such as
agency, settlement date, par amount and price.
J. AFFILIATED TRANSACTIONS
The Fund invests in securities of affiliated funds. Dividend income and realized
gains and losses, and change in appreciation (depreciation) from affiliated
funds are presented on the Statement of Operations. The Fund's investment
performance and risks are directly related to the investment performance and
risks of the affiliated funds.
Amounts related to these investments at October 31, 2019 and for the fiscal year
then ended are as follows:
<TABLE>
<CAPTION>
CHANGES IN
UNREALIZED REALIZED
SHARES AT VALUE AT APPRECIATION GAIN VALUE AT DIVIDEND
SECURITY NAME 10/31/2019 10/31/2018 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2019 INCOME
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Trust Long Duration
Opportunities ETF 11,750 $ -- $ 305,193 $ -- $ 21,105 $ -- $ 326,298 $ 3,670
====================================================================================
</TABLE>
K. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on portfolio securities held by the Fund and
have no impact on net assets or NAV per share. Temporary differences, which
arise from recognizing certain items of income, expense and gain/loss in
different periods for financial statement and tax purposes, will reverse at some
time in the future.
The tax character of distributions paid during the fiscal years ended October
31, 2019 and 2018 was as follows:
Distributions paid from: 2019 2018
Ordinary income............................... $ 69,256,766 $ 31,634,253
Capital gains................................. 1,877,704 1,254,000
Return of capital............................. 4,340,158 --
As of October 31, 2019, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................. $ --
Accumulated capital and other gain (loss)..... (30,998,224)
Net unrealized appreciation (depreciation).... 60,611,219
L. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
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 2016,
2017, 2018, and 2019 remain open to federal and state audit. As of October 31,
2019, 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, 2019, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $30,998,224.
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, 2019, 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,
2019, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ (2,972,514) $ 2,972,514 $ --
M. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
N. NEW ACCOUNTING PRONOUNCEMENTS
On March 30, 2017, the FASB issued Accounting Standards Update ("ASU") 2017-08
"Premium Amortization on Purchased Callable Debt Securities", which amends the
amortization period for certain purchased callable debt securities held at a
premium by shortening such period to the earliest call date. The new guidance
requires an entity to amortize the premium on a callable debt security within
its scope to the earliest call date, unless the guidance for considering
estimated prepayments is applied. If the call option is not exercised at the
earliest call date, the yield is reset to the effective yield using the payment
terms of the security. If the security has more than one call date and the
premium was amortized to a call price greater than the next call price, any
excess of the amortized cost basis over the amount repayable at the next call
date will be amortized to that date. If there are no other call dates, any
excess of the amortized cost basis over the par amount will be amortized to
maturity. Discounts on purchased callable debt securities will continue to be
amortized to the security's maturity date. The ASU 2017-08 is effective for
public business entities for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Earlier application is
permitted for all entities, including adoption in an interim period. If an
entity early adopts the ASU in an interim period, any adjustments must be
reflected as of the beginning of the fiscal year that includes that interim
period. Management is still assessing the impact of the adoption of ASU 2017-08
on the financial statements but does not expect it to have a material impact.
On August 28, 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement," which amends the
fair value measurement disclosure requirements of ASC 820. The amendments of ASU
2018-13 include new, eliminated, and modified disclosure requirements of ASC
820. In addition, the amendments clarify that materiality is an appropriate
consideration of entities when evaluating disclosure requirements. The ASU is
effective for fiscal years beginning after December 15, 2019, including interim
periods therein. Early adoption is permitted for any eliminated or modified
disclosures upon issuance of this ASU. The Fund has early adopted ASU 2018-13
for these financial statements, which did not result in a material impact.
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, pro rata
share of fees and expenses attributable to investments in other investment
companies ("acquired fund fees and expenses"), brokerage commissions and other
expenses connected with the execution of portfolio transactions, distribution
and service fees payable pursuant to a Rule 12b-1 plan, if any, and
extraordinary expenses. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.65% of its average daily net assets. In addition, the
Fund incurs acquired fund fees and expenses. The total of the unitary management
fee and acquired fund fees and expenses represents the Fund's total annual
operating expenses.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases of U.S. Government securities and non-U.S. Government
securities, excluding investments sold short and short-term investments, for the
fiscal year ended October 31, 2019, were $6,858,361,119 and $589,493,047,
respectively. The proceeds from sales and paydowns of U.S. Government securities
and non-U.S. Government securities, excluding investments sold short and
short-term investments, for the fiscal year ended October 31, 2019, were
$5,213,267,648 and $374,216,774, respectively. The cost of purchases to cover
investments sold short and the proceeds of investments sold short were
$4,606,530,367 and $4,834,898,137, respectively.
For the fiscal year ended October 31, 2019, 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, 2019, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
<TABLE>
<CAPTION>
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------- --------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------- --------- ---------------------------- ---------- -------------------------- ----------
<S> <C> <C> <C> <C> <C>
Futures Interest Unrealized appreciation on Unrealized depreciation on
rate risk futures contracts* $2,602,000 futures contracts* $ 99,559
Options Interest Options contracts Options contracts
rate risk purchased, at value 68,437 written, at value --
</TABLE>
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Portfolio of Investments. Only the current day's variation margin is
reported within the Statement of Assets and Liabilities.
Page 59
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
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, 2019, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS LOCATION INTEREST RATE RISK
----------------------------------------------------------------------------------
<S> <C>
Net realized gain (loss) on:
Futures contracts $ (27,055,069)
Purchased options contracts (609,373)
Written options contracts 1,507,078
Net change in unrealized appreciation (depreciation) on:
Futures contracts (808,546)
Purchased options contracts 40,816
Written options contracts (37,905)
</TABLE>
For the fiscal year ended October 31, 2019, the notional value of futures
contracts opened and closed were $4,712,036,954 and $4,590,392,883,
respectively.
During the fiscal year ended October 31, 2019, the premiums for purchased
options contracts opened were $947,486 and the premiums for purchased options
contracts closed, exercised and expired were $958,302.
During the fiscal year ended October 31, 2019, the premiums for written options
contracts opened were $3,398,488 and the premiums for written options contracts
closed, exercised and expired were $3,550,768.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures and options contracts on the Statement of Assets
and Liabilities.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may vary and is based on the
composition of the securities included in the Fund's portfolio and/or the
countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share times the number of shares in a Creation
Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When Creation
Units are issued for cash, the Authorized Participant may also be assessed an
amount to cover the cost of purchasing portfolio securities, including
operational processing and brokerage costs, transfer fees, stamp taxes, and part
or all of the spread between the expected bid and offer side of the market
related to such securities. Authorized Participants redeeming Creation Units
must pay to BNYM, as transfer agent, a standard redemption transaction fee (the
"Redemption Transaction Fee"), regardless of the number of Creation Units
redeemed in the transaction. The Redemption Transaction Fee may vary and is
based on the composition of the securities included in the Fund's portfolio
and/or the countries in which the transactions are settled. When shares are
redeemed for cash, the Authorized Participant may also be assessed an amount to
cover other costs, including operational processing and brokerage costs,
transfer fees, stamp taxes and part or all of the spread between the expected
bid and offer side of the market related to portfolio securities sold in
connection with the redemption.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before March 31, 2021.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019
8. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were no subsequent events, requiring recognition or disclosure in the financial
statements that have not already been disclosed.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Low Duration Opportunities ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2019, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, the financial highlights for the years ended October 31, 2019, 2018, 2017
and 2016, and the period from November 4, 2014 (commencement of operations)
through October 31, 2015, 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, 2019, and the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for the
years ended October 31, 2019, 2018, 2017 and 2016, and for the period from
November 4, 2014 (commencement of operations) through October 31, 2015, in
conformity with accounting principles generally accepted in the United States of
America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2019, 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, 2019
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal year ended
October 31, 2019 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, 2019, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees (the "Board") 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, 2020 at a meeting held on June
2, 2019. The Board determined that the continuation of the Agreement is in the
best interests of the Fund in light of the nature, extent and quality of the
services provided and such other matters as the Board considered to be relevant
in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor responding to requests for information from counsel to the Independent
Trustees, submitted on behalf of the Independent Trustees, that, among other
things, outlined: the services provided by the Advisor to the Fund (including
the relevant personnel responsible for these services and their experience); the
unitary fee rate payable by the Fund as compared to fees charged to a peer group
of funds (the "Expense Group") and a broad peer universe of funds (the "Expense
Universe"), each assembled by Broadridge Financial Solutions, Inc.
("Broadridge"), an independent source, and as compared to fees charged to other
clients of the Advisor, including other exchange-traded funds ("ETFs") managed
by the Advisor; the expense ratio of the Fund as compared to expense ratios of
the funds in the Fund's Expense Group and Expense Universe; performance
information for the Fund, including comparisons of the Fund's performance to
that of one or more relevant benchmark indexes and to that of a performance
group of funds and a broad performance universe of funds (the "Performance
Universe"), each assembled by Broadridge; the nature of expenses incurred in
providing services to the Fund and the potential for economies of scale, if any;
financial data on the Advisor; any fall-out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P. ("FTP"); and information on the Advisor's
compliance program. The Board reviewed initial materials with the Advisor at the
meeting held on April 18, 2019, prior to which the Independent Trustees and
their counsel met separately to discuss the information provided by the Advisor.
Following the April meeting, independent legal counsel 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
independent legal counsel held prior to the June 2, 2019 meeting, as well as at
the meeting held that day. 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
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
actively-managed ETF and noted that the Advisor's Mortgage Securities Team is
responsible for the day-to-day management of the Fund's investments. The Board
considered the background and experience of the members of the Mortgage
Securities Team and noted the Board's prior meetings with members of the Team.
The Board considered the Advisor's statement that it applies the same oversight
model internally with its Mortgage Securities Team as it uses for overseeing
external sub-advisors, including portfolio risk monitoring and performance
review. In reviewing the services provided, the Board noted the compliance
program that had been developed by the Advisor and considered that it includes a
robust program for monitoring the Advisor's and the Fund's compliance with the
1940 Act, as well as the Fund's compliance with its investment objectives,
policies and restrictions. The Board also considered a report from the Advisor
with respect to its risk management functions related to the operation of the
Fund. Finally, as part of the Board's consideration of the Advisor's services,
the Advisor, in its written materials and at the April 18, 2019 meeting,
described to the Board the scope of its ongoing investment in additional
infrastructure and personnel to maintain and improve the quality of services
provided to the Fund and the other funds in the First Trust Fund Complex. In
light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of the services provided to the
Trust and the Fund by the Advisor under the Agreement have been and are expected
to remain satisfactory and that the Advisor has managed the Fund consistent with
its investment objectives, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The
Board received and reviewed information showing the advisory fee rates and
expense ratios of the peer funds in the Expense Group, as well as advisory and
unitary fee rates charged by the Advisor to other fund (including ETFs) and
non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board
determined that expense ratios were the most relevant comparative data point.
Based on the information provided, the Board noted that the unitary fee for the
Fund was above the median total (net) expense ratio of the peer funds in the
Expense Group. With respect to the Expense Group, the Board, at the April 18,
2019 meeting, discussed with Broadridge its methodology for assembling peer
groups and discussed with the Advisor limitations in creating peer groups for
actively-managed ETFs, including that there were no other actively-managed ETFs
in the Expense Group, and different business models that may affect the pricing
of services among ETF sponsors. The Board took these limitations and differences
into account in considering the peer data. With respect to fees charged to other
non-ETF clients, the Board considered differences between the Fund and other
non-ETF clients that limited their comparability. In considering the unitary fee
rate overall, the Board also considered the Advisor's statement that it seeks to
meet investor needs through innovative and value-added investment solutions and
the Advisor's description of its long-term commitment to the Fund.
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, 2018
to the performance of the funds in the Performance Universe and to that of a
benchmark index. Based on the information provided, the Board noted that the
Fund outperformed the Performance Universe median for the one- and three-year
periods ended December 31, 2018. The Board also noted that the Fund outperformed
the benchmark index for the three-year period ended December 31, 2018 but
underperformed the benchmark index for the one-year period ended December 31,
2018.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund continues to be reasonable and appropriate in light of
the nature, extent and quality of the services provided by the Advisor to the
Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to hire
personnel and build infrastructure, including technology, to improve the
services of the Fund. The Board noted that any reduction in fixed costs
associated with the management of the Fund would benefit the Advisor, but that
the unitary fee structure provides a level of certainty in expenses for the
Fund. The Board considered the revenues and allocated costs (including the
allocation methodology) of the Advisor in serving as investment advisor to the
Fund for the twelve months ended December 31, 2018 and the estimated
profitability level for the Fund calculated by the Advisor based on such data,
as well as complex-wide and product-line profitability data, for the same
period. The Board noted the inherent limitations in the profitability analysis
and concluded that, based on the information provided, the Advisor's
profitability level for the Fund was not unreasonable. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out benefit to the Advisor and FTP their exposure to
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
investors and brokers who, absent their exposure to the Fund, may have had no
dealings with the Advisor or FTP, and noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorized 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, 2018, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $2,555,283. This
figure is comprised of $499,382 paid (or to be paid) in fixed compensation and
$2,055,901 paid (or to be paid) in variable compensation. There were a total of
15 beneficiaries of the remuneration described above. Those amounts include
$409,108 paid (or to be paid) to senior management of First Trust Advisors L.P.
and $2,146,175 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Fund (collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 162 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 162 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 162 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 162 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services);
President and Chief Executive Officer
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 162 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 68
<PAGE>
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 69
<PAGE>
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST LOW DURATION OPPORTUNITIES ETF (LMBS)
OCTOBER 31, 2019 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
Page 70
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
<PAGE>
[BLANK BACK COVER]
<PAGE>
First Trust Exchange-Traded Fund IV
First
Trust SSI Strategic Convertible Securities ETF (FCVT)
Annual Report
For the Year Ended
October 31, 2019
First Trust SSI Strategic
Convertible Securities ETF (FCVT)
Annual Report
October 31, 2019
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Caution Regarding
Forward-Looking Statements
This report contains
certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or SSI Investment Management LLC (“SSI” or the “Sub-Advisor”)
and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For
example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,”
“may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund IV (the “Trust”)
described in this report (First Trust SSI Strategic Convertible Securities ETF; hereinafter referred to as the “Fund”) to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events
and circumstances that arise after the date hereof.
Performance and Risk
Disclosure
There is no assurance
that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a
discussion of certain other risks of investing in the Fund.
Performance data quoted
represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be
worth more or less than their original cost.
The Advisor may also
periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.
How to Read This
Report
This report contains
information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
By reading the portfolio
commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund’s performance. The statistical information that follows may help you
understand the Fund’s performance compared to that of a relevant market benchmark.
It is important to keep
in mind that the opinions expressed by personnel of the Advisor and/or Sub-Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.
First Trust SSI Strategic
Convertible Securities ETF (FCVT)
Annual Letter from the Chairman and
CEO
October 31, 2019
Dear Shareholders,
First Trust is pleased
to provide you with the annual report for the First Trust SSI Strategic Convertible Securities ETF (the “Fund”), which contains detailed information about the Fund for the twelve months ended October 31,
2019, including a market overview and a performance analysis. We encourage you to read this report carefully and discuss it with your financial advisor.
One of our
responsibilities as asset managers is to be good listeners. Perhaps the most effective way in which we do this continually is by paying close attention to mutual fund and exchange-traded fund (ETF) money flows. After
all, investors vote with their dollars, and money flows provide valuable feedback with respect to their biases. Over the past 12 months, we have learned that investors, in general, have grown more risk-averse. For the
12-month period ended October 31, 2019, investors funneled an estimated net $359.56 billion into bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion from equity mutual funds and ETFs,
according to data from Morningstar. Over the same period, money market funds took in an estimated net $583.27 billion. Those figures were more balanced for the full-year 2018. Those estimated net flows were as
follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion (bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to
monitoring fund flows, we watch the performance of all the asset classes. Market returns can either help validate or invalidate our interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that comprise the S&P 500® Index back it up. For the 12-month period ended October 31, 2019, as measured by total return, the top performers were
Real Estate and Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P 500® Index posted a total return of 14.33% for the period. These two sectors are defensive in nature. They also tend to
distribute cash dividends that are often well above those sectors that are more cyclical in nature. The higher dividend distributions likely drew the attention of fixed-income investors dissatisfied with the current
low-yield climate in the bond market, in our opinion.
The absence of a new
trade deal between the U.S. and China has been a bit of a wet blanket on the global economy. Global growth projections have been trimmed over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack of any significant progress in the negotiations between the U.S. and China is a concern, we believe a remedy will be found. Remember, as
uncertain as things may appear in the current climate, investors with diversified investment portfolios were most likely rewarded over the past 12 months. Stay the course and stay engaged!
Thank you for giving
First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust
Advisors L.P.
Fund Performance
Overview (Unaudited)
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
The First Trust SSI
Strategic Convertible Securities ETF (the “Fund”) is an actively managed exchange-traded fund that seeks total return by investing, under normal market conditions, at least 80% of its net assets (including
investment borrowings) in a portfolio of U.S. and non-U.S. convertible securities. The shares of the Fund are listed and traded on The Nasdaq Stock Market LLC under the ticker symbol “FCVT.”
|
Performance
|
|
|
|
|
|
|
Average Annual
Total Returns
|
Cumulative
Total Returns
|
|
|
1 Year Ended
10/31/19
|
Inception (11/3/15)
to 10/31/19
|
Inception (11/3/15)
to 10/31/19
|
|
Fund Performance
|
|
|
|
|
NAV
|
11.72%
|
8.11%
|
36.51%
|
|
Market Price
|
11.33%
|
8.02%
|
36.06%
|
|
Index Performance
|
|
|
|
|
ICE BofAML All US Convertible Index
|
12.45%
|
8.99%
|
40.99%
|
Total returns for the
period since inception are calculated from the inception date of the Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the period indicated.
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated.
The Fund’s per
share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities
(including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint
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 distributions have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical
composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns
would be lower. The total returns presented reflect the reinvestment of dividends on securities in the index. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than
their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future performance.
Fund Performance
Overview (Unaudited) (Continued)
First Trust SSI Strategic Convertible
Securities ETF (FCVT) (Continued)
|
Sector Allocation
|
% of Total
Investments
|
|
Information Technology
|
33.9%
|
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Health Care
|
20.6
|
|
Financials
|
9.3
|
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Communication Services
|
9.1
|
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Consumer Discretionary
|
8.1
|
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Utilities
|
6.7
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Industrials
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5.5
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Energy
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2.8
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Real Estate
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1.7
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Consumer Staples
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1.2
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Materials
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1.1
|
|
Total
|
100.0%
|
|
Top Ten Holdings
|
% of Total
Investments
|
|
Wells Fargo & Co., Series L
|
3.1%
|
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Bank of America Corp., Series L
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2.8
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Microchip Technology, Inc., 2/15/27
|
2.0
|
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Akamai Technologies, Inc., 5/01/25
|
1.8
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Microchip Technology, Inc., 2/15/25
|
1.8
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Becton Dickinson and Co., Series A, 5/01/20
|
1.7
|
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Advanced Micro Devices, Inc., 9/01/26
|
1.5
|
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DexCom, Inc., 12/01/23
|
1.5
|
|
DISH Network Corp., 8/15/26
|
1.5
|
|
Broadcom, Inc., Series A, 9/30/22
|
1.5
|
|
Total
|
19.2%
|
Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund.
These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Frequency
Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV
through October 31, 2019
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 November 4, 2015 (commencement of trading) through October 31, 2019. 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.
|
Number of Days Bid/Ask Midpoint At/Above NAV
|
|
For the Period
|
0.00%–0.49%
|
0.50%–0.99%
|
1.00%–1.99%
|
>=2.00%
|
|
11/4/15 – 10/31/16
|
77
|
60
|
12
|
16
|
|
11/1/16 – 10/31/17
|
149
|
47
|
3
|
2
|
|
11/1/17 – 10/31/18
|
184
|
31
|
1
|
0
|
|
11/1/18 – 10/31/19
|
61
|
5
|
0
|
0
|
|
Number of Days Bid/Ask Midpoint Below NAV
|
|
For the Period
|
0.00%–0.49%
|
0.50%–0.99%
|
1.00%–1.99%
|
>=2.00%
|
|
11/4/15 – 10/31/16
|
59
|
16
|
7
|
3
|
|
11/1/16 – 10/31/17
|
44
|
7
|
0
|
0
|
|
11/1/17 – 10/31/18
|
34
|
2
|
0
|
0
|
|
11/1/18 – 10/31/19
|
173
|
10
|
1
|
1
|
Portfolio Commentary
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2019
(Unaudited)
Advisor
First Trust Advisors L.P.
(“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust SSI Strategic Convertible Securities ETF (the “Fund”). First Trust is responsible for the
ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
SSI Investment Management
LLC
SSI Investment Management
LLC (“SSI” or the “Sub-Advisor”) is the sub-advisor to the Fund and is a registered investment advisor based in Los Angeles, California. SSI is an innovative investment management firm
specializing in alternative investment solutions utilizing convertible assets, equity securities and hedging strategies.
Portfolio Management
Team
George M. Douglas –
CFA, Chief Investment Officer, Principal of SSI
Ravi Malik – CFA,
Portfolio Manager, Principal of SSI
Michael J. Opre –
CFA, Portfolio Manager of SSI
Florian Eitner – CFA,
Portfolio Manager of SSI
Ethan Ganz –
Portfolio Manager of SSI
Commentary
Market Recap – For
the 12-month period ended October 31, 2019:
|
•
|
Headlines surrounding a potential trade deal with the U.S. and China have led to bouts of market volatility.
|
|
•
|
U.S. economic activity has slowed but is still expected to grow at over 2% in 2019.
|
|
•
|
With the exception of a spike in spreads during the December 2018 market correction, credit markets were generally healthy.
|
|
•
|
Ten-year Treasury yields fell by 145 basis points to 1.69%, as inflation remained below historic averages.
|
|
•
|
Within the convertible universe, the Technology, Utilities and Telecommunications sectors generated significant gains, while the Energy, Transportation and Materials sectors suffered declines.
|
|
•
|
Large cap and equity alternatives convertibles outperformed during the period.
|
|
•
|
The convertible market remained healthy as evidenced by the more than $55 billion in new issuance for the year which was the strongest new issuance since the financial crisis
|
Fund Performance
|
•
|
Convertible performance was driven by strong equity market returns and robust high yield markets for the 12-month period ended October 31, 2019. The S&P 500® Index advanced 14.33% and the Bloomberg Barclays High Yield Index rose 8.38% for the same period.
|
|
•
|
Fixed income posted positive returns with the Bloomberg Barclays US Aggregate Bond Index up 11.5% for the same period.
|
|
•
|
On a one-year trailing basis, as of October 31, 2019, the Fund generated a total return of 11.72%, based on net asset value (“NAV”) for the 12-month period ended October 31, 2019. This
trailed the 12.45% return of the benchmark, the ICE BofAML All US Convertible Index (VXA0).
|
|
•
|
The Industrials and Healthcare sectors made the largest contribution to portfolio returns on a relative basis. The medical device company, Insulet Corp., benefitted from demand for the company’s
diabetes treatment products, driven by strong acceptance/uptake by physicians, patients and payors. The Professional Services company, FTI Consulting, Inc., benefitted from demand for its consulting services from new
clients.
|
|
•
|
The Financials sector was the largest detractor on a relative basis due primarily to being underweight the sector. An underweight in the Telecommunications sector also detracted from
relative performance.
|
Portfolio Commentary (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
Annual Report
October 31, 2019
(Unaudited)
Investment Outlook
|
•
|
With the Federal Reserve (the “Fed”) unlikely to raise interest rates for the foreseeable future, economic growth slow, but positive, and inflation in check, a positive backdrop exists for
convertibles as we enter 2020, in our opinion.
|
|
•
|
It is our opinion that corporate earnings growth will slow to low single digits in 2019 before rebounding to mid-high single digit growth in 2020.
|
|
•
|
In our view, continued trade tensions with China and news flow surrounding the upcoming 2020 U.S. Presidential election may spawn market volatility, however as long as the economic backdrop and
corporate earnings outlook remain intact, market pullbacks may be transitory.
|
|
•
|
Convertibles continue to offer an attractive combination of upside participation and downside protection, in our view.
|
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Understanding Your Fund
Expenses
October 31, 2019
(Unaudited)
As a shareholder of the
First Trust SSI Strategic Convertible Securities ETF (the “Fund”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1)
fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on
an investment of $1,000 invested at the beginning of the period and held through the six-month period ended October 31, 2019.
Actual Expenses
The first line in the
following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses
Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for
Comparison Purposes
The second line in the
following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is
not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the
expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
|
|
Beginning
Account Value
May 1, 2019
|
Ending
Account Value
October 31, 2019
|
Annualized
Expense Ratio
Based on the
Six-Month
Period
|
Expenses Paid
During the
Six-Month
Period (a)
|
|
First Trust SSI Strategic Convertible Securities ETF (FCVT)
|
|
Actual
|
$1,000.00
|
$1,021.00
|
0.95%
|
$4.84
|
|
Hypothetical (5% return before expenses)
|
$1,000.00
|
$1,020.42
|
0.95%
|
$4.84
|
|
(a)
|
Expenses are equal to the annualized expense ratios as indicated in the table multiplied by the average account value over the period (May 1, 2019 through October
31, 2019), multiplied by 184/365 (to reflect the six-month period).
|
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Portfolio of Investments
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
CONVERTIBLE CORPORATE BONDS – 78.5%
|
|
|
|
Air Freight & Logistics – 0.7%
|
|
|
|
|
|
|
|
$1,525,000
|
|
Air Transport Services Group, Inc.
|
|
1.13%
|
|
10/15/24
|
|
$1,401,818
|
|
|
|
Automobiles – 2.0%
|
|
|
|
|
|
|
|
1,255,000
|
|
Tesla, Inc.
|
|
2.00%
|
|
05/15/24
|
|
1,539,035
|
|
1,105,000
|
|
Tesla, Inc.
|
|
2.38%
|
|
03/15/22
|
|
1,297,032
|
|
960,000
|
|
Winnebago Industries, Inc. (a)
|
|
1.50%
|
|
04/01/25
|
|
989,688
|
|
|
|
|
|
3,825,755
|
|
|
|
Biotechnology – 6.4%
|
|
|
|
|
|
|
|
1,525,000
|
|
BioMarin Pharmaceutical, Inc.
|
|
0.60%
|
|
08/01/24
|
|
1,529,081
|
|
1,790,000
|
|
Exact Sciences Corp.
|
|
0.38%
|
|
03/15/27
|
|
1,927,256
|
|
915,000
|
|
Insmed, Inc.
|
|
1.75%
|
|
01/15/25
|
|
785,714
|
|
1,125,000
|
|
Intercept Pharmaceuticals, Inc.
|
|
2.00%
|
|
05/15/26
|
|
1,056,550
|
|
835,000
|
|
Ionis Pharmaceuticals, Inc.
|
|
1.00%
|
|
11/15/21
|
|
921,408
|
|
1,800,000
|
|
Medicines Co. (The)
|
|
2.75%
|
|
07/15/23
|
|
2,257,875
|
|
800,000
|
|
Neurocrine Biosciences, Inc.
|
|
2.25%
|
|
05/15/24
|
|
1,169,539
|
|
1,020,000
|
|
Radius Health, Inc.
|
|
3.00%
|
|
09/01/24
|
|
969,527
|
|
985,000
|
|
Repligen Corp.
|
|
0.38%
|
|
07/15/24
|
|
989,817
|
|
600,000
|
|
Sarepta Therapeutics, Inc.
|
|
1.50%
|
|
11/15/24
|
|
847,584
|
|
|
|
|
|
12,454,351
|
|
|
|
Communications Equipment – 1.4%
|
|
|
|
|
|
|
|
785,000
|
|
Lumentum Holdings, Inc.
|
|
0.25%
|
|
03/15/24
|
|
994,508
|
|
1,275,000
|
|
Viavi Solutions, Inc.
|
|
1.00%
|
|
03/01/24
|
|
1,713,281
|
|
|
|
|
|
2,707,789
|
|
|
|
Consumer Finance – 0.5%
|
|
|
|
|
|
|
|
950,000
|
|
PRA Group, Inc.
|
|
3.50%
|
|
06/01/23
|
|
965,311
|
|
|
|
Diversified Consumer Services – 1.2%
|
|
|
|
|
|
|
|
2,370,000
|
|
Chegg, Inc. (a)
|
|
0.13%
|
|
03/15/25
|
|
2,223,771
|
|
|
|
Diversified Telecommunication Services – 0.4%
|
|
|
|
|
|
|
|
825,000
|
|
Vonage Holdings Corp. (a)
|
|
1.75%
|
|
06/01/24
|
|
801,929
|
|
|
|
Electronic Equipment, Instruments & Components – 2.1%
|
|
|
|
|
|
|
|
745,000
|
|
II-VI, Inc.
|
|
0.25%
|
|
09/01/22
|
|
752,385
|
|
955,000
|
|
Insight Enterprises, Inc. (a)
|
|
0.75%
|
|
02/15/25
|
|
1,044,277
|
|
825,000
|
|
OSI Systems, Inc.
|
|
1.25%
|
|
09/01/22
|
|
912,656
|
|
1,390,000
|
|
Vishay Intertechnology, Inc.
|
|
2.25%
|
|
06/15/25
|
|
1,373,134
|
|
|
|
|
|
4,082,452
|
|
|
|
Energy Equipment & Services – 1.1%
|
|
|
|
|
|
|
|
615,000
|
|
Helix Energy Solutions Group, Inc.
|
|
4.13%
|
|
09/15/23
|
|
745,303
|
|
870,000
|
|
Oil States International, Inc.
|
|
1.50%
|
|
02/15/23
|
|
740,824
|
|
845,000
|
|
Transocean, Inc.
|
|
0.50%
|
|
01/30/23
|
|
696,209
|
|
|
|
|
|
2,182,336
|
|
|
|
Entertainment – 2.2%
|
|
|
|
|
|
|
|
765,000
|
|
Liberty Media Corp. - Liberty Formula One
|
|
1.00%
|
|
01/30/23
|
|
970,323
|
|
1,140,000
|
|
Live Nation Entertainment, Inc.
|
|
2.50%
|
|
03/15/23
|
|
1,397,514
|
|
215,000
|
|
World Wrestling Entertainment, Inc.
|
|
3.38%
|
|
12/15/23
|
|
503,640
|
|
1,435,000
|
|
Zynga, Inc. (a)
|
|
0.25%
|
|
06/01/24
|
|
1,470,675
|
|
|
|
|
|
4,342,152
|
|
|
|
Equity Real Estate Investment Trusts – 1.1%
|
|
|
|
|
|
|
|
775,000
|
|
Extra Space Storage LP (a)
|
|
3.13%
|
|
10/01/35
|
|
953,324
|
See Notes to Financial Statements
Page 7
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
CONVERTIBLE CORPORATE BONDS (Continued)
|
|
|
|
Equity Real Estate Investment Trusts (Continued)
|
|
|
|
|
|
|
|
$830,000
|
|
IH Merger Sub LLC
|
|
3.50%
|
|
01/15/22
|
|
$1,144,333
|
|
|
|
|
|
2,097,657
|
|
|
|
Health Care Equipment & Supplies – 5.5%
|
|
|
|
|
|
|
|
1,110,000
|
|
CONMED Corp. (a)
|
|
2.63%
|
|
02/01/24
|
|
1,528,779
|
|
2,385,000
|
|
DexCom, Inc. (a)
|
|
0.75%
|
|
12/01/23
|
|
2,856,135
|
|
515,000
|
|
Insulet Corp.
|
|
1.38%
|
|
11/15/24
|
|
857,153
|
|
2,875,000
|
|
Insulet Corp. (a)
|
|
0.38%
|
|
09/01/26
|
|
2,761,797
|
|
1,045,000
|
|
NuVasive, Inc.
|
|
2.25%
|
|
03/15/21
|
|
1,315,069
|
|
1,425,000
|
|
Wright Medical Group, Inc.
|
|
1.63%
|
|
06/15/23
|
|
1,364,706
|
|
|
|
|
|
10,683,639
|
|
|
|
Health Care Providers & Services – 0.5%
|
|
|
|
|
|
|
|
255,000
|
|
Anthem, Inc.
|
|
2.75%
|
|
10/15/42
|
|
965,005
|
|
|
|
Health Care Technology – 0.6%
|
|
|
|
|
|
|
|
750,000
|
|
Teladoc Health, Inc.
|
|
1.38%
|
|
05/15/25
|
|
1,219,200
|
|
|
|
Hotels, Restaurants & Leisure – 0.7%
|
|
|
|
|
|
|
|
730,000
|
|
Caesars Entertainment Corp.
|
|
5.00%
|
|
10/01/24
|
|
1,294,109
|
|
|
|
Independent Power & Renewable Electricity Producers – 0.7%
|
|
|
|
|
|
|
|
1,225,000
|
|
NRG Energy, Inc.
|
|
2.75%
|
|
06/01/48
|
|
1,392,860
|
|
|
|
Insurance – 0.6%
|
|
|
|
|
|
|
|
1,150,000
|
|
AXA S.A. (a)
|
|
7.25%
|
|
05/15/21
|
|
1,194,562
|
|
|
|
Interactive Media & Services – 4.4%
|
|
|
|
|
|
|
|
2,440,000
|
|
IAC FinanceCo 2, Inc. (a)
|
|
0.88%
|
|
06/15/26
|
|
2,636,974
|
|
535,000
|
|
IAC FinanceCo., Inc. (a)
|
|
0.88%
|
|
10/01/22
|
|
852,476
|
|
1,495,000
|
|
Snap, Inc. (a)
|
|
0.75%
|
|
08/01/26
|
|
1,514,779
|
|
2,330,000
|
|
Twitter, Inc.
|
|
0.25%
|
|
06/15/24
|
|
2,230,396
|
|
1,230,000
|
|
Zillow Group, Inc. (a)
|
|
0.75%
|
|
09/01/24
|
|
1,240,480
|
|
|
|
|
|
8,475,105
|
|
|
|
Internet & Direct Marketing Retail – 3.4%
|
|
|
|
|
|
|
|
860,000
|
|
Booking Holdings, Inc.
|
|
0.35%
|
|
06/15/20
|
|
1,341,125
|
|
1,860,000
|
|
Booking Holdings, Inc.
|
|
0.90%
|
|
09/15/21
|
|
2,190,685
|
|
1,915,000
|
|
Etsy, Inc. (a)
|
|
0.13%
|
|
10/01/26
|
|
1,739,137
|
|
1,310,000
|
|
Wayfair, Inc. (a)
|
|
1.13%
|
|
11/01/24
|
|
1,340,857
|
|
|
|
|
|
6,611,804
|
|
|
|
IT Services – 5.7%
|
|
|
|
|
|
|
|
3,090,000
|
|
Akamai Technologies, Inc.
|
|
0.13%
|
|
05/01/25
|
|
3,476,250
|
|
1,150,000
|
|
Euronet Worldwide, Inc. (a)
|
|
0.75%
|
|
03/15/49
|
|
1,310,698
|
|
790,000
|
|
KBR, Inc. (a)
|
|
2.50%
|
|
11/01/23
|
|
992,099
|
|
180,000
|
|
Okta, Inc.
|
|
0.25%
|
|
02/15/23
|
|
416,212
|
|
1,285,000
|
|
Okta, Inc. (a)
|
|
0.13%
|
|
09/01/25
|
|
1,222,426
|
|
850,000
|
|
Perficient, Inc.
|
|
2.38%
|
|
09/15/23
|
|
1,036,080
|
|
1,835,000
|
|
Square, Inc.
|
|
0.50%
|
|
05/15/23
|
|
2,030,855
|
|
340,000
|
|
Twilio, Inc.
|
|
0.25%
|
|
06/01/23
|
|
517,556
|
|
|
|
|
|
11,002,176
|
|
|
|
Life Sciences Tools & Services – 0.9%
|
|
|
|
|
|
|
|
870,000
|
|
Illumina, Inc.
|
|
(b)
|
|
08/15/23
|
|
944,779
|
|
665,000
|
|
Illumina, Inc.
|
|
0.50%
|
|
06/15/21
|
|
867,856
|
|
|
|
|
|
1,812,635
|
Page 8
See Notes to Financial Statements
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
CONVERTIBLE CORPORATE BONDS (Continued)
|
|
|
|
Machinery – 1.8%
|
|
|
|
|
|
|
|
$445,000
|
|
Chart Industries, Inc. (a)
|
|
1.00%
|
|
11/15/24
|
|
$536,722
|
|
1,670,000
|
|
Fortive Corp. (a)
|
|
0.88%
|
|
02/15/22
|
|
1,651,759
|
|
1,260,000
|
|
Meritor, Inc.
|
|
3.25%
|
|
10/15/37
|
|
1,297,275
|
|
|
|
|
|
3,485,756
|
|
|
|
Media – 3.3%
|
|
|
|
|
|
|
|
3,020,000
|
|
DISH Network Corp.
|
|
3.38%
|
|
08/15/26
|
|
2,831,435
|
|
1,625,000
|
|
GCI Liberty, Inc. (a)
|
|
1.75%
|
|
09/30/46
|
|
2,193,019
|
|
1,050,000
|
|
Liberty Media Corp.
|
|
1.38%
|
|
10/15/23
|
|
1,327,557
|
|
|
|
|
|
6,352,011
|
|
|
|
Metals & Mining – 0.7%
|
|
|
|
|
|
|
|
360,000
|
|
Cleveland-Cliffs, Inc.
|
|
1.50%
|
|
01/15/25
|
|
395,853
|
|
805,000
|
|
SSR Mining, Inc. (a)
|
|
2.50%
|
|
04/01/39
|
|
918,706
|
|
|
|
|
|
1,314,559
|
|
|
|
Mortgage Real Estate Investment Trusts – 1.6%
|
|
|
|
|
|
|
|
1,900,000
|
|
Blackstone Mortgage Trust, Inc.
|
|
4.38%
|
|
05/05/22
|
|
2,008,062
|
|
1,135,000
|
|
Two Harbors Investment Corp.
|
|
6.25%
|
|
01/15/22
|
|
1,175,269
|
|
|
|
|
|
3,183,331
|
|
|
|
Multi-Utilities – 0.4%
|
|
|
|
|
|
|
|
14,100
|
|
CenterPoint Energy, Inc.
|
|
4.52%
|
|
09/15/29
|
|
820,479
|
|
|
|
Oil, Gas & Consumable Fuels – 1.7%
|
|
|
|
|
|
|
|
2,275,000
|
|
Cheniere Energy, Inc.
|
|
4.25%
|
|
03/15/45
|
|
1,794,406
|
|
1,400,000
|
|
TOTAL S.A., Series FP
|
|
0.50%
|
|
12/02/22
|
|
1,476,552
|
|
|
|
|
|
3,270,958
|
|
|
|
Personal Products – 0.7%
|
|
|
|
|
|
|
|
1,375,000
|
|
Herbalife Nutrition Ltd.
|
|
2.63%
|
|
03/15/24
|
|
1,388,519
|
|
|
|
Pharmaceuticals – 1.0%
|
|
|
|
|
|
|
|
1,260,000
|
|
Horizon Pharma Investment Ltd.
|
|
2.50%
|
|
03/15/22
|
|
1,514,749
|
|
470,000
|
|
Jazz Investments I Ltd.
|
|
1.88%
|
|
08/15/21
|
|
470,582
|
|
|
|
|
|
1,985,331
|
|
|
|
Professional Services – 1.0%
|
|
|
|
|
|
|
|
1,510,000
|
|
FTI Consulting, Inc.
|
|
2.00%
|
|
08/15/23
|
|
1,893,033
|
|
|
|
Semiconductors & Semiconductor Equipment – 10.0%
|
|
|
|
|
|
|
|
674,000
|
|
Advanced Micro Devices, Inc.
|
|
2.13%
|
|
09/01/26
|
|
2,927,450
|
|
625,000
|
|
Cree, Inc.
|
|
0.88%
|
|
09/01/23
|
|
677,164
|
|
870,000
|
|
Inphi Corp.
|
|
0.75%
|
|
09/01/21
|
|
1,202,790
|
|
405,000
|
|
Intel Corp.
|
|
3.25%
|
|
08/01/39
|
|
1,128,998
|
|
1,770,000
|
|
Microchip Technology, Inc.
|
|
1.63%
|
|
02/15/25
|
|
3,419,419
|
|
2,925,000
|
|
Microchip Technology, Inc.
|
|
1.63%
|
|
02/15/27
|
|
3,836,382
|
|
190,000
|
|
Micron Technology, Inc., Series F
|
|
2.13%
|
|
02/15/33
|
|
825,916
|
|
175,000
|
|
Novellus Systems, Inc.
|
|
2.63%
|
|
05/15/41
|
|
1,471,621
|
|
1,390,000
|
|
ON Semiconductor Corp.
|
|
1.00%
|
|
12/01/20
|
|
1,685,582
|
|
900,000
|
|
Silicon Laboratories, Inc.
|
|
1.38%
|
|
03/01/22
|
|
1,140,674
|
|
500,000
|
|
Teradyne, Inc.
|
|
1.25%
|
|
12/15/23
|
|
995,073
|
|
|
|
|
|
19,311,069
|
|
|
|
Software – 12.7%
|
|
|
|
|
|
|
|
960,000
|
|
Alteryx, Inc. (a)
|
|
0.50%
|
|
08/01/24
|
|
890,162
|
|
940,000
|
|
Atlassian, Inc.
|
|
0.63%
|
|
05/01/23
|
|
1,495,642
|
See Notes to Financial Statements
Page 9
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
CONVERTIBLE CORPORATE BONDS (Continued)
|
|
|
|
Software (Continued)
|
|
|
|
|
|
|
|
$2,290,000
|
|
Coupa Software, Inc. (a)
|
|
0.13%
|
|
06/15/25
|
|
$2,600,785
|
|
763,000
|
|
DocuSign, Inc.
|
|
0.50%
|
|
09/15/23
|
|
899,823
|
|
1,051,000
|
|
Envestnet, Inc.
|
|
1.75%
|
|
06/01/23
|
|
1,191,195
|
|
420,000
|
|
FireEye, Inc.
|
|
0.88%
|
|
06/01/24
|
|
416,448
|
|
1,035,000
|
|
Guidewire Software, Inc.
|
|
1.25%
|
|
03/15/25
|
|
1,239,610
|
|
345,000
|
|
HubSport, Inc.
|
|
0.25%
|
|
06/01/22
|
|
590,959
|
|
925,000
|
|
LivePerson, Inc. (a)
|
|
0.75%
|
|
03/01/24
|
|
1,172,438
|
|
1,200,000
|
|
Nuance Communications, Inc.
|
|
1.25%
|
|
04/01/25
|
|
1,267,500
|
|
2,310,000
|
|
Palo Alto Networks, Inc.
|
|
0.75%
|
|
07/01/23
|
|
2,552,464
|
|
952,000
|
|
Proofpoint, Inc. (a)
|
|
0.25%
|
|
08/15/24
|
|
987,700
|
|
1,135,000
|
|
Q2 Holdings, Inc. (a)
|
|
0.75%
|
|
06/01/26
|
|
1,203,975
|
|
570,000
|
|
RingCentral, Inc.
|
|
(b)
|
|
03/15/23
|
|
1,154,963
|
|
755,000
|
|
ServiceNow, Inc.
|
|
(b)
|
|
06/01/22
|
|
1,416,211
|
|
2,550,000
|
|
Splunk, Inc.
|
|
0.50%
|
|
09/15/23
|
|
2,781,346
|
|
1,635,000
|
|
Workday, Inc.
|
|
0.25%
|
|
10/01/22
|
|
2,087,559
|
|
570,000
|
|
Zendesk, Inc.
|
|
0.25%
|
|
03/15/23
|
|
743,640
|
|
|
|
|
|
24,692,420
|
|
|
|
Specialty Retail – 0.8%
|
|
|
|
|
|
|
|
1,355,000
|
|
RH
|
|
(b)
|
|
06/15/23
|
|
1,532,857
|
|
|
|
Trading Companies & Distributors – 0.7%
|
|
|
|
|
|
|
|
1,200,000
|
|
Kaman Corp.
|
|
3.25%
|
|
05/01/24
|
|
1,367,538
|
|
|
|
Total Convertible Corporate Bonds
|
|
152,334,277
|
|
|
|
(Cost $137,085,230)
|
|
|
|
|
|
|
|
Shares
|
|
Description
|
|
Stated
Rate
|
|
Stated
Maturity (c)
|
|
Value
|
|
CONVERTIBLE PREFERRED SECURITIES – 19.8%
|
|
|
|
Banks – 5.8%
|
|
|
|
|
|
|
|
3,510
|
|
Bank of America Corp., Series L
|
|
7.25%
|
|
(d)
|
|
5,323,231
|
|
3,970
|
|
Wells Fargo & Co., Series L
|
|
7.50%
|
|
(d)
|
|
5,992,715
|
|
|
|
|
|
11,315,946
|
|
|
|
Chemicals – 0.4%
|
|
|
|
|
|
|
|
16,625
|
|
International Flavors & Fragrances, Inc.
|
|
6.00%
|
|
09/15/21
|
|
777,551
|
|
|
|
Electric Utilities – 2.3%
|
|
|
|
|
|
|
|
18,200
|
|
American Electric Power Co., Inc.
|
|
6.13%
|
|
03/15/22
|
|
1,000,818
|
|
30,990
|
|
NextEra Energy, Inc.
|
|
4.87%
|
|
09/01/22
|
|
1,576,152
|
|
35,300
|
|
Southern Co. (The)
|
|
6.75%
|
|
08/01/22
|
|
1,876,548
|
|
|
|
|
|
4,453,518
|
|
|
|
Equity Real Estate Investment Trusts – 1.2%
|
|
|
|
|
|
|
|
1,890
|
|
Crown Castle International Corp., Series A
|
|
6.88%
|
|
08/01/20
|
|
2,354,354
|
|
|
|
Food Products – 0.5%
|
|
|
|
|
|
|
|
8,700
|
|
Bunge Ltd.
|
|
4.88%
|
|
(d)
|
|
883,203
|
|
|
|
Health Care Equipment & Supplies – 2.9%
|
|
|
|
|
|
|
|
51,200
|
|
Becton Dickinson and Co., Series A
|
|
6.13%
|
|
05/01/20
|
|
3,158,016
|
|
2,275
|
|
Danaher Corp., Series A
|
|
4.75%
|
|
04/15/22
|
|
2,525,978
|
|
|
|
|
|
5,683,994
|
|
|
|
Health Care Technology – 0.5%
|
|
|
|
|
|
|
|
18,195
|
|
Change Healthcare, Inc.
|
|
6.00%
|
|
06/30/22
|
|
919,393
|
Page 10
See Notes to Financial Statements
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Portfolio of Investments
(Continued)
October 31, 2019
|
Shares
|
|
Description
|
|
Stated
Rate
|
|
Stated
Maturity (c)
|
|
Value
|
|
CONVERTIBLE PREFERRED SECURITIES (Continued)
|
|
|
|
Life Sciences Tools & Services – 0.5%
|
|
|
|
|
|
|
|
18,440
|
|
Avantor, Inc., Series A
|
|
6.25%
|
|
05/15/22
|
|
$959,064
|
|
|
|
Machinery – 1.2%
|
|
|
|
|
|
|
|
1,330
|
|
Fortive Corp., Series A
|
|
5.00%
|
|
07/01/21
|
|
1,197,732
|
|
10,500
|
|
Stanley Black & Decker, Inc.
|
|
5.38%
|
|
05/15/20
|
|
1,070,370
|
|
|
|
|
|
2,268,102
|
|
|
|
Multi-Utilities – 2.6%
|
|
|
|
|
|
|
|
18,500
|
|
CenterPoint Energy, Inc., Series B
|
|
7.00%
|
|
09/01/21
|
|
943,500
|
|
14,250
|
|
Dominion Energy, Inc, Series A
|
|
7.25%
|
|
06/01/22
|
|
1,527,743
|
|
22,250
|
|
Sempra Energy, Series A
|
|
6.00%
|
|
01/15/21
|
|
2,581,667
|
|
|
|
|
|
5,052,910
|
|
|
|
Semiconductors & Semiconductor Equipment – 1.4%
|
|
|
|
|
|
|
|
2,595
|
|
Broadcom, Inc., Series A
|
|
8.00%
|
|
09/30/22
|
|
2,810,437
|
|
|
|
Water Utilities – 0.5%
|
|
|
|
|
|
|
|
16,515
|
|
Aqua America, Inc.
|
|
6.00%
|
|
04/30/22
|
|
995,029
|
|
|
|
Total Convertible Preferred Securities
|
|
38,473,501
|
|
|
|
(Cost $35,200,815)
|
|
|
|
|
|
|
|
|
|
Total Investments – 98.3%
|
|
190,807,778
|
|
|
|
(Cost $172,286,045) (e)
|
|
|
|
|
|
|
|
|
Net Other Assets and Liabilities – 1.7%
|
|
3,350,053
|
|
|
Net Assets – 100.0%
|
|
$194,157,831
|
|
|
(a)
|
This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A under the Securities Act of 1933, as amended, and may
be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by
First Trust Advisors L.P., 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, 2019, securities noted as such amounted to $40,830,129 or 21.0% of net assets.
|
|
(b)
|
Zero coupon security.
|
|
(c)
|
Stated maturity represents the mandatory conversion date.
|
|
(d)
|
Perpetual maturity.
|
|
(e)
|
Aggregate cost for federal income tax purposes was $175,570,141. As of October 31, 2019, the aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost was $18,716,855 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $3,479,218. The net unrealized
appreciation was $15,237,637.
|
Valuation Inputs
A summary of the inputs
used to value the Fund’s investments as of October 31, 2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
|
Total
Value at
10/31/2019
|
Level 1
Quoted
Prices
|
Level 2
Significant
Observable
Inputs
|
Level 3
Significant
Unobservable
Inputs
|
|
Convertible Corporate Bonds*
|
$ 152,334,277
|
$ —
|
$ 152,334,277
|
$ —
|
|
Convertible Preferred Securities:
|
|
|
|
|
|
Food Products
|
883,203
|
—
|
883,203
|
—
|
|
Other industry categories*
|
37,590,298
|
37,590,298
|
—
|
—
|
|
Total Investments
|
$ 190,807,778
|
$ 37,590,298
|
$ 153,217,480
|
$—
|
|
*
|
See Portfolio of Investments for industry breakout.
|
See Notes to Financial Statements
Page 11
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Statement of Assets and
Liabilities
October 31, 2019
|
ASSETS:
|
|
|
Investments, at value
(Cost $172,286,045)
|
$ 190,807,778
|
|
Cash
|
1,646,382
|
|
Receivables:
|
|
|
Investment securities sold
|
2,488,066
|
|
Interest
|
495,480
|
|
Dividends
|
124,996
|
|
Total Assets
|
195,562,702
|
|
LIABILITIES:
|
|
|
Payables:
|
|
|
Investment securities purchased
|
1,249,811
|
|
Investment advisory fees
|
155,060
|
|
Total Liabilities
|
1,404,871
|
|
NET ASSETS
|
$194,157,831
|
|
NET ASSETS consist of:
|
|
|
Paid-in capital
|
$ 179,495,938
|
|
Par value
|
61,500
|
|
Accumulated distributable earnings (loss)
|
14,600,393
|
|
NET ASSETS
|
$194,157,831
|
|
NET ASSET VALUE, per share
|
$31.57
|
|
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)
|
6,150,002
|
Page 12
See Notes to Financial Statements
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Statement of Operations
For the Year Ended October
31, 2019
|
INVESTMENT INCOME:
|
|
|
Dividends
|
$ 1,747,076
|
|
Interest
|
(1,150,627)
|
|
Total investment income
|
596,449
|
|
EXPENSES:
|
|
|
Investment advisory fees
|
1,757,769
|
|
Total expenses
|
1,757,769
|
|
NET INVESTMENT INCOME (LOSS)
|
(1,161,320)
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS):
|
|
|
Net realized gain (loss) on investments
|
4,565,461
|
|
Net change in unrealized appreciation (depreciation) on investments
|
14,922,374
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS)
|
19,487,835
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
$ 18,326,515
|
See Notes to Financial Statements
Page 13
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Statements of Changes in
Net Assets
|
|
Year
Ended
10/31/2019
|
|
Year
Ended
10/31/2018
|
|
OPERATIONS:
|
|
|
|
|
Net investment income (loss)
|
$ (1,161,320)
|
|
$ (2,671,854)
|
|
Net realized gain (loss)
|
4,565,461
|
|
1,537,494
|
|
Net change in unrealized appreciation (depreciation)
|
14,922,374
|
|
(1,625,775)
|
|
Net increase (decrease) in net assets resulting from operations
|
18,326,515
|
|
(2,760,135)
|
|
DISTRIBUTIONS TO SHAREHOLDERS FROM:
|
|
|
|
|
Investment operations
|
(2,995,341)
|
|
(2,562,416)
|
|
SHAREHOLDER TRANSACTIONS:
|
|
|
|
|
Proceeds from shares sold
|
29,071,259
|
|
164,774,570
|
|
Cost of shares redeemed
|
(52,711,960)
|
|
(15,000,954)
|
|
Net increase (decrease) in net assets resulting from shareholder transactions
|
(23,640,701)
|
|
149,773,616
|
|
Total increase (decrease) in net assets
|
(8,309,527)
|
|
144,451,065
|
|
NET ASSETS:
|
|
|
|
|
Beginning of period
|
202,467,358
|
|
58,016,293
|
|
End of period
|
$ 194,157,831
|
|
$ 202,467,358
|
|
CHANGES IN SHARES OUTSTANDING:
|
|
|
|
|
Shares outstanding, beginning of period
|
7,050,002
|
|
2,000,002
|
|
Shares sold
|
950,000
|
|
5,550,000
|
|
Shares redeemed
|
(1,850,000)
|
|
(500,000)
|
|
Shares outstanding, end of period
|
6,150,002
|
|
7,050,002
|
Page 14
See Notes to Financial Statements
First Trust SSI Strategic Convertible
Securities ETF (FCVT)
Financial Highlights
For a share outstanding
throughout each period
|
|
Year Ended October 31,
|
|
Period
Ended
10/31/2016 (a)
|
|
2019
|
|
2018
|
|
2017
|
|
|
Net asset value, beginning of period
|
$ 28.72
|
|
$ 29.01
|
|
$ 25.21
|
|
$ 25.00
|
|
Income from investment operations:
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
(0.24)
|
|
(0.09)
|
|
(0.14)
|
|
(0.24)
|
|
Net realized and unrealized gain (loss)
|
3.58
|
|
0.52
|
|
4.45
|
|
0.90
|
|
Total from investment operations
|
3.34
|
|
0.43
|
|
4.31
|
|
0.66
|
|
Distributions paid to shareholders from:
|
|
|
|
|
|
|
|
|
Net investment income
|
(0.49)
|
|
(0.67)
|
|
(0.51)
|
|
(0.45)
|
|
Net realized gain
|
—
|
|
(0.05)
|
|
—
|
|
—
|
|
Total distributions
|
(0.49)
|
|
(0.72)
|
|
(0.51)
|
|
(0.45)
|
|
Net asset value, end of period
|
$31.57
|
|
$28.72
|
|
$29.01
|
|
$25.21
|
|
Total return (b)
|
11.72%
|
|
1.46%
|
|
17.29%
|
|
2.68%
|
|
Ratios to average net assets/supplemental data:
|
|
|
|
|
|
|
|
|
Net assets, end of period (in 000’s)
|
$ 194,158
|
|
$ 202,467
|
|
$ 58,016
|
|
$ 7,564
|
|
Ratio of total expenses to average net assets
|
0.95%
|
|
0.95%
|
|
0.95%
|
|
0.95% (c)
|
|
Ratio of net investment income (loss) to average net assets
|
(0.63)%
|
|
(2.16)%
|
|
(1.86)%
|
|
(2.34)% (c)
|
|
Portfolio turnover rate (d)
|
64%
|
|
71%
|
|
56%
|
|
54%
|
|
(a)
|
Inception date is November 3, 2015, which is consistent with the commencement of investment operations and is the date the initial creation units were established.
|
|
(b)
|
Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the
period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund
shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year.
|
|
(c)
|
Annualized.
|
|
(d)
|
Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or
delivered from processing creations or redemptions and in-kind transactions.
|
See Notes to Financial Statements
Page 15
Notes to Financial Statements
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
1. Organization
First Trust
Exchange-Traded Fund IV (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange
Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently
consists of nine funds that are offering shares. This report covers the First Trust SSI Strategic Convertible Securities ETF (the “Fund”), a non-diversified series of the Trust, which trades under the
ticker “FCVT” on The Nasdaq Stock Market LLC (“Nasdaq”). Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only
in large specified blocks consisting of 50,000 shares called a “Creation Unit.” Creation Units are issued and redeemed for cash and, in certain circumstances, in-kind for securities in which the Fund
invests. Except when aggregated in Creation Units, the Fund’s shares are not redeemable securities.
The Fund is an actively
managed exchange-traded fund. The investment objective of the Fund is to seek total return. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net
assets (including investment borrowings) in a portfolio of U.S. and non-U.S. convertible securities. There can be no assurances that the Fund will achieve its investment objective. The Fund may not be appropriate for
all investors.
2. Significant
Accounting Policies
The Fund is considered an
investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial
Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial
statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio
Valuation
The Fund’s NAV is
determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. Domestic debt securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by
dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares
outstanding.
The Fund’s
investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a
national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained
from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance
with valuation procedures adopted by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such
in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Convertible preferred stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last
sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities.
Convertible corporate bonds, notes and other debt securities are fair valued on the basis of valuations provided by dealers who make markets in such securities or by a third-party pricing service approved by the
Trust’s Board of Trustees, which may use the following valuation inputs when available:
|
1)
|
benchmark yields;
|
|
2)
|
reported trades;
|
|
3)
|
broker/dealer quotes;
|
|
4)
|
issuer spreads;
|
|
5)
|
benchmark securities;
|
|
6)
|
bids and offers; and
|
|
7)
|
reference data including market research publications.
|
Notes to Financial Statements (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price.
Fixed
income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the
Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors
that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
|
1)
|
the credit conditions in the relevant market and changes thereto;
|
|
2)
|
the liquidity conditions in the relevant market and changes thereto;
|
|
3)
|
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
|
|
4)
|
issuer-specific conditions (such as significant credit deterioration); and
|
|
5)
|
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when
valuing portfolio securities using amortized cost.
|
Certain securities may
not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust’s Board of Trustees or its delegate, the Advisor’s Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is
unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to
which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a
reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security
would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official
closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities.
Fair valuation of a debt
security will be based on the consideration of all available information, including, but not limited to, the following:
|
1)
|
the fundamental business data relating to the issuer;
|
|
2)
|
an evaluation of the forces which influence the market in which these securities are purchased and sold;
|
|
3)
|
the type, size and cost of the security;
|
|
4)
|
the financial statements of the issuer;
|
|
5)
|
the credit quality and cash flow of the issuer, based on the sub-advisor’s or external analysis;
|
|
6)
|
the information as to any transactions in or offers for the security;
|
|
7)
|
the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
|
|
8)
|
the coupon payments;
|
|
9)
|
the quality, value and salability of collateral, if any, securing the security;
|
|
10)
|
the business prospects of the issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer’s management;
|
|
11)
|
the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; and
|
|
12)
|
other relevant factors.
|
Fair valuation of an
equity security will be based on the consideration of all available information, including, but not limited to, the following:
|
1)
|
the type of security;
|
|
2)
|
the size of the holding;
|
|
3)
|
the initial cost of the security;
|
|
4)
|
transactions in comparable securities;
|
|
5)
|
price quotes from dealers and/or third-party pricing services;
|
|
6)
|
relationships among various securities;
|
|
7)
|
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
|
Notes to Financial Statements (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
|
8)
|
an analysis of the issuer’s financial statements; and
|
|
9)
|
the existence of merger proposals or tender offers that might affect the value of the security.
|
The Fund is subject to
fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
|
•
|
Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
|
|
•
|
Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
|
|
o
|
Quoted prices for similar investments in active markets.
|
|
o
|
Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or
price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
|
|
o
|
Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss
severities, credit risks, and default rates).
|
|
o
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
•
|
Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing
the investment.
|
The inputs or
methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October
31, 2019, is included with the Fund’s Portfolio of Investments.
B. Securities
Transactions and Investment Income
Securities transactions
are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
The Fund invests in
convertible securities that are acquired at a price significantly above the principal value. Consequently, the amortization of premium may exceed the interest income earned on the securities.
C. Dividends and
Distributions to Shareholders
Dividends from net
investment income, if any, are declared and paid monthly by the Fund, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are
distributed at least annually.
Distributions from income
and capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net
assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in
the future.
The tax character of
distributions paid by the Fund during the fiscal years ended October 31, 2019 and 2018, was as follows:
|
Distributions paid from:
|
2019
|
2018
|
|
Ordinary income
|
$2,995,341
|
$2,445,317
|
|
Capital gains
|
—
|
117,099
|
|
Return of capital
|
—
|
—
|
As of October 31, 2019,
the components of distributable earnings on a tax basis were as follows:
|
Undistributed ordinary income
|
$362,764
|
|
Accumulated capital and other gain (loss)
|
(1,000,008)
|
|
Net unrealized appreciation (depreciation)
|
15,237,637
|
Notes to Financial Statements (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
D. Income Taxes
The Fund intends to
continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to
an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund intends to
utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At
October 31, 2019, the Fund had $1,000,008 of non-expiring capital loss carryforwards for federal income tax purposes.
Certain losses realized
during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2019, the Fund had no net
ordinary losses.
The Fund is subject to
accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2016, 2017, 2018,
and 2019 remain open to federal and state audit. As of October 31, 2019, management has evaluated the application of these standards to the Fund, and has determined that no provision for income tax is required in the
Fund’s financial statements for uncertain tax positions.
In order to present
paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation
(depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the
Fund and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2019, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss)
|
|
Accumulated
Net Realized
Gain (Loss)
on Investments
|
|
Paid-in
Capital
|
|
$4,396,630
|
|
$(4,396,630)
|
|
$—
|
E. Expenses
Expenses, other than the
investment advisory fee and other excluded expenses, are paid by the Advisor (See Note 3).
F. New Accounting
Pronouncement
On August 28, 2018, the
FASB issued Accounting Standards Update (“ASU”) 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which amends the fair value
measurement disclosure requirements of ASC 820. The amendments of ASU 2018-13 include new, eliminated, and modified disclosure requirements of ASC 820. In addition, the amendments clarify that materiality is an
appropriate consideration of entities when evaluating disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted
for any eliminated or modified disclosures upon issuance of this ASU. The Fund has early adopted ASU 2018-13 for these financial statements, which did not result in a material impact.
3. Investment
Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the
investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for 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
Notes to Financial Statements (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
management of the investment of the
Fund’s assets and will pay SSI for its services as the Fund’s sub-advisor. First Trust will also be responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund
administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.95% of its average daily net assets. SSI receives a sub-advisory fee from First Trust. 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.
On March 14, 2019, First
Trust announced that the Trust’s Board of Trustees (the “Board”) voted to approve SSI as investment sub-advisor to the Fund to replace SSI Investment Management Inc. (“SSI Inc”). SSI
began serving as investment sub-advisor to the Fund effective on the closing of the Transaction (defined below). SSI Inc. engaged in an internal reorganization pursuant to which it created a subsidiary, SSI, and
transferred its advisory business to SSI. In connect with this reorganization, Resolute Investment Managers, Inc. (“Resolute”) acquired a majority interest in SSI on May 31, 2019 (the
“Transaction”). The acquisition of the interests in SSI by Resolute is considered an “assignment” (as defined in the 1940 Act) which resulted in the automatic termination of the existing
investment sub-advisory agreement among the Fund, First Trust, and SSI Inc. (the “Sub-Advisory Agreement”), in accordance with the terms of such Sub-Advisory Agreement. Prior to the Transaction, on March
14, 2019, the Board approved an interim investment sub-advisory agreement (the “New Agreement”) among the Fund, First Trust and SSI to become effective upon the termination of the Sub-Advisory Agreement.
The New Agreement was submitted to shareholders of the Fund for approval and took effect upon such shareholder approval on July 11, 2019.
The Trust has multiple
service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performs custodial, fund accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BBH is responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH is responsible for maintaining the books and records of the Fund’s securities and
cash. As transfer agent, BBH is responsible for maintaining shareholder records for the Fund.
Each Trustee who is not
an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, or is an index fund.
Additionally, the Lead
Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata
among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and
Committee Chairmen rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and
Sales of Securities
The cost of purchases and
proceeds from sales of securities, excluding short-term investments and in-kind transactions, for the fiscal year ended October 31, 2019, were $117,190,293 and $138,967,108, respectively.
For the fiscal year ended
October 31, 2019, the Fund had no in-kind transactions.
5. Creations,
Redemptions and Transaction Fees
Shares are created and
redeemed by the Fund only in Creation Unit size aggregations of 50,000 shares in transactions with broker-dealers or large institutional investors that have entered into a participation agreement (an “Authorized
Participant”). Due to the nature of the Fund’s investments, the Fund’s Creation Units are generally issued and redeemed for cash, although Creation Units may be issued in-kind for securities in which
the Fund invests in limited circumstances. Authorized Participants purchasing Creation Units must pay to BBH, as transfer agent, a creation transaction fee (the “Creation Transaction Fee”) regardless of
the number of Creation Units purchased in the transaction. The Creation Transaction Fee may vary and is based on the composition of the securities included in the Fund’s portfolio and/or the countries in which
the transactions are settled. The price for each Creation Unit will equal the daily NAV per share times the number of shares in a Creation Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When Creation Units are issued for cash, the Authorized Participant may also be assessed an amount to cover the cost of purchasing portfolio securities,
including operational processing and brokerage costs, transfer fees, stamp taxes, and part or all of the spread between the expected bid and offer side of the market related to such securities.
Authorized Participants
redeeming Creation Units must pay to BBH, as transfer agent, a standard redemption transaction fee (the “Redemption Transaction Fee”), regardless of the number of Creation Units redeemed in the
transaction. The Redemption Transaction Fee may vary and is based on the composition of the securities included in the Fund’s portfolio and/or the countries in which the
Notes to Financial Statements (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
transactions are settled. When shares
are redeemed for cash, the Authorized Participant may also be assessed an amount to cover other costs, including operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread
between the expected bid and offer side of the market related to portfolio securities sold in connection with the redemption.
6. Distribution
Plan
The Board of Trustees
adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year
to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or to provide investor
services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and
educational and promotional services.
No 12b-1 fees are
currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2021.
7. Indemnification
The Trust, on behalf of
the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent
Events
Management has evaluated
the impact of all subsequent events to the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Report of Independent
Registered Public Accounting Firm
To the Shareholders and the
Board of Trustees of First Trust Exchange-Traded Fund IV:
Opinion on the Financial
Statements and Financial Highlights
We have audited the
accompanying statement of assets and liabilities of First Trust SSI Strategic Convertible Securities ETF (the “Fund”), a series of the First Trust Exchange-Traded Fund IV, including the portfolio of
investments, as of October 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights
for the years ended October 31, 2019, 2018 and 2017, and the period from November 3, 2015 (commencement of operations) through October 31, 2016, and the related notes. In our opinion, the financial statements and
financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for the years ended October 31, 2019, 2018 and 2017, and for the period from November 3, 2015 (commencement of operations) through October
31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial
statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of
material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October
31, 2019, by correspondence with the custodian and brokers, when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our
opinion.
Chicago, Illinois
December 23, 2019
We have served as the
auditor of one or more First Trust investment companies since 2001.
Additional Information
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
Proxy Voting Policies
and Procedures
A description of the
policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio
holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be
publicly available on the SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and
annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The
Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Federal Tax
Information
For the taxable year
ended October 31, 2019, the following percentages of income dividend paid by the Fund qualify for the dividends received deduction available to corporations and are hereby designated as qualified dividend income:
|
Dividends Received Deduction
|
|
Qualified Dividend Income
|
|
37.19%
|
|
37.19%
|
A portion of the ordinary
dividends (including short-term capital gains) that the Fund paid to shareholders during the taxable year ended October 31, 2019, may be eligible for the Qualified Business Income (QBI) Deduction under the Internal
Revenue Code of 1986, as amended, section 199A for the aggregate dividends the Fund received from the underlying Real Estate Investment Trusts (REITs) it invests in.
Submission of Matters to
a Vote of Shareholders
On July 11, 2019 the
shareholders of the Fund voted at a special meeting of shareholders to approve a new investment sub-advisory agreement for the Fund among the Trust, First Trust and SSI Investment Management LLC (the “New
Sub-Advisory Agreement”). On March 14, 2019, First Trust announced that SSI Investment Management Inc. (“SSI Inc.”) intended to engage in an internal reorganization pursuant to which it would create
a subsidiary, SSI Investment Management LLC (“SSI LLC”), and transfer its advisory business to SSI LLC. Effective June 1, 2019, Resolute Investment Managers, Inc. (“Resolute”) acquired a
majority interest in SSI LLC (the “Transaction”). The acquisition of the interests in SSI LLC by Resolute was expected to be considered an “assignment” (as defined in the Investment Company Act
of 1940, as amended) resulting in the termination of the then-existing investment sub-advisory agreement among the Trust, First Trust and SSI Inc. (the “Prior Sub-Advisory Agreement”), in accordance with
the terms of such Prior Sub-Advisory Agreement. To avoid any interruption of services, the Board of Trustees (“Board”) of the Trust approved an interim sub-advisory agreement for the Fund among the Trust,
First Trust and SSI LLC which had been in effect since the closing of the Transaction. In light of the Transaction, the Board also approved the New Sub-Advisory Agreement. The New Sub-Advisory Agreement was submitted
to shareholders of the Fund for approval and took effect July 11, 2019, upon shareholder approval. The number of votes cast in favor of the New Sub-Advisory Agreement was 2,359,686, the number of votes against was
734,660 and the number of broker non-votes was 3,055,656.
Risk Considerations
Risks are inherent in all
investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each
Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s
investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or
contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a large percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or
sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be
Additional Information (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
concentrated to the extent the
fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is not concentrated.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a
security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a
fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with
corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or
issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value
of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s
return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities
Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices
fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when
political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or
sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying
securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net
asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an
ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities
Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the
risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will
decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk”
bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade
securities.
Index Constituent
Risk. Certain funds may be a constituent of one or more indices. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component
security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could significantly increase demand for the fund
and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may
be significantly below its net asset value during certain periods.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will
be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other
modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness
of data in the Index, and
Additional Information (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
it does not guarantee that the Index
will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies
Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those
investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers
will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or
market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these
market fluctuations.
Non-U.S. Securities
Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher
volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; currency exchange
rates; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities
may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities
of companies located, or with significant operations, in emerging market countries.
Passive Investment
Risk. To the extent a Fund seeks to track an index, the Fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A Fund generally
will not attempt to take defensive positions in declining markets.
|
NOT FDIC INSURED
|
NOT BANK GUARANTEED
|
MAY LOSE VALUE
|
Advisory Agreement
Board Considerations
Regarding Approval of Continuation of Investment Management Agreement
The Board of Trustees
(the “Board”) 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, 2020 at a meeting held on June 2, 2019. The Board determined that the continuation of the Advisory Agreement is in the best interests of the
Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its reasonable business judgment.
To reach this
determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving
advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether
investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the Board, including the
Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other
things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate payable by the Fund as compared to fees
charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc.
(“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio
of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one
or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses
incurred in providing services to the Fund and the potential for economies of scale, if any; financial data on the Advisor; any fall-out benefits to the Advisor and its affiliate, First Trust Portfolios L.P.
(“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 18, 2019, prior to which the
Additional Information (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
Independent Trustees and their counsel
met separately to discuss the information provided by the Advisor. Following the April meeting, independent legal counsel 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 independent legal counsel held prior to the June 2, 2019 meeting,
as well as at the meeting held that day. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the
Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Advisory Agreement, the Board had received sufficient information to renew the Advisory
Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
The Board noted that it
had approved a new Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”) among the Fund, the Advisor and SSI Investment Management LLC (the “Sub-Advisor”) at a meeting held on March
11, 2019 for an initial two-year term and that shareholders of the Fund were being asked to approve the Sub-Advisory Agreement at a meeting to be held in July 2019. Accordingly, the Board did not consider the renewal
of the Sub-Advisory Agreement at the June 2, 2019 meeting and will first consider its renewal at its June 2021 meeting.
In reviewing the Advisory
Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Advisory Agreement. With respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight of the Sub-Advisor, as well as the
background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk
monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the
Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions. The Board also considered a
report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its
written materials and at the April 18, 2019 meeting, described to the Board the scope of its ongoing investment in additional infrastructure and personnel to maintain and improve the quality of services provided to
the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the
Trust and the Fund by the Advisor under the Advisory Agreement have been and are expected to remain satisfactory.
The Board considered the
unitary fee rate payable by the Fund under the Advisory Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the
cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage
commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The Board received and reviewed
information showing the advisory or unitary fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and
non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the
unitary fee for the Fund was equal to the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board, at the April 18, 2019 meeting, discussed with Broadridge
its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, including that there were no other actively-managed ETFs in the Expense Group,
and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that not all peer funds employ an advisor/sub-advisor management structure. The Board took these
limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited
their comparability. In considering the unitary fee rate overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions
and the Advisor’s description of its long-term commitment to the Fund.
The Board considered
performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting
from the Advisor and Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the
Fund’s performance for periods ended December 31, 2018 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided the Board noted that the
Fund outperformed the Performance Universe median for the one-year period ended December 31, 2018 but underperformed the Performance Universe median for the three-year period ended December 31, 2018. The Board also
noted that the Fund underperformed the benchmark index for the one- and three-year periods ended December 31, 2018.
Additional Information (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
On the basis of all the
information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues
to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Advisory Agreement.
The Board considered
information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund and noted the Advisor’s statement that it believes its expenses
will likely increase over the next twelve months as the Advisor continues to hire personnel and build infrastructure, including technology, to improve the services to the Fund. The Board noted that any reduction in
fixed costs associated with the management of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for the Fund. The Board considered the revenues and
allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2018 and the estimated profitability level for the Fund
calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded
that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered fall-out benefits described by the Advisor that may be realized
from its relationship with the Fund. The Board considered that the Advisor had identified as a fall-out benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund,
may have had no dealings with the Advisor or FTP. The Board also considered the Advisor’s compensation for fund reporting services provided to the Fund pursuant to a separate Fund Reporting Services Agreement,
which is paid from the unitary fee. The Board concluded that the character and amount of potential fall-out benefits to the Advisor were not unreasonable.
Based on all of the
information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Advisory Agreement continue to be fair and reasonable and that the
continuation of the Advisory Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Board of Trustees and Officers
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
The following tables
identify the Trustees and Officers of the Trust. Unless otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite 400, Wheaton, IL 60187.
The Trust’s
statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891.
|
Name, Year of Birth and Position with the Trust
|
Term of Office and Year First Elected or Appointed
|
Principal Occupations
During Past 5 Years
|
Number of Portfolios in the First Trust Fund Complex Overseen by Trustee
|
Other Trusteeships or Directorships Held by Trustee During Past 5 Years
|
|
INDEPENDENT TRUSTEES
|
Richard E. Erickson, Trustee
(1951)
|
• Indefinite Term
• Since Inception
|
Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007
to November 2015)
|
162
|
None
|
Thomas R. Kadlec, Trustee
(1957)
|
• Indefinite Term
• Since Inception
|
President, ADM Investor Services, Inc. (Futures Commission Merchant)
|
162
|
Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association
|
Robert F. Keith, Trustee
(1956)
|
• Indefinite Term
• Since Inception
|
President, Hibs Enterprises (Financial and Management Consulting)
|
162
|
Director of Trust Company of Illinois
|
Niel B. Nielson, Trustee
(1954)
|
• Indefinite Term
• Since Inception
|
Senior Advisor (August 2018 to Present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation
(Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012
to September 2014), Dew Learning LLC (Educational Products and Services)
|
162
|
None
|
|
INTERESTED TRUSTEE
|
James A. Bowen(1), Trustee and
Chairman of the Board
(1955)
|
• Indefinite Term
• Since Inception
|
Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software
Development Company) and Stonebridge Advisors LLC (Investment Advisor)
|
162
|
None
|
|
(1)
|
Mr. Bowen is deemed an “interested person” of the Trust due to his position as CEO of First Trust Advisors L.P., investment advisor of the Trust.
|
Board of Trustees and Officers (Continued)
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
|
Name and Year of Birth
|
Position and Offices with Trust
|
Term of Office and Length of Service
|
Principal Occupations
During Past 5 Years
|
|
OFFICERS(2)
|
James M. Dykas
(1966)
|
President and Chief Executive Officer
|
• Indefinite Term
• Since January 2016
|
Managing Director and Chief Financial Officer (January 2016 to Present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust
Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor)
|
Donald P. Swade
(1972)
|
Treasurer, Chief Financial Officer and Chief Accounting Officer
|
• Indefinite Term
• Since January 2016
|
Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.
|
W. Scott Jardine
(1960)
|
Secretary and Chief Legal Officer
|
• Indefinite Term
• Since Inception
|
General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC
|
Daniel J. Lindquist
(1970)
|
Vice President
|
• Indefinite Term
• Since Inception
|
Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P.
|
Kristi A. Maher
(1966)
|
Chief Compliance Officer and Assistant Secretary
|
• Indefinite Term
• Since Inception
|
Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.
|
Roger F. Testin
(1966)
|
Vice President
|
• Indefinite Term
• Since Inception
|
Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P.
|
Stan Ueland
(1970)
|
Vice President
|
• Indefinite Term
• Since Inception
|
Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P
|
|
(2)
|
The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
|
Privacy Policy
First Trust SSI
Strategic Convertible Securities ETF (FCVT)
October 31, 2019
(Unaudited)
Privacy Policy
First Trust values our
relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We collect nonpublic
personal information about you from the following sources:
|
•
|
Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms;
|
|
•
|
Information about your transactions with us, our affiliates or others;
|
|
•
|
Information we receive from your inquiries by mail, e-mail or telephone; and
|
|
•
|
Information we collect on our website through the use of “cookies”. For example, we may identify the pages on our website that your browser requests or visits.
|
Information Collected
The type of data we
collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal information.
Disclosure of
Information
We do not disclose any
nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses
may also include the disclosure of such information to unaffiliated companies for the following reasons:
|
•
|
In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as
trustees, banks, financial representatives, proxy services, solicitors and printers.
|
|
•
|
We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your
account from fraud).
|
In addition, in order to
alert you to our other financial products and services, we may share your personal information within First Trust.
Use of Website
Analytics
We currently use third
party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s website and marketing our products and services to you. These tools employ cookies, which are
small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs
viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and web
navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust’s website better and more useful to our users. The
information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to contact you in
order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis.
Confidentiality and
Security
With regard to our
internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and
Inquiries
As required by federal
law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors).
March 2019
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INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite
400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
SSI Investment Management LLC
9440 Santa Monica Blvd, 8th
Floor
Beverly Hills, CA 90210
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
FIRST TRUST
First Trust Exchange-Traded Fund IV
--------------------------------------------------------------------------------
First Trust Long Duration Opportunities ETF (LGOV)
----------------------------
Annual Report
For the Period
January 22, 2019
(Commencement of Operations)
through October 31, 2019
----------------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2019
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 11
Statement of Operations...................................................... 12
Statement of Changes in Net Assets........................................... 13
Financial Highlights......................................................... 14
Notes to Financial Statements................................................ 15
Report of Independent Registered Public Accounting Firm...................... 24
Additional Information....................................................... 25
Board of Trustees and Officers............................................... 28
Privacy Policy............................................................... 30
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Long Duration Opportunities ETF; hereinafter referred
to as the "Fund") to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. When evaluating the information included in this report, you are
cautioned not to place undue reliance on these forward-looking statements, which
reflect the judgment of the Advisor and its representatives only as of the date
hereof. We undertake no obligation to publicly revise or update these
forward-looking statements to reflect events and circumstances that arise after
the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment 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
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of investing
in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2019
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Long Duration Opportunities ETF (the "Fund"), which contains detailed
information about the Fund for the period from the Fund's inception date of
January 22, 2019 through October 31, 2019, including a market overview and a
performance analysis. We encourage you to read this report carefully and discuss
it with your financial advisor. Please note that the information in this letter
prior to Fund's inception date will not apply to the Fund.
One of our responsibilities as asset managers is to be good listeners. Perhaps
the most effective way in which we do this continually is by paying close
attention to mutual fund and exchange-traded fund (ETF) money flows. After all,
investors vote with their dollars, and money flows provide valuable feedback
with respect to their biases. Over the past 12 months, we have learned that
investors, in general, have grown more risk-averse. For the 12-month period
ended October 31, 2019, investors funneled an estimated net $359.56 billion into
bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion
from equity mutual funds and ETFs, according to data from Morningstar. Over the
same period, money market funds took in an estimated net $583.27 billion. Those
figures were more balanced for the full-year 2018. Those estimated net flows
were as follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion
(bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to monitoring fund flows, we watch the performance of all the asset
classes. Market returns can either help validate or invalidate our
interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that
comprise the S&P 500(R) Index back it up. For the 12-month period ended October
31, 2019, as measured by total return, the top performers were Real Estate and
Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P
500(R) Index posted a total return of 14.33% for the period. These two sectors
are defensive in nature. They also tend to distribute cash dividends that are
often well above those sectors that are more cyclical in nature. The higher
dividend distributions likely drew the attention of fixed-income investors
dissatisfied with the current low-yield climate in the bond market, in our
opinion.
The absence of a new trade deal between the U.S. and China has been a bit of a
wet blanket on the global economy. Global growth projections have been trimmed
over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack
of any significant progress in the negotiations between the U.S. and China is a
concern, we believe a remedy will be found. Remember, as uncertain as things may
appear in the current climate, investors with diversified investment portfolios
were most likely rewarded over the past 12 months. Stay the course and stay
engaged!
Thank you for giving First Trust the opportunity to play a role in your
financial future. We value our relationship with you and will report on the Fund
again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
The First Trust Long Duration Opportunities ETF's (the "Fund") primary
investment objective is to generate current income with a focus on preservation
of capital. Under normal market conditions, the Fund will invest at least 80% of
its net assets (including investment borrowings) in a portfolio of
investment-grade debt securities issued or guaranteed by the U.S. government,
its agencies or government-sponsored entities, including publicly-issued U.S.
Treasury securities and mortgage-related securities. The Fund may also invest in
exchange-traded funds ("ETFs") that principally invest in such securities. The
Fund may purchase mortgage-related securities in "to-be-announced" transactions
("TBA Transactions"), including mortgage dollar rolls.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
TOTAL RETURNS
Inception (1/22/19)
to 10/31/19
<S> <C>
FUND PERFORMANCE
NAV 14.08%
Market Price 12.91%
INDEX PERFORMANCE
ICE BofAML 5+ Year US Treasury Index 13.21%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total returns for the period since inception are calculated from the inception
date of the Fund. "Cumulative Total Returns" represent the total change in value
of an investment over the 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 distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
---------------------------------------------------------------
% OF LONG-TERM
ASSET CLASSIFICATION INVESTMENTS(1)
---------------------------------------------------------------
U.S. Government Agency Mortgage-
Backed Securities 76.14%
U.S. Government Bonds and Notes 23.86
-------
Total 100.00%
=======
---------------------------------------------------------------
% OF TOTAL LONG
FIXED-INCOME
CREDIT QUALITY(2) INVESTMENTS & CASH
---------------------------------------------------------------
Government and Agency 98.79%
Cash 1.21
-------
Total 100.00%
=======
---------------------------------------------------------------
% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS(1)
---------------------------------------------------------------
U.S. Treasury Bond 2.88%, 05/15/43 12.59%
U.S. Treasury Bond 2.25%, 08/15/46 11.27
Federal Home Loan Mortgage Association,
Pool U99176, 4.00%, 12/01/47 8.41
Federal Home Loan Mortgage Corporation,
Series 2013-4239, Class OU, PO, 07/15/43 6.57
Federal National Mortgage Association,
Series 2005-74, Class NZ, 6.00%, 09/25/35 5.50
Federal National Mortgage Association,
Series 2018-9, Class PL, 3.50%, 02/25/48 4.65
Government National Mortgage Association,
Series 2018-112, Class CG, 3.50%, 08/20/48 4.64
Government National Mortgage Association,
Series 2018-125, Class KZ, 3.50%, 09/20/48 4.57
Federal National Mortgage Association,
Series 2012-93, Class LY, 2.50%, 09/25/42 4.57
Government National Mortgage Association,
Series 209-32, Class ZA, 5.50%, 05/20/39 3.76
-------
Total 66.53%
=======
---------------------------------------------------------------
WEIGHTED AVERAGE EFFECTIVE NET DURATION
---------------------------------------------------------------
October 31, 2019 11.82 Years
High - June 30, 2019 12.39 Years
Low - August 31, 2019 11.02 Years
-----------------------------
(1) Percentages are based on the long positions only. Money market funds are
excluded.
(2) The ratings are by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. A credit rating is an assessment provided by a
nationally recognized statistical rating organization (NRSRO), of the
creditworthiness of an issuer with respect to debt obligations. Ratings
are measured highest to lowest on a scale that generally ranges from AAA
to D for long-term ratings and A-1+ to C for short-term ratings.
Investment grade is defined as those issuers that have a long-term credit
rating of BBB- or higher or a short-term credit rating of A-3 or higher.
The credit ratings shown relate to the credit worthiness of the issuers of
the underlying securities in the Fund, and not to the Fund or its shares.
U.S. Treasury and U.S. Agency mortgage-backed securities appear under
"Government and Agency". Credit ratings are subject to change.
Page 3
<PAGE>
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
<TABLE>
<CAPTION>
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JANUARY 22, 2019 - OCTOBER 31, 2019
First Trust Long Duration ICE BofAML 5+ Year
Opportunities ETF US Treasury Index
<S> <C> <C>
1/22/19 $10,000 $10,000
4/30/19 10,425 10,273
10/31/19 11,408 11,321
</TABLE>
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH OCTOBER 31, 2019
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 January 23, 2019
(commencement of trading) through October 31, 2019. 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.
<TABLE>
<CAPTION>
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
----------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
1/23/19 - 10/31/19 130 2 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
----------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
1/23/19 - 10/31/19 63 1 1 0
</TABLE>
Page 4
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to First Trust Long Duration Opportunities ETF (the "Fund" or "LGOV").
First Trust is responsible for the selection and ongoing monitoring of the
securities in the Fund's portfolio and certain other services necessary for the
management of the Fund.
PORTFOLIO MANAGEMENT TEAM
JEREMIAH CHARLES - SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
JIM SNYDER - SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
COMMENTARY
The Fund's primary investment objective is to generate current income with a
focus on preservation of capital. Under normal market conditions, the Fund will
invest at least 80% of its net assets (including investment borrowings) in a
portfolio of investment-grade debt securities issued or guaranteed by the U.S.
government, its agencies or government-sponsored entities, including
publicly-issued U.S. Treasury securities and mortgage-related securities.
MARKET RECAP
The 2019 fiscal year began with volatile bond and equity markets as slowing
global growth scenarios and fallout from trade war escalations began to be
priced into US markets. As a result, in January 2019, the Federal Reserve (the
"Fed") paused the well-underway monetary policy normalization and subsequently,
in the spring announced plans to abruptly end the runoff of its balance sheet.
By mid-summer of 2019, the pause turned to a reversal in monetary policy, and as
a result of cross currents from the ongoing China-United States trade war
escalation, the Fed began to cut interest rates, with a total of three 25 basis
point cuts by the end of October 2019. Additionally, the Fed once again began to
reinvest its holdings of U.S. Treasuries and Agency Mortgage-Backed Securities
("Agency MBS") and was forced to step in and provide liquidity to the overnight
repo markets as funding pressures intensified due to a confluence of events in
September 2019. This eventually led the Fed to announce plans to provide ongoing
repo market support alongside a purchase program targeting $60 Billion per month
of U.S. Treasury bills to provide adequate reserves in the banking system. This
aggressive change of course from the Fed had significant impacts on the U.S.
Bond markets, which saw yields decline dramatically over the 12-month period
ended October 31, 2019, led by the 5- and 10-Year treasuries, which saw yields
fall 145 basis points ("bps"). Given the outperformance by the belly of the
curve, the yield curve inverted and remained as such for most of the annual
period. With the inverted curve, faster than expected prepayments due to
interest rates falling with such velocity, and heightened market volatility,
Agency MBS spreads gapped wider in August with Treasury Option Adjusted Spread
("OAS") reaching a post-crisis wide 73bps before settling 15bps wider over the
year, to close at 56 bps at the end of the period.
PERFORMANCE ANALYSIS
Since the Fund's inception on January 22, 2019 through October 31, 2019, the
Fund returned 14.08% on a net asset value ("NAV") basis.
During the same period, the ICE BofAML 5+ Year US Treasury Index (the "Index")
returned 13.21%.
During the same period, LGOV outperformed the Index by 87 bps net of fees.
During the invest up period post launch of the Fund, a significant driver of NAV
outperformance was attributable to pricing performance of select odd lot Agency
MBS positions at the time of purchase. The portfolio managers of the Fund
reasonably expect that such investments in odd lot positions could continue to
impact the Fund's performance to the extent the Fund continues to grow. With
respect to these out of index MBS positions, as the calendar year progressed,
some of these bonds widened out in spread as the broader Agency MBS sector
lagged the performance of treasuries during the month of August, which saw
generic Agency MBS spreads widen out 21bps in OAS. Additionally, as yields on
the 30-Year treasury declined by 56bps during August, the Fund underperformed
its benchmark on a relative basis due to the shortening of duration throughout
the month. As the fiscal year came to a close, yields retraced the large August
bond market rally, and spreads tightened off their August wides, which
benefitted the NAV performance of LGOV.
Page 5
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2019 (UNAUDITED)
MARKET OUTLOOK
After the dramatic reversal in monetary policy seen in 2019, the Fed has stated
that it intends to be on hold from both additional rate cuts, and also from any
near-term interest rate hike. We believe this will keep the front end of the
yield curve somewhat anchored in place while the Fed remains on hold and
maintains data dependency. We do expect consumer data to remain resilient and
continued economic growth to persist into 2020, and as such, do not see an
imminent recession. We believe that given the strength of the economy, and the
consumer, we anticipate a slightly less dovish Fed than the market is pricing in
and expectations are for intermediate and longer maturity yields to move
modestly higher over the short to intermediate term, especially as the pace of
treasury issuance increases. Measures of unemployment remain low; however,
measures of inflation appear to be well contained, in our view, and we do not
foresee 2+% symmetric inflation, which we believe will further reinforce the
Fed's current pause. We remain positive on MBS spread valuations over the longer
term and believe large steepening trends in the yield curve will prove to be
catalysts for MBS spread compression. Lastly, we expect interest rate volatility
to remain elevated through year end due to ongoing political and economic
environments along with continued fallout from the trade war.
Given our outlook on the broader bond markets, we plan to continue to manage the
Fund somewhat defensively versus the Index from a duration standpoint,
especially after a 145bps rally in the 10-Year, 121bps rally in the 30-Year bond
and no near-term interest rate cut forecasted with the Fed on hold. We plan to
continue to tactically position duration across the yield curve using futures
and more liquid positions to adjust overall interest key rates as interest rate
curves reprice during this period of modestly heightened volatility. We
currently favor maintaining overweight duration exposure allocated to the long
end of the belly curve, as we believe yields on the longer end maturity segment
favor risk/reward positioning against a backdrop of slowing global growth and
moderate inflation. Given the widening in Agency MBS spreads seen in 2019, will
look for opportunities to increase the level of MBS spread duration, however we
will still look to remain tactical on the MBS basis. Lastly, we plan to maintain
ample liquidity buckets and cash to allow for portfolio agility and
repositioning.
Page 6
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2019 (UNAUDITED)
As a shareholder of First Trust Long Duration Opportunities ETF (the "Fund"),
you incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Fund and to compare these costs with the ongoing costs
of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2019.
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 period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
MAY 1, 2019 OCTOBER 31, 2019 PERIOD (a) PERIOD (a) (b)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
Actual $1,000.00 $1,094.30 0.65% $3.43
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
</TABLE>
(a) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
invests.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (May 1, 2019
through October 31, 2019), multiplied by 184/365 (to reflect the six-month
period).
Page 7
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2019
<TABLE>
<CAPTION>
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 61.1%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 47.9%
Federal Home Loan Mortgage Corporation
$ 274,327 Series 2003-2649, Class IM, IO............................... 7.00% 07/15/33 $ 72,052
264,000 Series 2010-3653, Class UJ................................... 5.00% 04/15/40 334,634
715,784 Series 2013-4239, Class OU, PO............................... (a) 07/15/43 591,350
137,194 Series 2013-4255, Class SN,
1 Mo. LIBOR (x) -2.67 + 12.27% (b)........................ 6.85% 05/15/35 167,254
Federal National Mortgage Association
190,105 Series 2005-69, Class JI, IO................................. 6.00% 08/25/35 46,081
379,423 Series 2005-74, Class NZ..................................... 6.00% 09/25/35 495,324
1,292,833 Series 2005-113, Class AI, IO,
1 Mo. LIBOR (x) -1 + 7.23% (b)............................ 5.41% 01/25/36 280,491
150,544 Series 2008-94, Class JS, 1 Mo. LIBOR (x) -6 + 30.00% (b).... 19.06% 04/25/36 253,896
433,000 Series 2012-93, Class LY..................................... 2.50% 09/25/42 410,869
173,000 Series 2013-3, Class BC...................................... 2.50% 12/25/42 163,922
100,000 Series 2015-34, Class OK, PO................................. (a) 03/25/44 93,995
298,685 Series 2016-23, Class PL..................................... 3.00% 11/25/45 311,648
395,045 Series 2018-9, Class PL...................................... 3.50% 02/25/48 418,234
158,835 Series 2018-94, Class KZ..................................... 4.50% 01/25/49 200,205
84,089 Series 2018-94, Class LZ..................................... 4.50% 01/25/49 103,252
Government National Mortgage Association
256,179 Series 2009-32, Class ZA..................................... 5.50% 05/20/39 338,584
827,180 Series 2015-168, Class GI, IO................................ 5.50% 02/16/33 185,708
79,737 Series 2016-63, Class NZ..................................... 3.00% 05/20/46 80,194
403,000 Series 2018-112, Class CG.................................... 3.50% 08/20/48 417,358
408,684 Series 2018-125, Class KZ.................................... 3.50% 09/20/48 411,529
----------------
5,376,580
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 4.1%
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates
3,727,440 Series 2010-K005, Class AX, IO (c) (d)....................... 1.75% 11/25/19 37
7,988,599 Series 2014-K036, Class X1, IO (c)........................... 0.74% 10/25/23 207,695
1,699,683 Series 2019-K095, Class X1, IO (c)........................... 0.95% 06/25/29 128,936
1,200,000 Series 2019-K095, Class XAM, IO (c).......................... 1.24% 06/25/29 124,681
----------------
461,349
----------------
PASS-THROUGH SECURITIES -- 9.1%
Federal Home Loan Mortgage Corporation
708,521 Pool U99176.................................................. 4.00% 12/01/47 756,486
Government National Mortgage Association
240,597 Pool 770005.................................................. 4.00% 11/15/33 258,437
----------------
1,014,923
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................................... 6,852,852
(Cost $6,204,123) ----------------
U.S. GOVERNMENT BONDS AND NOTES -- 19.2%
1,000,000 U.S. Treasury Bond.............................................. 2.88% 05/15/43 1,133,184
1,000,000 U.S. Treasury Bond.............................................. 2.25% 08/15/46 1,014,316
----------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES....................................................... 2,147,500
(Cost $1,821,541) ----------------
</TABLE>
Page 8 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
MONEY MARKET FUNDS -- 18.2%
2,041,772 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio -
Institutional Class - 1.68% (e).......................................................... $ 2,041,772
(Cost $2,041,772) ----------------
TOTAL INVESTMENTS -- 98.5%.................................................................. 11,042,124
(Cost $10,067,436) (f)
NET OTHER ASSETS AND LIABILITIES -- 1.5%.................................................... 172,680
----------------
NET ASSETS -- 100.0%........................................................................ $ 11,214,804
================
</TABLE>
FUTURES CONTRACTS AT OCTOBER 31, 2019 (See Note 2C - Futures Contracts in the
Notes to Financial Statements):
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
NUMBER OF EXPIRATION NOTIONAL (DEPRECIATION)/
FUTURES CONTRACTS POSITION CONTRACTS DATE VALUE VALUE
------------------------------------------------------- ----------- ----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
U.S. 5-Year Treasury Notes Long 4 Dec-2019 $ 476,812 $ 405
U.S. 10-Year Treasury Notes Long 3 Dec-2019 390,891 3,253
U.S. Treasury Long Bond Futures Long 4 Dec-2019 645,500 6,045
-------------- ----------------
$ 1,513,203 $ 9,703
============== ================
</TABLE>
(a) Zero coupon security.
(b) Inverse floating rate security.
(c) Collateral Strip Rate bond. Coupon is based on the weighted net interest
rate of the investment's underlying collateral. The interest rate resets
periodically.
(d) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by First Trust Advisors L.P.,
the Fund's advisor (the "Advisor").
(e) Rate shown reflects yield as of October 31, 2019.
(f) Aggregate cost for federal income tax purposes is $10,097,807. As of
October 31, 2019, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$961,921 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$7,901. The net unrealized appreciation was $954,020. The amounts
presented are inclusive of derivative contracts.
IO - Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
LIBOR - London Interbank Offered Rate
PO - Principal-Only Security
See Notes to Financial Statements Page 9
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2019
------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
<TABLE>
<CAPTION>
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2019 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage-Backed
Securities...................................... $ 6,852,852 $ -- $ 6,852,852 $ --
U.S. Government Bonds and Notes.................... 2,147,500 -- 2,147,500 --
Money Market Funds................................. 2,041,772 2,041,772 -- --
--------------- --------------- --------------- ---------------
Total Investments.................................. 11,042,124 2,041,772 9,000,352 --
Futures Contracts*................................. 9,703 9,703 -- --
--------------- --------------- --------------- ---------------
Total.............................................. $ 11,051,827 $ 2,051,475 $ 9,000,352 $ --
=============== =============== =============== ===============
</TABLE>
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Futures Contracts table. Only the current day's variation margin is
presented on the Statement of Assets and Liabilities.
Page 10 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2019
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value.................................................. $ 11,042,124
Cash segregated as collateral for open futures contracts............... 110,157
Receivables:
Investment securities sold.......................................... 493,503
Interest............................................................ 53,720
Variation margin.................................................... 11,781
Dividends........................................................... 3,022
--------------
Total Assets..................................................... 11,714,307
--------------
LIABILITIES:
Payables:
Investment securities purchased..................................... 493,307
Investment advisory fees............................................ 6,196
--------------
Total Liabilities................................................ 499,503
--------------
NET ASSETS............................................................. $ 11,214,804
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 10,015,797
Par value.............................................................. 4,000
Accumulated distributable earnings (loss).............................. 1,195,007
--------------
NET ASSETS............................................................. $ 11,214,804
==============
NET ASSET VALUE, per share............................................. $ 28.04
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 400,002
==============
Investments, at cost................................................... $ 10,067,436
==============
</TABLE>
See Notes to Financial Statements Page 11
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 22, 2019 (a) THROUGH OCTOBER 31, 2019
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest............................................................... $ 228,105
Dividends.............................................................. 43,638
--------------
Total investment income............................................. 271,743
--------------
EXPENSES:
Investment advisory fees............................................... 53,679
--------------
Total expenses...................................................... 53,679
--------------
NET INVESTMENT INCOME (LOSS)........................................... 218,064
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... 177,972
Futures contracts................................................... 9,708
Purchased options contracts......................................... 134
Written options contracts........................................... 866
--------------
Net realized gain (loss)............................................... 188,680
--------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... 974,688
Futures contracts................................................... 9,703
--------------
Net change in unrealized appreciation (depreciation)................... 984,391
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 1,173,071
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ 1,391,135
==============
</TABLE>
(a) Inception date is consistent with the commencement of investment operations
and is the date the initial creation units were established.
Page 12 See Notes to Financial Statements
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 22, 2019 (a)
THROUGH
OCTOBER 31, 2019
--------------------
<S> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 218,064
Net realized gain (loss)............................................... 188,680
Net change in unrealized appreciation (depreciation)................... 984,391
--------------
Net increase (decrease) in net assets resulting from operations........ 1,391,135
--------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (183,881)
--------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 11,437,545
Cost of shares redeemed................................................ (1,429,995)
--------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................ 10,007,550
--------------
Total increase (decrease) in net assets................................ 11,214,804
NET ASSETS:
Beginning of period.................................................... --
--------------
End of period.......................................................... $ 11,214,804
==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ --
Shares sold............................................................ 450,002
Shares redeemed........................................................ (50,000)
--------------
Shares outstanding, end of period...................................... 400,002
==============
</TABLE>
(a) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
See Notes to Financial Statements Page 13
<PAGE>
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD
ENDED
10/31/2019 (a)
--------------
<S> <C>
Net asset value, beginning of period $ 25.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.55
Net realized and unrealized gain (loss) 2.95
----------
Total from investment operations 3.50
----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.46)
----------
Net asset value, end of period $ 28.04
==========
TOTAL RETURN (b) 14.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 11,215
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets (c) 0.65% (d)
Ratio of net investment income (loss) to
average net assets 2.64% (d)
Portfolio turnover rate (e) 152% (f)
</TABLE>
(a) Inception date is January 22, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The 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.
(c) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. The ratio does
not include these indirect fees and expenses.
(d) Annualized.
(e) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(f) The portfolio turnover rate not including mortgage dollar rolls was 104%.
Page 14 See Notes to Financial Statements
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
1. ORGANIZATION
First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on September 15,
2010, and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nine funds that are offering shares. This report
covers the First Trust Long Duration Opportunities ETF (the "Fund"), a
non-diversified series of the Trust, which trades under the ticker "LGOV" on the
NYSE Arca, Inc. ("NYSE Arca"). Unlike conventional mutual funds, the Fund issues
and redeems shares on a continuous basis, at net asset value ("NAV"), only in
large specified blocks consisting of 50,000 shares called a "Creation Unit."
Creation Units are generally issued and redeemed for cash and, in certain
circumstances, in-kind for securities in which the Fund invests, and only to and
from broker-dealers and large institutional investors that have entered into
participation agreements. Except when aggregated in Creation Units, the Fund's
shares are not redeemable securities.
The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's primary
investment objective is to generate current income with a focus on preservation
of capital. The Fund seeks to achieve its investment objectives by investing,
under normal market conditions, at least 80% of its net assets (including
investment borrowings) in a portfolio of investment-grade debt securities issued
or guaranteed by the U.S. government, its agencies or government-sponsored
entities, including publicly-issued U.S. Treasury securities and
mortgage-related securities. The Fund may also invest in exchange-traded funds
("ETFs") that principally invest in such securities. The Fund's investments in
mortgage-related securities may include investments in fixed or adjustable-rate
securities structured as "pass-through" securities and collateralized mortgage
obligations, including residential and commercial mortgage-backed securities,
stripped mortgage-backed securities and real estate mortgage investment
conduits. The Fund will invest in mortgage-related securities issued or
guaranteed by the U.S. government, its agencies (such as Ginnie Mae), and U.S.
government-sponsored entities (such as Fannie Mae and Freddie Mac). The Fund may
purchase government-sponsored mortgage-related securities in "to-be-announced"
transactions ("TBA Transactions"), including mortgage dollar rolls. The Fund
intends to enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Fund's investment advisor, First Trust
Advisors L.P. ("First Trust" or the "Advisor"). In addition to its investment in
securities issued or guaranteed by the U.S. government, its agencies and
government-sponsored entities, the Fund may invest up to 20% of its net assets
in other types of debt securities, including privately-issued, non-agency
sponsored asset-backed and mortgage-related securities, futures contracts,
options, swap agreements, cash and cash equivalents, and ETFs that invest
principally in fixed income securities. Further, the Fund may enter into short
sales as part of its overall portfolio management strategy, or to offset a
potential decline in the value of a security; however, the Fund does not expect,
under normal market conditions, to engage in short sales with respect to more
than 30% of the value of its net assets. Although the Fund intends to invest
primarily in investment grade securities, the Fund may invest up to 20% of its
net assets in securities of any credit quality, including securities that are
below investment grade, which are also known as high yield securities, or
commonly referred to as "junk" bonds, or unrated securities that have not been
judged by the Advisor to be of comparable quality to rated investment grade
securities. In the case of a split rating between one or more of the nationally
recognized statistical rating organizations, the Fund will consider the highest
rating. The Fund targets a weighted average effective duration of eight or more
years.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Advisor's Pricing Committee, in
Page 15
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. The Fund's investments are valued as follows:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are fair valued on the basis of
valuations provided by dealers who make markets in such securities or by a
third-party pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Common stocks and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq Stock Market LLC ("Nasdaq") and the
London Stock Exchange Alternative Investment Market ("AIM")) are valued at
the last sale price on the exchange on which they are principally traded
or, for Nasdaq and AIM securities, the official closing price. Securities
traded on more than one securities exchange are valued at the last sale
price or official closing price, as applicable, at the close of the
securities exchange representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Fixed income and other debt securities having a remaining maturity of
sixty days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
Page 16
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management (for corporate debt
only);
11) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); and
12) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2019, 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.
On July 27, 2017, the Financial Conduct Authority ("FCA") announced that it will
no longer persuade or compel banks to submit rates for the calculation of the
London Interbank Offered Rates ("LIBOR") after 2021 (the "FCA Announcement").
Furthermore, in the United States, efforts to identify a set of alternative U.S.
dollar reference interest rates include proposals by the Alternative Reference
Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New
York. On August 24, 2017, the Federal Reserve Board requested public comment on
a proposal by the Federal Reserve Bank of New York, in cooperation with the
Office of Financial Research, to produce three new reference rates intended to
serve as alternatives to LIBOR. These alternative rates are based on overnight
repurchase agreement transactions secured by U.S. Treasury Securities. On
December 12, 2017, following consideration of public comments, the Federal
Reserve Board concluded that the public would benefit if the Federal Reserve
Bank of New York published the three proposed reference rates as alternatives to
LIBOR (the "Federal Reserve Board Notice").
At this time, it is not possible to predict the effect of the FCA Announcement,
the Federal Reserve Board Notice, or other regulatory changes or announcements,
any establishment of alternative reference rates or any other reforms to LIBOR
that may be enacted in the United Kingdom, the United States or elsewhere. As
such, the potential effect of any such event on the Fund cannot yet be
determined.
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
Page 17
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
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, 2019, the Fund had no when-issued,
delayed-delivery or forward purchase commitments.
C. FUTURES CONTRACTS
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures
contracts to hedge against changes in interest rates (interest rate risk).
Futures contracts are agreements between the Fund and a counterparty to buy or
sell a specific quantity of an underlying instrument at a specified price and at
a specified date. Depending on the terms of the contract, futures contracts are
settled either through physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement amount on the settlement
date. Open futures contracts can also be closed out prior to settlement by
entering into an offsetting transaction in a matching futures contract. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain margin deposits on the futures contract. When the
contract is closed or expires, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed or expired. This gain or loss is included in
"Net realized gain (loss) on futures contracts" on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures
contracts are marked-to-market daily with the change in value recognized as a
component of "Net change in unrealized appreciation (depreciation) on futures
contracts" on the Statement of Operations. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are included in "Variation margin" receivable or payable on
the Statement of Assets and Liabilities. If market conditions change
unexpectedly, the Fund may not achieve the anticipated benefits of the futures
contract and may realize a loss. The use of futures contracts involves the risk
of imperfect correlation in movements in the price of the futures contracts,
interest rates and the underlying instruments.
D. OPTIONS CONTRACTS
In the normal course of pursuing its investment objectives, the Fund may invest
up to 20% of its net assets in derivative instruments in connection with hedging
strategies. The Fund may invest in exchange-listed options on U.S. Treasury
securities, exchange-listed options on U.S. Treasury futures contracts and
exchange-listed U.S. Treasury futures contracts. The Fund uses derivative
instruments primarily to hedge interest rate risk and actively manage interest
rate exposure. The primary risk exposure is interest rate risk.
The Fund may purchase (buy) or write (sell) put and call options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position. A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a futures option contract may be closed out by an
offsetting purchase or sale of a futures option of the same series. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in "Options contracts written, at value" on the Statement of
Assets and Liabilities. When the Fund purchases (buys) an option, the premium
paid represents the cost of the option, which is included in "Premiums paid on
options contracts purchased" on the Statement of Assets and Liabilities. Options
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
Page 18
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
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.
As of October 31, 2019, the Fund had no open options contracts.
E. INTEREST-ONLY SECURITIES
An interest-only security ("IO Security") is the interest-only portion of a
mortgage-backed security that receives some or all of the interest portion of
the underlying mortgage-backed security and little or no principal. A reference
principal value called a notional value is used to calculate the amount of
interest due to the IO Security. IO Securities are sold at a deep discount to
their notional principal amount. Generally speaking, when interest rates are
falling and prepayment rates are increasing, the value of an IO Security will
fall. Conversely, when interest rates are rising and prepayment rates are
decreasing, generally the value of an IO Security will rise. These securities,
if any, are identified on the Portfolio of Investments.
F. PRINCIPAL-ONLY SECURITIES
A principal-only security ("PO Security") is the principal-only portion of a
mortgage-backed security that does not receive any interest, is priced at a deep
discount to its redemption value and ultimately receives the redemption value.
Generally speaking, when interest rates are falling and prepayment rates are
increasing, the value of a PO Security will rise. Conversely, when interest
rates are rising and prepayment rates are decreasing, generally the value of a
PO Security will fall. These securities, if any, are identified on the Portfolio
of Investments.
G. STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security known as an IO Security and all
of the principal is distributed to holders of another type of security known as
a PO Security. These securities, if any, are identified on the Portfolio of
Investments.
H. MORTGAGE DOLLAR ROLLS AND TBA TRANSACTIONS
The Fund may invest, without limitation, in mortgage dollar rolls. The Fund
intends to enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Fund's investment advisor. In a mortgage
dollar roll, the Fund will sell (or buy) mortgage-backed securities for delivery
on a specified date and simultaneously contract to repurchase (or sell)
substantially similar (same type, coupon and maturity) securities on a future
date. Mortgage dollar rolls are recorded as separate purchase and sale in the
Fund. The Fund may also invest in TBA Transactions. A TBA Transaction is a
method of trading mortgage-backed securities. TBA Transactions generally are
conducted in accordance with widely-accepted guidelines which establish commonly
observed terms and conditions for execution, settlement and delivery. In a TBA
Transaction, the buyer and the seller agree on general trade parameters such as
agency, settlement date, par amount and price.
I. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on portfolio securities held by the Fund and
have no impact on net assets or NAV per share. Temporary differences, which
arise from recognizing certain items of income, expense and gain/loss in
different periods for financial statement and tax purposes, will reverse at some
time in the future.
The tax character of distributions paid during the fiscal period ended October
31, 2019 was as follows:
Distributions paid from:
Ordinary income................................. $ 183,881
Capital gains................................... --
Return of capital............................... --
As of October 31, 2019, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 240,987
Accumulated capital and other gain (loss)....... --
Net unrealized appreciation (depreciation)...... 954,020
J. INCOME TAXES
The Fund intends to qualify as a regulated investment company by complying with
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, which includes distributing substantially all of its net investment
income and net realized gains to shareholders. Accordingly, no provision has
been made for federal and state income taxes. However, due to the timing and
amount of distributions, the Fund may be subject to an excise tax of 4% of the
amount by which approximately 98% of the Fund's taxable income exceeds the
distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable year ending 2019
remains open to federal and state audit. As of October 31, 2019, 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, 2019, the
Fund had no non-expiring capital loss carryforwards for federal income tax
purposes.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal period ended October 31, 2019, the Fund had
no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings
(loss) (which consists of accumulated net investment income (loss), accumulated
net realized gain (loss) on investments and net unrealized appreciation
(depreciation) on investments) on the Statement of Assets and Liabilities that
more closely represent their tax character, certain adjustments have been made
to paid-in capital, accumulated net investment income (loss) and accumulated net
realized gain (loss) on investments. These adjustments are primarily due to the
difference between book and tax treatments of income and gains on various
investment securities held by the Fund. The results of operations and net assets
were not affected by these adjustments. For the fiscal period ended October 31,
2019, the adjustments for the Fund were as follows:
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ (22,596) $ 10,349 $ 12,247
Page 20
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
K. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
L. NEW ACCOUNTING PRONOUNCEMENT
On August 28, 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13,
"Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement," which amends the fair value measurement disclosure requirements of
ASC 820. The amendments of ASU 2018-13 include new, eliminated, and modified
disclosure requirements of ASC 820. In addition, the amendments clarify that
materiality is an appropriate consideration of entities when evaluating
disclosure requirements. The ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods therein. Early adoption is
permitted for any eliminated or modified disclosures upon issuance of this ASU.
The Fund has early adopted ASU 2018-13 for these financial statements, which did
not result in a material impact.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, pro rata
share of fees and expenses attributable to investments in other investment
companies ("acquired fund fees and expenses"), brokerage commissions and other
expenses connected with the execution of portfolio transactions, distribution
and service fees payable pursuant to a Rule 12b-1 plan, if any, and
extraordinary expenses. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.65% of its average daily net assets.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
The cost of purchases of U.S. Government securities and non-U.S. Government
securities, excluding short-term investments, for the fiscal period ended
October 31, 2019, were $20,182,819 and $948,183, 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 period ended
October 31, 2019, were $12,183,384 and $990,176, respectively.
For the fiscal period ended October 31, 2019, the Fund had no in-kind
transactions.
Page 21
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2019, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
<TABLE>
<CAPTION>
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------- --------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------- --------- ---------------------------- ---------- -------------------------- ----------
<S> <C> <C> <C> <C> <C>
Futures Interest Unrealized appreciation Unrealized depreciation
rate risk on futures contracts* $ 9,703 on futures contracts* $ --
</TABLE>
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Portfolio of Investments. Only the current day's variation margin is
reported within the Statement of Assets and Liabilities.
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the fiscal period
ended October 31, 2019, on derivative instruments, as well as the primary
underlying risk exposure associated with the instruments.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS LOCATION INTEREST RATE RISK
----------------------------------------------------------------------------------
<S> <C>
Net realized gain (loss) on:
Futures contracts $ 9,708
Purchased options contracts 134
Written options contracts 866
Net change in unrealized appreciation (depreciation) on:
Futures contracts 9,703
</TABLE>
For the fiscal period ended October 31, 2019, the notional value of futures
contracts opened and closed were $17,687,592 and $16,184,092, respectively.
During the fiscal period ended October 31, 2019, the premiums for purchased
options contracts opened were $910 and the premiums for purchased options
contracts closed, exercised and expired were $910.
During the fiscal period ended October 31, 2019, the premiums for written
options contracts opened were $866 and the premiums for written options
contracts closed, exercised and expired were $866.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures and options contracts on the Statement of Assets
and Liabilities.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Due to the nature of the Fund's investments, the
Fund's Creation Units are generally issued and redeemed for cash, although
Creation Units may be issued in-kind for securities in which the Fund invests in
limited circumstances. Authorized Participants purchasing Creation Units must
pay to BNYM, as transfer agent, a creation transaction fee (the "Creation
Transaction Fee") regardless of the number of Creation Units purchased in the
transaction. The Creation Transaction Fee may vary and is based on the
composition of the securities included in the Fund's portfolio and/or the
countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share times the number of shares in a Creation
Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When Creation
Units are issued for cash, the Authorized Participant may also be assessed an
amount to cover the cost of purchasing portfolio securities, including
operational processing and brokerage costs, transfer fees, stamp taxes, and part
or all of the spread between the expected bid and offer side of the market
related to such securities. Authorized Participants redeeming Creation Units
must pay to BNYM, as transfer agent, a standard redemption transaction fee (the
"Redemption Transaction Fee"), regardless of the number of Creation Units
redeemed in the transaction. The Redemption Transaction Fee may vary and is
based on the composition of the securities included in the Fund's portfolio
and/or the countries in which the transactions are settled. When shares are
redeemed for cash, the Authorized Participant may also be assessed an amount to
cover other costs, including operational processing and brokerage costs,
transfer fees, stamp taxes and part or all of the spread between the expected
bid and offer side of the market related to portfolio securities sold in
connection with the redemption.
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before December 31, 2020.
8. INDEMNIFICATION
The Trust, on behalf of the Fund, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were no subsequent events, requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Page 23
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Long Duration Opportunities ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2019, the related statement of operations, changes in net assets, and the
financial highlights for the period from January 22, 2019 (commencement of
operations) through October 31, 2019, and the related notes. In our opinion, the
financial statements and financial highlights present fairly, in all material
respects, the financial position of the Fund as of October 31, 2019, and the
results of its operations, changes in its net assets, and the financial
highlights for the period from January 22, 2019 (commencement of operations)
through October 31, 2019, in conformity with accounting principles generally
accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audit. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audit we are required to obtain
an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audit
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2019, by correspondence with
the custodian and brokers; when replies were not received from and brokers, we
performed other auditing procedures. We believe that our audit provide a
reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 23, 2019
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 24
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files portfolio holdings information for each month in a fiscal quarter
within 60 days after the end of the relevant fiscal quarter on Form N-PORT.
Portfolio holdings information for the third month of each fiscal quarter will
be publicly available on the SEC's website at www.sec.gov. The Fund's complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal
year is included in the semi-annual and annual reports to shareholders,
respectively, and is filed with the SEC on Form N-CSR. The semi-annual and
annual report for the Fund is available to investors within 60 days after the
period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are
available on the SEC's website listed above.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal period ended
October 31, 2019, 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 period ended October 31, 2019, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
For the tax year ended October 31, 2019, First Trust Long Duration Opportunities
ETF designated $12,247, or amounts necessary, as long-term capital gain. During
the tax year, Fund shareholders redeemed amounts in excess of our long-term
capital gain and of these proceeds, $12,247, or amounts necessary, represents
long-term capital gain from the Fund.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
not concentrated.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
Page 25
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019 (UNAUDITED)
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX CONSTITUENT RISK. Certain funds may be a constituent of one or more
indices. As a result, such a fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a fund, the size of
the fund and the market volatility of the fund. Inclusion in an index could
significantly increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
Page 26
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019 (UNAUDITED)
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
VALUATION RISK. Unlike publicly traded securities that trade on national
securities exchanges, there is no central place or exchange for trading most
debt securities. Debt securities generally trade on an "over-the-counter"
market. Due to the lack of centralized information and trading, and variations
in lot sizes of certain debt securities, the valuation of debt securities may
carry more uncertainty and risk than that of publicly traded securities.
Accordingly, determinations of the fair value of debt securities may be based on
infrequent and dated information. Also, because the available information is
less reliable and more subjective, elements of judgment may play a greater role
in valuation of debt securities than for other types of securities.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 27
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
<TABLE>
<CAPTION>
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 162 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 162 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 162 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 162 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Product and Services);
President and Chief Executive Officer
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 162 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
</TABLE>
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 28
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--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019 (UNAUDITED)
<TABLE>
<CAPTION>
NAME AND POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer
(1966) Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC
(Software Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General
o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
</TABLE>
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 29
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--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2019 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2019
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FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
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