FIRST TRUST
First Trust Exchange-Traded Fund IV
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First Trust Tactical High
Yield ETF (HYLS)
Annual Report
For the Year Ended
October 31, 2021
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TABLE OF CONTENTS
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2021
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 26
Statement of Operations...................................................... 27
Statements of Changes in Net Assets.......................................... 28
Statement of Cash Flows...................................................... 29
Financial Highlights......................................................... 30
Notes to Financial Statements................................................ 31
Report of Independent Registered Public Accounting Firm...................... 38
Additional Information....................................................... 39
Board of Trustees and Officers............................................... 45
Privacy Policy............................................................... 47
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Tactical High Yield ETF; hereinafter referred to as the
"Fund") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund's
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2021
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, 2021.
Inflation has arrived, and its entrance was grand, to say the least. The
Consumer Price Index came in at 6.2% year-over-year in October 2021, according
to data from the U.S. Bureau of Labor Statistics. The last time it topped the
6.0% mark was in December 1990 (6.1%), over 30 years ago. As is often the case
with major shifts in the economy and markets, there is debate over what is truly
behind them. For many months, as inflation was trending higher, Federal Reserve
(the "Fed") Chairman Jerome Powell held the view that the rising inflationary
pressures largely stemmed from global supply chain bottlenecks induced by the
coronavirus ("COVID-19") pandemic. Perhaps the best example of this is the
unprecedented backlog of container ships that have dropped anchor outside the
California ports of Los Angeles and Long Beach. Together, these ports service
40% of all the container ships bound for the U.S. In normal times, no ships are
anchored waiting to unload their goods. Shortages of trucks and drivers have
also contributed to the slowdown at the ports.
The takeaway is that goods are not being delivered to warehouses and store
shelves in a timely fashion and that is helping to drive prices higher for
consumers. Simply put, inflation is the byproduct of too much money chasing too
few goods. We'll return to this axiom shortly. Chairman Powell originally
believed the bottlenecks would be remedied relatively quickly as the global
economy reopened and people went back to work. That, in turn, would allow
inflationary pressures to dissipate, which has not happened. Around the end of
October, Chairman Powell finally acknowledged that inflation will likely remain
elevated through mid-2022. This realization is what motivated the Fed to
announce that it would begin to taper its monthly bond buying program
(quantitative easing) starting in November 2021. It has been purchasing roughly
$80 billion of Treasuries and $40 billion of mortgage-backed securities in the
open market every month since June 2020. The Fed will shave $15 billion off that
combined total every month until the buying has ceased, which should be around
mid-2022. If all goes to plan, the next stage in the evolution of the Fed's
monetary policy would involve initiating interest rate hikes.
While the supply chain bottlenecks have clearly played a role in the spike in
inflation by limiting the amount of goods available to consume, the biggest
contributing factor is likely the surge in the U.S. money supply, according to
Brian Wesbury, Chief Economist at First Trust. M2 is a measure of the money
supply that includes cash, checking deposits and liquid assets easily
convertible to cash. The M2 measure of money has exploded by 36% since February
2020, well above the 6% pre-COVID-19 annualized norm. The trillions of dollars
of stimulus distributed by the U.S. government to help backstop the economy
during the pandemic has contributed to higher inflation. On Wednesday, November
10, 2021, President Joe Biden admitted that his $1.9 trillion COVID-19 stimulus
package has done just that. Remember, too much money chasing too few goods leads
to inflation. Keep in mind, President Biden has recently successfully navigated
a $1.2 trillion bipartisan infrastructure bill through Congress and has another
roughly $1.75 trillion Build Back Better Act (social spending) piece of
legislation pending. That means there is at least another $1.2 trillion dollars
flowing into the economy over the next few years, and maybe more.
Data from FactSet indicates that the number of S&P 500(R) Index companies
mentioning inflation on their 2021 third quarter earnings call hit a 10-year
high, according to Business Insider. To date, 285 of the 461 companies that have
reported their results have cited concerns over rising inflation. The Materials,
Consumer Staples and Energy sectors had the highest percentage of companies
mentioned on these earnings calls at 90%, 88% and 86%, respectively. Suffice it
to say, investors should add inflation to the list of criteria to assist them in
positioning their portfolios moving forward.
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 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 in
non-income producing securities including Distressed Securities (defined below)
and common stocks. Companies whose financial condition is troubled or uncertain
and that may be involved in bankruptcy proceedings, reorganizations or financial
restructurings are referred to herein as "Distressed Securities." The Fund
invests no more than 15% of its net assets in Distressed Securities, as
determined at the time of investment. The Fund may, under normal market
conditions, invest up to 40% of its net assets (including investment borrowings)
in bank loans; however the Fund invests no more than 15% of its net assets
(including investment borrowings) in loans other than first lien senior secured
floating rate bank loans. The Fund may invest in listed and over-the-counter
derivatives to the extent permitted by the listing rules of the Nasdaq Stock
Market LLC. The Fund may not be appropriate for all investors.
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (2/25/13) 5 Years Ended Inception (2/25/13)
10/31/21 10/31/21 to 10/31/21 10/31/21 to 10/31/21
FUND PERFORMANCE
NAV 7.25% 5.26% 5.12% 29.23% 54.21%
Market Price 7.18% 5.32% 5.14% 29.58% 54.45%
INDEX PERFORMANCE
ICE BofA US High Yield
Constrained Index 10.74% 6.23% 5.69% 35.27% 61.64%
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Total returns for the period since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the periods
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint of the national best bid and offer price ("NBBO") as of
the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists
of the highest displayed buy and lowest sell prices among the various exchanges
trading the Fund at the time the Fund's NAV is calculated. Prior to January 1,
2019, the price used was the midpoint between the highest bid and the lowest
offer on the stock exchange on which shares of the Fund were listed for trading
as of the time that the Fund's NAV was calculated. Since shares of the Fund did
not trade in the secondary market until after the Fund's inception, for the
period from inception to the first day of secondary market trading in shares of
the Fund, the NAV of the Fund is used as a proxy for the secondary market
trading price to calculate market returns. NAV and market returns assume that
all distributions have been reinvested in the Fund at NAV and Market Price,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of the shares of
the Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
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% OF TOTAL LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS(1)
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Health Care Providers & Services 15.4%
Software 13.8
Media 11.2
Pharmaceuticals 10.6
Hotels, Restaurants & Leisure 7.7
Insurance 7.1
Diversified Telecommunication Services 4.3
Health Care Technology 3.8
Specialty Retail 2.5
Commercial Services & Supplies 2.0
Entertainment 1.9
Containers & Packaging 1.8
Diversified Consumer Services 1.8
Electric Utilities 1.6
Building Products 1.2
Automobiles 1.2
Professional Services 1.1
Communications Equipment 1.0
Technology Hardware, Storage &
Peripherals 1.0
Aerospace & Defense 0.9
Machinery 0.8
Real Estate Management & Development 0.8
IT Services 0.7
Food & Staples Retailing 0.6
Food Products 0.6
Construction & Engineering 0.5
Auto Components 0.5
Independent Power and Renewable
Electricity Producers 0.5
Electronic Equipment, Instruments &
Components 0.4
Diversified Financial Services 0.3
Construction Materials 0.3
Internet & Direct Marketing Retail 0.3
Life Sciences Tools & Services 0.2
Airlines 0.2
Health Care Equipment & Supplies 0.2
Trading Companies & Distributors 0.2
Semiconductors & Semiconductor
Equipment 0.2
Industrial Conglomerates 0.1
Consumer Finance 0.1
Metals & Mining 0.1
Road & Rail 0.1
Chemicals 0.1
Wireless Telecommunication Services 0.1
Household Products 0.1
Interactive Media & Services 0.1
Electrical Equipment 0.0*
Oil, Gas & Consumable Fuels 0.0*
Personal Products 0.0*
Capital Markets 0.0*
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Total 100.0%
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* Amount is less than 0.1%.
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% OF TOTAL LONG-TERM
ASSET CLASSIFICATION INVESTMENTS(1)
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Corporate Bonds 57.1%
Senior Floating-Rate Loan Interests 33.6
Foreign Corporate Bonds 9.2
Common Stock 0.1
Warrants 0.0*
Rights 0.0*
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Total 100.0%
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% OF SENIOR LOANS
AND OTHER
CREDIT QUALITY (S&P RATINGS)(2) DEBT SECURITIES(1)
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BBB 1.0%
BBB- 0.5
BB+ 2.7
BB 6.9
BB- 5.1
B+ 15.7
B 27.5
B- 16.7
CCC+ 16.7
CCC 3.2
CCC- 1.1
CC 0.2
D 2.3
NR 0.4
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Total 100.0%
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% OF TOTAL LONG-TERM
TOP 10 ISSUERS INVESTMENTS(1)
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Bausch Health Cos., Inc. (Valeant) 2.8%
Alliant Holdings I LLC 2.5
Internet Brands, Inc. (Web MD/MH Sub I.
LLC) 2.4
Mallinckrodt International Finance S.A. 2.3
Golden Nugget, Inc. 2.2
HUB International Ltd. 2.2
Endo LLC 2.1
Verscend Technologies, Inc. (Cotiviti) 2.0
Cablevision (CSC Holdings, LLC) 1.9
athenahealth, Inc. (VVC Holding Corp.) 1.7
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Total 22.1%
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(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
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 25, 2013 - OCTOBER 31, 2021
First Trust Tactical ICE BofA US High Yield
High Yield ETF Constrained Index
2/25/13 $10,000 $10,000
4/30/13 10,403 10,308
10/31/13 10,676 10,458
4/30/14 11,167 10,956
10/31/14 11,285 11,070
4/30/15 11,493 11,238
10/31/15 11,376 10,845
4/30/16 11,519 11,089
10/31/16 11,933 11,950
4/30/17 12,431 12,602
10/31/17 12,744 13,042
4/30/18 12,748 13,012
10/31/18 12,948 13,155
4/30/19 13,650 13,885
10/31/19 13,970 14,250
4/30/20 13,284 13,153
10/31/20 14,378 14,597
4/30/21 15,267 15,784
10/31/21 15,421 16,164
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 4
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PORTFOLIO COMMENTARY
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2021 (UNAUDITED)
ADVISOR
The First Trust Advisors L.P. ("First Trust") Leveraged Finance Investment Team
is comprised of 17 experienced investment professionals specializing in below
investment grade securities. The team is comprised of portfolio management,
research, trading and operations personnel. As of October 31, 2021, the First
Trust Leveraged Finance Investment Team managed or supervised approximately
$7.21 billion in senior secured bank loans and high-yield bonds. These assets
are managed across various strategies, including three closed-end funds, an
open-end fund, three exchange-traded funds, and a series of unit investment
trusts on behalf of retail and institutional clients.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA - MANAGING DIRECTOR OF FIXED INCOME AND SENIOR PORTFOLIO
MANAGER
JEFFREY SCOTT, CFA - SENIOR VICE PRESIDENT, DEPUTY CREDIT OFFICER AND
PORTFOLIO MANAGER
COMMENTARY
The First Trust Tactical High Yield ETF (the "Fund") is an actively managed
exchange-traded fund ("ETF"). The Fund's primary investment objective is to
provide current income, with a secondary objective of capital appreciation.
MARKET RECAP
As we ended 2020, the coronavirus ("COVID-19") vaccine rollout was underway, and
a $900 billion stimulus package was signed into law supporting equity markets
into year-end. At the beginning of 2021, investor optimism around stronger
economic growth expectations, an additional $2 trillion of federal stimulus, a
strong uptake in the vaccination rate, and higher inflation expectations
resulted in a significant move higher in interest rates. The 10-Year U.S.
Treasury yield increased 83 basis points ("bps") during the first quarter of
2021 to a peak of 1.74% on March 31, 2021, after which rates temporally
consolidated before finishing the 12-month period ended October 31, 2021 at
1.55%. In October 2021, despite significantly higher inflation given strong
global demand, supply chain bottlenecks and labor shortages, the Federal Reserve
(the "Fed") has maintained its quantitative easing program and has kept the
target range for the Federal Funds rate at 0.00 - 0.25%. U.S. Equities reached
all-time highs in October 2021 as strong earnings outweighed concerns over
higher inflation. The S&P 500(R) Index returned 42.91% during the last
twelve-month ("LTM") period ended October 31, 2021.
High-Yield Bond Market
High-yield bond spreads over U.S. Treasuries decreased 217 bps during the
12-month period ended October 31, 2021, to T+317 bps. The current spread is 240
bps below the high-yield bond market's long-term average spread over U.S.
Treasuries of T+557 bps (December 1997 - October 2021). High-yield bond funds
reported their third consecutive monthly inflow in October 2021, the fifth
inflow in the LTM period. High-yield bond outflows totaled $6.8 billion during
the LTM period.
During the LTM period, lower quality CCC rated high-yield bonds returned 22.86%,
outperforming single-B rated bonds' return of 9.40% and BB rated bonds' return
of 8.56%. The average price of high-yield bonds in the market increased from
$99.29 in the beginning of the period to $103.67 at the end of the period.
Senior Loan Market
Senior loan spreads over the 3-month London Interbank Offered Rate ("LIBOR")
decreased 169 bps during the 12-month period ended October 31, 2021, to L+416
bps. The current spread is 99 bps below the senior loan market's long-term
average spread of L+515 bps (December 1997 - October 2021). Retail senior loan
funds experienced their 11th consecutive monthly inflow in October 2021, and
inflows for loan funds totaled $38.1 billion over the LTM period. We believe the
strong demand for senior loans was driven by rising U.S. Treasury rates and an
increasing possibility of interest rate hikes late next year.
During the LTM period, lower quality CCC rated senior loans returned 21.83%,
outperforming single-B rated senior loans' return of 8.33% and BB rated senior
loans' return of 5.52%. The average price of senior loans in the market
increased from $93.17 in the beginning of the period to $98.55 at the end of the
period.
Page 5
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
ANNUAL REPORT
OCTOBER 31, 2021 (UNAUDITED)
Default Rates
During the 12-month period ended October 31, 2021, default rates decreased
within the high-yield bond and senior loan markets, as measured by the JP Morgan
High-Yield Bond Universe and the S&P/LSTA Leveraged Loan Index, respectively.
The LTM default rate within the high-yield bond market declined from a peak of
6.34% at the beginning of the period, to 0.36% at end of the period. The senior
loan market LTM default rate ended the period at 0.20% compared to the 4.11%
rate at the beginning of the period. The default rates in both the high-yield
bond market and the senior loan market are below the long-term average default
rates of 3.18% and 2.86%, respectively.
FUND PERFORMANCE
The Fund returned 7.25% on a net asset value ("NAV") basis and 7.18% on a market
price basis over the LTM period ended October 31, 2021. The ICE BofA US High
Yield Constrained Index ("the Index") returned 10.74% over the same time period.
The Fund held 451 individual positions diversified across 49 industries at the
end of the reporting period. Health Care Providers & Services (15.45%), Software
(13.79%), and Media (11.14%) were the Fund's largest three industry exposures at
the end of the period. By comparison, the Fund held 410 individual positions
across 49 industries on October 31, 2020. The Fund's duration as of October 31,
2021 was 2.41 years. The Fund strategically deployed leverage over the LTM
period, which was a tailwind to performance as risk asset prices generated
positive returns during the period. The Fund's long position totaled 111.53% as
of October 31, 2021.
During the LTM period, the Fund benefitted from strong security selection within
the leisure industry. Within the leisure industry, the Fund benefitted from its
overweight position in movie theaters as positive vaccine news drove a strong
recovery in prices during the LTM period. An additional tailwind to performance
was the Fund's underweight position in the telecommunications industry, which
underperformed the overall benchmark return during the LTM period. The Fund had
a 3.61% weight to telecommunications, compared to the benchmark weight of 7.28%.
The primary detractor was the Fund's de minimis exposure to the energy industry,
which was the best performing industry during the LTM period as crude oil prices
increased 133.50% to $83.57. Energy comprised 13.50% of the benchmark and only
0.04% of the Fund on average over the period. An additional headwind to
performance was the Fund's overweight allocation to the healthcare industry.
Healthcare posted a positive return during the LTM period that lagged the return
for the overall benchmark. The Fund had a 27.83% average weight to healthcare,
compared to the benchmark weight of 8.95%. The Fund's allocation to senior loans
was also a headwind as senior loans underperformed high-yield bonds during the
LTM period.
The Fund's most recent monthly distribution of $0.200 per share is $0.004 per
share lower than the monthly distribution paid in October 2020. At the end of
the period, the effective yield based on the distributions for the trailing
twelve months was 5.51% based on NAV and 5.50% based on market price.
The Fund experienced zero defaults during the LTM period. This is compared to 8
defaults within the JP Morgan High-Yield Bond Universe during the LTM period.
Since inception, the Fund has experienced nine defaults, which compares to 244
within the JP Morgan High-Yield Bond Universe during the same period. The JP
Morgan High-Yield Bond Universe LTM default rate was 0.36%.
MARKET AND FUND OUTLOOK
We believe that continued economic growth and persistently high inflation are
likely to result in higher interest rates across the U.S. Treasury yield curve.
As such, we expect long-duration fixed income asset class returns to be
pressured as rates increase. We believe senior loans, given their senior secured
position in the capital structure, floating rate coupon and strong fundamental
tailwinds, as evidenced by the low corporate default rate, continue to offer an
attractive solution to generate income and avoid interest rate risk in this
environment. As we evaluate existing and new investment opportunities in this
environment, our decisions will continue to be rooted in our rigorous bottom-up
credit analysis process and our focus will remain on identifying the
opportunities that we believe offer the best risk and reward balance.
Page 6
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2021 (UNAUDITED)
As a shareholder of First Trust Tactical High Yield ETF (the "Fund"), you incur
two types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service (12b-1) fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Fund and to compare these costs with the ongoing costs
of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended October 31, 2021.
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.
------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO
BEGINNING ENDING BASED ON THE EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE
MAY 1, 2021 OCTOBER 31, 2021 PERIOD SIX-MONTH PERIOD (a)
------------------------------------------------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
Actual $1,000.00 $1,010.10 1.03% $5.22
Hypothetical (5% return before expenses) $1,000.00 $1,020.01 1.03% $5.24
(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, 2021
through October 31, 2021), multiplied by 184/365 (to reflect the six-month
period).
Page 7
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS -- 63.6%
AEROSPACE & DEFENSE -- 0.7%
$ 342,000 Booz Allen Hamilton, Inc. (a)................................... 3.88% 09/01/28 $ 347,335
7,802,000 Science Applications International Corp. (a).................... 4.88% 04/01/28 8,045,812
1,333,000 Spirit AeroSystems, Inc. (a).................................... 5.50% 01/15/25 1,389,653
3,000,000 Spirit AeroSystems, Inc. (a).................................... 7.50% 04/15/25 3,171,000
1,500,000 TransDigm, Inc. (a)............................................. 8.00% 12/15/25 1,597,500
1,000,000 TransDigm, Inc. (a)............................................. 6.25% 03/15/26 1,046,250
---------------
15,597,550
---------------
AGRICULTURAL PRODUCTS -- 0.0%
500,000 Lamb Weston Holdings, Inc. (a).................................. 4.88% 05/15/28 537,180
---------------
AIRLINES -- 0.3%
5,469,000 Mileage Plus Holdings LLC / Mileage Plus Intellectual Property
Assets Ltd. (a).............................................. 6.50% 06/20/27 5,959,077
---------------
ALTERNATIVE CARRIERS -- 0.4%
777,000 Level 3 Financing, Inc.......................................... 5.38% 05/01/25 796,231
2,000,000 Level 3 Financing, Inc.......................................... 5.25% 03/15/26 2,063,900
3,000,000 Level 3 Financing, Inc. (a)..................................... 4.63% 09/15/27 3,078,750
2,000,000 Level 3 Financing, Inc. (a)..................................... 4.25% 07/01/28 1,980,150
2,000,000 Level 3 Financing, Inc. (a)..................................... 3.63% 01/15/29 1,887,500
---------------
9,806,531
---------------
APPAREL RETAIL -- 0.5%
10,080,000 Nordstrom, Inc. (b)............................................. 4.00% 03/15/27 10,370,354
---------------
APPLICATION SOFTWARE -- 1.0%
440,000 Expedia Group, Inc. (a)......................................... 6.25% 05/01/25 502,735
6,486,000 Go Daddy Operating Co. LLC / GD Finance Co., Inc. (a)........... 5.25% 12/01/27 6,737,332
4,411,000 LogMeIn, Inc. (a)............................................... 5.50% 09/01/27 4,420,440
5,685,000 Open Text Holdings, Inc. (a).................................... 4.13% 02/15/30 5,786,479
5,216,000 Ziff Davis, Inc. (a) (b)........................................ 4.63% 10/15/30 5,470,280
---------------
22,917,266
---------------
AUTO PARTS & EQUIPMENT -- 0.2%
2,145,000 Dornoch Debt Merger Sub, Inc. (a)............................... 6.63% 10/15/29 2,118,188
2,000,000 Real Hero Merger Sub 2, Inc. (a)................................ 6.25% 02/01/29 2,057,500
---------------
4,175,688
---------------
AUTOMOBILE MANUFACTURERS -- 1.3%
6,000,000 Ford Motor Co................................................... 8.50% 04/21/23 6,586,500
7,411,000 Ford Motor Co................................................... 9.00% 04/22/25 8,920,992
7,957,000 Ford Motor Co. (b).............................................. 9.63% 04/22/30 11,473,039
2,000,000 Ford Motor Credit Co. LLC....................................... 3.66% 09/08/24 2,072,500
500,000 Ford Motor Credit Co. LLC....................................... 5.13% 06/16/25 543,125
667,000 Penske Automotive Group, Inc.................................... 3.50% 09/01/25 686,176
---------------
30,282,332
---------------
AUTOMOTIVE RETAIL -- 0.6%
167,000 Group 1 Automotive, Inc. (a).................................... 4.00% 08/15/28 167,242
4,926,000 IAA, Inc. (a)................................................... 5.50% 06/15/27 5,123,040
7,350,000 KAR Auction Services, Inc. (a).................................. 5.13% 06/01/25 7,377,562
250,000 Lithia Motors, Inc. (a)......................................... 3.88% 06/01/29 259,378
1,351,000 Lithia Motors, Inc. (a)......................................... 4.38% 01/15/31 1,440,443
100,000 Sonic Automotive, Inc. (a)...................................... 4.63% 11/15/29 100,415
100,000 Sonic Automotive, Inc. (a)...................................... 4.88% 11/15/31 100,375
---------------
14,568,455
---------------
Page 8 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
BROADCASTING -- 9.3%
$ 15,031,000 Cumulus Media New Holdings, Inc. (a) (b)........................ 6.75% 07/01/26 $ 15,651,029
6,330,000 Diamond Sports Group LLC / Diamond Sports Finance
Co. (a)...................................................... 5.38% 08/15/26 3,589,142
21,673,000 Diamond Sports Group LLC / Diamond Sports Finance
Co. (a) (b).................................................. 6.63% 08/15/27 6,501,900
28,294,000 Gray Television, Inc. (a) (b)................................... 5.88% 07/15/26 29,213,555
11,199,000 Gray Television, Inc. (a)....................................... 7.00% 05/15/27 11,996,929
24,649,000 iHeartCommunications, Inc. (b).................................. 8.38% 05/01/27 26,281,996
11,475,000 iHeartCommunications, Inc. (a) (b).............................. 5.25% 08/15/27 11,734,450
16,568,000 Nexstar Media, Inc. (a) (b)..................................... 5.63% 07/15/27 17,499,950
12,396,000 Nexstar Media, Inc. (a) (b)..................................... 4.75% 11/01/28 12,679,868
1,389,000 Scripps Escrow II, Inc. (a)..................................... 3.88% 01/15/29 1,383,798
8,355,000 Scripps Escrow, Inc. (a) (b).................................... 5.88% 07/15/27 8,490,769
10,812,000 Sinclair Television Group, Inc. (a) (b)......................... 5.88% 03/15/26 11,095,814
9,086,000 Sinclair Television Group, Inc. (a)............................. 5.13% 02/15/27 8,745,275
5,000,000 Sinclair Television Group, Inc. (a)............................. 5.50% 03/01/30 4,783,925
1,000,000 Sinclair Television Group, Inc. (a)............................. 4.13% 12/01/30 953,805
2,000,000 Sirius XM Radio, Inc. (a)....................................... 4.13% 07/01/30 1,989,848
337,000 TEGNA, Inc. (a)................................................. 4.75% 03/15/26 351,339
8,700,000 TEGNA, Inc...................................................... 4.63% 03/15/28 8,787,000
11,500,000 TEGNA, Inc. (b)................................................. 5.00% 09/15/29 11,657,262
9,310,000 Univision Communications, Inc. (a) (b).......................... 5.13% 02/15/25 9,461,288
4,500,000 Univision Communications, Inc. (a).............................. 9.50% 05/01/25 4,876,875
6,972,000 Univision Communications, Inc. (a).............................. 6.63% 06/01/27 7,551,094
---------------
215,276,911
---------------
BUILDING PRODUCTS -- 0.2%
1,000,000 American Builders & Contractors Supply Co., Inc. (a)............ 4.00% 01/15/28 1,015,000
500,000 American Builders & Contractors Supply Co., Inc. (a)............ 3.88% 11/15/29 492,500
100,000 Beacon Roofing Supply, Inc. (a)................................. 4.13% 05/15/29 98,500
100,000 Builders FirstSource, Inc. (a).................................. 4.25% 02/01/32 100,938
1,392,000 Standard Industries, Inc. (a)................................... 5.00% 02/15/27 1,430,280
350,000 Standard Industries, Inc. (a)................................... 4.38% 07/15/30 350,437
1,000,000 Standard Industries, Inc. (a)................................... 3.38% 01/15/31 928,635
1,000,000 TopBuild Corp. (a).............................................. 3.63% 03/15/29 1,006,590
---------------
5,422,880
---------------
CABLE & SATELLITE -- 2.8%
1,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.50% 05/01/26 1,034,250
2,828,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.13% 05/01/27 2,934,050
4,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.00% 02/01/28 4,165,000
500,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 5.38% 06/01/29 537,500
2,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.75% 03/01/30 2,067,500
2,000,000 CCO Holdings LLC / CCO Holdings Capital Corp. (a)............... 4.25% 02/01/31 1,993,760
1,000,000 CCO Holdings LLC / CCO Holdings Capital Corp.................... 4.50% 05/01/32 1,006,005
819,000 CSC Holdings LLC (a)............................................ 5.50% 04/15/27 846,641
1,800,000 CSC Holdings LLC (a)............................................ 5.38% 02/01/28 1,856,250
5,800,000 CSC Holdings LLC (a)............................................ 7.50% 04/01/28 6,184,250
34,920,000 CSC Holdings LLC (a) (b)........................................ 5.75% 01/15/30 34,499,214
4,167,000 CSC Holdings LLC (a)............................................ 4.63% 12/01/30 3,823,369
2,000,000 CSC Holdings LLC (a)............................................ 4.50% 11/15/31 1,940,450
1,000,000 CSC Holdings LLC (a)............................................ 5.00% 11/15/31 929,900
357,000 DIRECTV Holdings LLC / DIRECTV Financing Co., Inc. (a).......... 5.88% 08/15/27 370,530
---------------
64,188,669
---------------
See Notes to Financial Statements Page 9
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
CASINOS & GAMING -- 3.9%
$ 890,000 Boyd Gaming Corp. (a)........................................... 8.63% 06/01/25 $ 962,953
500,000 Boyd Gaming Corp................................................ 4.75% 12/01/27 515,775
3,562,000 Boyd Gaming Corp. (a)........................................... 4.75% 06/15/31 3,668,922
15,340,000 Caesars Entertainment, Inc. (a) (b)............................. 6.25% 07/01/25 16,154,554
19,296,000 Caesars Entertainment, Inc. (a) (b)............................. 8.13% 07/01/27 21,636,605
716,000 Caesars Entertainment, Inc. (a)................................. 4.63% 10/15/29 720,332
4,229,000 Caesars Resort Collection LLC / CRC Finco, Inc. (a)............. 5.75% 07/01/25 4,448,908
22,631,000 Golden Nugget, Inc. (a) (b)..................................... 6.75% 10/15/24 22,715,866
100,000 MGM Growth Properties Operating Partnership L.P. / MGP
Finance Co-Issuer, Inc. (a).................................. 3.88% 02/15/29 106,027
8,350,000 MGM Resorts International (b)................................... 7.75% 03/15/22 8,548,312
5,100,000 MGM Resorts International (b)................................... 6.00% 03/15/23 5,387,997
1,000,000 MGM Resorts International....................................... 5.75% 06/15/25 1,081,250
1,250,000 Scientific Games International, Inc. (a)........................ 8.63% 07/01/25 1,350,563
3,616,000 Station Casinos LLC (a)......................................... 4.50% 02/15/28 3,647,640
---------------
90,945,704
---------------
COAL & CONSUMABLE FUELS -- 0.0%
210,181 Peabody Energy Corp. (a) (c).................................... 8.50% 12/31/24 197,899
235,000 PIC AU Holdings LLC / PIC AU Holdings Corp. (a)................. 10.00% 12/31/24 240,666
---------------
438,565
---------------
COMMUNICATIONS EQUIPMENT -- 1.1%
26,334,000 CommScope Technologies LLC (a) (b).............................. 6.00% 06/15/25 26,113,189
---------------
CONSTRUCTION & ENGINEERING -- 0.6%
1,500,000 Arcosa, Inc. (a)................................................ 4.38% 04/15/29 1,524,375
500,000 Atkore, Inc. (a)................................................ 4.25% 06/01/31 505,637
11,694,000 Pike Corp. (a) (b).............................................. 5.50% 09/01/28 11,913,263
---------------
13,943,275
---------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS -- 0.3%
5,565,000 Clark Equipment Co. (a)......................................... 5.88% 06/01/25 5,808,469
---------------
CONSTRUCTION MATERIALS -- 0.4%
176,000 GYP Holdings III Corp. (a)...................................... 4.63% 05/01/29 174,020
4,282,000 New Enterprise Stone & Lime Co., Inc. (a)....................... 5.25% 07/15/28 4,325,377
3,623,000 Summit Materials LLC / Summit Materials Finance Corp. (a)....... 5.25% 01/15/29 3,799,621
---------------
8,299,018
---------------
CONSUMER FINANCE -- 0.2%
486,000 Black Knight InfoServ LLC (a)................................... 3.63% 09/01/28 484,177
3,000,000 FirstCash, Inc. (a)............................................. 4.63% 09/01/28 3,097,500
---------------
3,581,677
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.0%
500,000 Square, Inc. (a)................................................ 2.75% 06/01/26 506,122
250,000 Square, Inc. (a)................................................ 3.50% 06/01/31 256,563
---------------
762,685
---------------
DIVERSIFIED METALS & MINING -- 0.1%
2,500,000 Freeport-McMoRan, Inc........................................... 5.00% 09/01/27 2,610,625
---------------
ELECTRIC UTILITIES -- 1.8%
12,805,000 PG&E Corp. (b).................................................. 5.00% 07/01/28 13,333,207
13,327,000 PG&E Corp. (b).................................................. 5.25% 07/01/30 13,940,042
Page 10 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
$ 5,000,000 Vistra Operations Co. LLC (a)................................... 5.63% 02/15/27 $ 5,157,850
3,189,000 Vistra Operations Co. LLC (a)................................... 5.00% 07/31/27 3,272,711
5,000,000 Vistra Operations Co. LLC (a)................................... 4.38% 05/01/29 4,956,250
---------------
40,660,060
---------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.0%
667,000 Sensata Technologies, Inc. (a).................................. 3.75% 02/15/31 658,676
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.4%
7,842,000 Allied Universal Holdco LLC / Allied Universal Finance
Corp. (a).................................................... 6.00% 06/01/29 7,740,250
500,000 Stericycle, Inc. (a)............................................ 3.88% 01/15/29 493,125
---------------
8,233,375
---------------
FERTILIZERS & AGRICULTURAL CHEMICALS -- 0.1%
250,000 Scotts Miracle-Gro (The) Co..................................... 4.50% 10/15/29 260,803
1,000,000 Scotts Miracle-Gro (The) Co. (a)................................ 4.00% 04/01/31 993,190
---------------
1,253,993
---------------
FINANCIAL EXCHANGES & DATA -- 0.0%
750,000 MSCI, Inc. (a).................................................. 4.00% 11/15/29 785,625
---------------
FOOD DISTRIBUTORS -- 0.2%
3,488,000 US Foods, Inc. (a).............................................. 6.25% 04/15/25 3,649,320
1,397,000 US Foods, Inc. (a).............................................. 4.75% 02/15/29 1,415,189
---------------
5,064,509
---------------
FOOD RETAIL -- 0.5%
1,000,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons L.P. /
Albertsons LLC (a)........................................... 7.50% 03/15/26 1,078,750
3,700,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons L.P. /
Albertsons LLC (a)........................................... 4.63% 01/15/27 3,876,860
3,000,000 Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons L.P. /
Albertsons LLC (a)........................................... 5.88% 02/15/28 3,191,250
2,210,000 Safeway, Inc.................................................... 7.25% 02/01/31 2,671,393
---------------
10,818,253
---------------
HEALTH CARE DISTRIBUTORS -- 0.6%
1,421,000 AdaptHealth LLC (a)............................................. 6.13% 08/01/28 1,506,260
3,000,000 AdaptHealth LLC (a)............................................. 4.63% 08/01/29 2,973,750
7,533,000 AdaptHealth LLC (a)............................................. 5.13% 03/01/30 7,580,081
691,000 RP Escrow Issuer LLC (a)........................................ 5.25% 12/15/25 691,864
---------------
12,751,955
---------------
HEALTH CARE EQUIPMENT -- 0.0%
250,000 Hill-Rom Holdings, Inc. (a)..................................... 4.38% 09/15/27 259,934
300,000 Teleflex, Inc. (a).............................................. 4.25% 06/01/28 308,618
---------------
568,552
---------------
HEALTH CARE FACILITIES -- 3.5%
1,000,000 Acadia Healthcare Co., Inc. (a)................................. 5.50% 07/01/28 1,043,750
788,000 Acadia Healthcare Co., Inc. (a)................................. 5.00% 04/15/29 804,745
363,000 Encompass Health Corp........................................... 5.13% 03/15/23 364,287
2,284,000 Encompass Health Corp........................................... 5.75% 09/15/25 2,337,000
1,300,000 Encompass Health Corp........................................... 4.50% 02/01/28 1,325,152
6,080,000 Encompass Health Corp........................................... 4.75% 02/01/30 6,239,874
500,000 Encompass Health Corp........................................... 4.63% 04/01/31 511,330
See Notes to Financial Statements Page 11
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
HEALTH CARE FACILITIES (CONTINUED)
$ 2,000,000 HCA, Inc........................................................ 5.88% 05/01/23 $ 2,140,000
6,530,000 HCA, Inc........................................................ 5.88% 02/15/26 7,444,200
16,229,000 Select Medical Corp. (a) (b).................................... 6.25% 08/15/26 16,995,277
1,168,000 Tenet Healthcare Corp. (a)...................................... 4.63% 09/01/24 1,194,280
1,500,000 Tenet Healthcare Corp. (a)...................................... 7.50% 04/01/25 1,593,750
7,492,000 Tenet Healthcare Corp. (a)...................................... 4.88% 01/01/26 7,688,665
6,281,000 Tenet Healthcare Corp. (a)...................................... 5.13% 11/01/27 6,571,496
2,327,000 Tenet Healthcare Corp. (a)...................................... 4.63% 06/15/28 2,425,897
20,214,000 Tenet Healthcare Corp. (a) (b).................................. 6.13% 10/01/28 21,248,957
---------------
79,928,660
---------------
HEALTH CARE SERVICES -- 3.8%
16,943,000 DaVita, Inc. (a)................................................ 4.63% 06/01/30 17,048,216
250,000 DaVita, Inc. (a)................................................ 3.75% 02/15/31 237,187
26,201,000 Global Medical Response, Inc. (a) (b)........................... 6.50% 10/01/25 25,986,681
14,426,000 MEDNAX, Inc. (a)................................................ 6.25% 01/15/27 15,144,703
718,000 ModivCare Escrow Issuer, Inc. (a)............................... 5.00% 10/01/29 731,226
1,951,000 ModivCare, Inc. (a)............................................. 5.88% 11/15/25 2,050,989
100,000 Service Corp. International..................................... 3.38% 08/15/30 98,555
1,022,000 Team Health Holdings, Inc. (a).................................. 6.38% 02/01/25 906,167
11,462,000 US Renal Care, Inc. (a) (b)..................................... 10.63% 07/15/27 11,903,000
11,867,000 Vizient, Inc. (a) (b)........................................... 6.25% 05/15/27 12,452,755
---------------
86,559,479
---------------
HEALTH CARE SUPPLIES -- 0.2%
200,000 180 Medical, Inc. (a)........................................... 3.88% 10/15/29 201,378
4,282,000 Mozart Debt Merger Sub, Inc. (a)................................ 5.25% 10/01/29 4,351,582
770,000 Owens & Minor, Inc. (a)......................................... 4.50% 03/31/29 773,850
---------------
5,326,810
---------------
HEALTH CARE TECHNOLOGY -- 2.6%
31,493,000 Change Healthcare Holdings LLC / Change Healthcare
Finance, Inc. (a) (b)........................................ 5.75% 03/01/25 31,768,564
3,500,000 HealthEquity, Inc. (a).......................................... 4.50% 10/01/29 3,543,750
22,267,000 Verscend Escrow Corp. (a) (b)................................... 9.75% 08/15/26 23,615,489
---------------
58,927,803
---------------
HOMEFURNISHING RETAIL -- 0.6%
1,787,000 Ambience Merger Sub, Inc. (a)................................... 4.88% 07/15/28 1,756,746
5,004,000 Ambience Merger Sub, Inc. (a)................................... 7.13% 07/15/29 4,829,886
6,635,000 Rent-A-Center, Inc. (a)......................................... 6.38% 02/15/29 6,941,869
---------------
13,528,501
---------------
HOTELS, RESORTS & CRUISE LINES -- 0.4%
706,000 Boyne USA, Inc. (a)............................................. 4.75% 05/15/29 722,768
1,100,000 Hilton Domestic Operating Co., Inc. (a)......................... 5.38% 05/01/25 1,148,070
4,113,000 Midwest Gaming Borrower LLC / Midwest Gaming Finance
Corp. (a).................................................... 4.88% 05/01/29 4,154,726
1,100,000 Vail Resorts, Inc. (a).......................................... 6.25% 05/15/25 1,160,005
711,000 Wyndham Hotels & Resorts, Inc. (a).............................. 4.38% 08/15/28 735,387
1,425,000 XHR L.P. (a).................................................... 4.88% 06/01/29 1,463,760
---------------
9,384,716
---------------
HOUSEHOLD PRODUCTS -- 0.1%
200,000 Central Garden & Pet Co......................................... 4.13% 10/15/30 201,745
Page 12 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
HOUSEHOLD PRODUCTS (CONTINUED)
$ 1,350,000 Energizer Holdings, Inc. (a).................................... 4.38% 03/31/29 $ 1,295,325
---------------
1,497,070
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES -- 0.1%
3,000,000 Tempo Acquisition LLC / Tempo Acquisition Finance
Corp. (a).................................................... 5.75% 06/01/25 3,145,230
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.5%
10,838,000 Calpine Corp. (a) (b)........................................... 5.13% 03/15/28 10,797,357
667,000 Calpine Corp. (a)............................................... 4.63% 02/01/29 647,824
167,000 Calpine Corp. (a)............................................... 5.00% 02/01/31 163,899
---------------
11,609,080
---------------
INDUSTRIAL CONGLOMERATES -- 0.2%
2,500,000 Hillenbrand, Inc................................................ 5.75% 06/15/25 2,637,500
1,000,000 TriMas Corp. (a)................................................ 4.13% 04/15/29 1,013,830
---------------
3,651,330
---------------
INDUSTRIAL MACHINERY -- 0.4%
4,855,000 Gates Global LLC / Gates Corp. (a).............................. 6.25% 01/15/26 5,024,925
250,000 Roller Bearing Co. of America, Inc. (a)......................... 4.38% 10/15/29 255,000
4,667,000 TK Elevator US Newco, Inc. (a).................................. 5.25% 07/15/27 4,755,906
---------------
10,035,831
---------------
INSURANCE BROKERS -- 5.5%
35,024,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (a) (b)............................................ 6.75% 10/15/27 36,206,060
1,790,000 Alliant Holdings Intermediate LLC / Alliant Holdings
Co-Issuer (a)................................................ 5.88% 11/01/29 1,801,009
9,540,000 AmWINS Group, Inc. (a).......................................... 4.88% 06/30/29 9,535,707
18,137,000 AssuredPartners, Inc. (a)....................................... 7.00% 08/15/25 18,409,055
25,500,000 AssuredPartners, Inc. (a) (b)................................... 5.63% 01/15/29 25,340,625
8,120,000 BroadStreet Partners, Inc. (a).................................. 5.88% 04/15/29 7,990,567
27,438,000 HUB International Ltd. (a) (b).................................. 7.00% 05/01/26 28,329,735
---------------
127,612,758
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 2.9%
1,930,000 Frontier Communications Holdings LLC (a)........................ 5.88% 10/15/27 2,024,087
4,890,000 Frontier Communications Holdings LLC (a)........................ 5.00% 05/01/28 4,975,575
24,717,000 Frontier Communications Holdings LLC (a) (b).................... 6.75% 05/01/29 25,612,991
1,429,000 Frontier Communications Holdings LLC (a)........................ 6.00% 01/15/30 1,437,545
5,320,000 Lumen Technologies, Inc......................................... 5.80% 03/15/22 5,384,851
3,500,000 Zayo Group Holdings, Inc. (a)................................... 4.00% 03/01/27 3,403,750
25,627,000 Zayo Group Holdings, Inc. (a) (b)............................... 6.13% 03/01/28 25,050,393
---------------
67,889,192
---------------
INTERACTIVE HOME ENTERTAINMENT -- 0.2%
4,101,000 Playtika Holding Corp. (a)...................................... 4.25% 03/15/29 4,117,609
---------------
INTERACTIVE MEDIA & SERVICES -- 0.1%
684,000 ANGI Group LLC (a).............................................. 3.88% 08/15/28 669,465
500,000 Match Group Holdings II LLC (a)................................. 4.63% 06/01/28 520,165
---------------
1,189,630
---------------
INTERNET & DIRECT MARKETING RETAIL -- 0.3%
7,410,000 Cars.com, Inc. (a).............................................. 6.38% 11/01/28 7,764,568
---------------
See Notes to Financial Statements Page 13
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
IT CONSULTING & OTHER SERVICES -- 0.5%
$ 6,261,000 CDK Global, Inc................................................. 4.88% 06/01/27 $ 6,525,250
4,448,000 CDK Global, Inc. (a)............................................ 5.25% 05/15/29 4,776,040
250,000 Gartner, Inc. (a)............................................... 4.50% 07/01/28 260,612
250,000 Gartner, Inc. (a)............................................... 3.75% 10/01/30 253,750
---------------
11,815,652
---------------
LEISURE FACILITIES -- 0.5%
250,000 Cedar Fair L.P.................................................. 5.25% 07/15/29 259,375
1,850,000 Cedar Fair L.P. / Canada's Wonderland Co. / Magnum
Management Corp. / Millennium Op............................. 5.38% 04/15/27 1,907,812
717,000 SeaWorld Parks & Entertainment, Inc. (a)........................ 5.25% 08/15/29 731,340
6,209,000 Six Flags Entertainment Corp. (a) (b)........................... 4.88% 07/31/24 6,263,329
1,000,000 Six Flags Entertainment Corp. (a)............................... 5.50% 04/15/27 1,036,250
1,000,000 Six Flags Theme Parks, Inc. (a)................................. 7.00% 07/01/25 1,063,750
---------------
11,261,856
---------------
MANAGED HEALTH CARE -- 1.7%
1,500,000 Centene Corp.................................................... 4.25% 12/15/27 1,573,125
1,000,000 Molina Healthcare, Inc. (a)..................................... 4.38% 06/15/28 1,036,250
100,000 Molina Healthcare, Inc. (a)..................................... 3.88% 11/15/30 103,258
7,168,000 MPH Acquisition Holdings LLC (a)................................ 5.50% 09/01/28 7,127,018
32,472,000 MPH Acquisition Holdings LLC (a) (b)............................ 5.75% 11/01/28 29,567,542
---------------
39,407,193
---------------
METAL & GLASS CONTAINERS -- 0.7%
1,000,000 Ball Corp....................................................... 2.88% 08/15/30 962,500
3,864,000 Berry Global, Inc. (a).......................................... 4.50% 02/15/26 3,926,790
2,000,000 Owens-Brockway Glass Container, Inc. (a)........................ 5.88% 08/15/23 2,107,500
6,550,000 Owens-Brockway Glass Container, Inc. (a)........................ 6.38% 08/15/25 7,172,250
684,000 Owens-Brockway Glass Container, Inc. (a)........................ 6.63% 05/13/27 731,880
2,200,000 Silgan Holdings, Inc............................................ 4.13% 02/01/28 2,238,500
---------------
17,139,420
---------------
MOVIES & ENTERTAINMENT -- 0.9%
7,000,000 Live Nation Entertainment, Inc. (a)............................. 4.88% 11/01/24 7,091,630
5,494,000 Live Nation Entertainment, Inc. (a)............................. 5.63% 03/15/26 5,686,290
523,000 Live Nation Entertainment, Inc. (a)............................. 6.50% 05/15/27 573,339
5,895,000 Live Nation Entertainment, Inc. (a)............................. 4.75% 10/15/27 6,020,269
1,000,000 WMG Acquisition Corp. (a)....................................... 3.00% 02/15/31 974,215
---------------
20,345,743
---------------
OFFICE SERVICES & SUPPLIES -- 0.2%
5,084,000 Dun & Bradstreet (The) Corp. (a)................................ 10.25% 02/15/27 5,461,487
---------------
OIL & GAS EXPLORATION & PRODUCTION -- 0.0%
175,000 Chesapeake Energy Corp. (a)..................................... 5.50% 02/01/26 182,656
100,000 Chesapeake Energy Corp. (a)..................................... 5.88% 02/01/29 106,375
---------------
289,031
---------------
OIL & GAS REFINING & MARKETING -- 0.0%
415,000 Murphy Oil USA, Inc............................................. 5.63% 05/01/27 431,818
---------------
PACKAGED FOODS & MEATS -- 0.6%
2,190,000 B&G Foods, Inc.................................................. 5.25% 04/01/25 2,236,537
750,000 Performance Food Group, Inc. (a)................................ 5.50% 10/15/27 782,813
5,990,000 Post Holdings, Inc. (a)......................................... 5.75% 03/01/27 6,222,113
Page 14 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
PACKAGED FOODS & MEATS (CONTINUED)
$ 4,434,000 Post Holdings, Inc. (a)......................................... 5.63% 01/15/28 $ 4,633,308
---------------
13,874,771
---------------
PAPER PACKAGING -- 1.3%
20,451,000 Graham Packaging Co., Inc. (a) (b).............................. 7.13% 08/15/28 21,071,074
2,000,000 Graphic Packaging International LLC (a)......................... 3.50% 03/15/28 2,017,500
1,000,000 Graphic Packaging International LLC (a)......................... 3.50% 03/01/29 991,250
4,023,000 Pactiv Evergreen Group Issuer, Inc. / Pactiv Evergreen Group
Issuer LLC / Reynolds Gro (a)................................ 4.00% 10/15/27 3,941,534
376,000 Sealed Air Corp. (a)............................................ 5.50% 09/15/25 415,954
1,000,000 Sealed Air Corp. (a)............................................ 4.00% 12/01/27 1,046,310
---------------
29,483,622
---------------
PERSONAL PRODUCTS -- 0.0%
250,000 Prestige Brands, Inc. (a)....................................... 5.13% 01/15/28 260,938
750,000 Prestige Brands, Inc. (a)....................................... 3.75% 04/01/31 725,625
---------------
986,563
---------------
PHARMACEUTICALS -- 1.7%
792,000 Bausch Health Americas, Inc. (a)................................ 9.25% 04/01/26 842,490
1,242,000 Bausch Health Americas, Inc. (a)................................ 8.50% 01/31/27 1,319,625
500,000 Catalent Pharma Solutions, Inc. (a)............................. 5.00% 07/15/27 516,875
250,000 Catalent Pharma Solutions, Inc. (a)............................. 3.13% 02/15/29 243,125
750,000 Charles River Laboratories International, Inc. (a).............. 4.25% 05/01/28 777,188
1,000,000 Charles River Laboratories International, Inc. (a).............. 3.75% 03/15/29 1,011,250
1,000,000 Charles River Laboratories International, Inc. (a).............. 4.00% 03/15/31 1,035,005
1,333,000 Emergent BioSolutions, Inc. (a)................................. 3.88% 08/15/28 1,281,346
14,914,000 Horizon Therapeutics USA, Inc. (a) (b).......................... 5.50% 08/01/27 15,734,270
800,000 IQVIA, Inc. (a)................................................. 5.00% 10/15/26 822,960
1,278,000 IQVIA, Inc. (a)................................................. 5.00% 05/15/27 1,326,334
1,000,000 Jaguar Holding Co. II / PPD Development L.P. (a)................ 5.00% 06/15/28 1,073,750
2,016,000 Organon & Co. / Organon Foreign Debt Co-Issuer B.V. (a)......... 5.13% 04/30/31 2,081,883
10,000,000 Par Pharmaceutical, Inc. (a) (b)................................ 7.50% 04/01/27 10,103,600
---------------
38,169,701
---------------
PUBLISHING -- 0.1%
1,111,000 Meredith Corp................................................... 6.50% 07/01/25 1,185,993
---------------
REAL ESTATE OPERATING COMPANIES -- 0.1%
2,785,000 Lennar Corp. (b)................................................ 5.25% 06/01/26 3,169,553
---------------
REAL ESTATE SERVICES -- 0.5%
500,000 MDC Holdings, Inc............................................... 3.85% 01/15/30 531,140
1,060,000 PulteGroup, Inc................................................. 5.50% 03/01/26 1,217,092
7,545,000 Tri Pointe Group, Inc. / Tri Pointe Homes, Inc. (b)............. 5.88% 06/15/24 8,367,405
290,000 Tri Pointe Homes, Inc........................................... 5.25% 06/01/27 313,258
500,000 Tri Pointe Homes, Inc........................................... 5.70% 06/15/28 544,375
---------------
10,973,270
---------------
RESEARCH & CONSULTING SERVICES -- 0.5%
682,000 Clarivate Science Holdings Corp. (a)............................ 4.88% 07/01/29 679,920
3,549,000 CoreLogic, Inc. (a)............................................. 4.50% 05/01/28 3,511,097
4,254,000 Nielsen Finance LLC / Nielsen Finance Co. (a)................... 5.63% 10/01/28 4,428,350
2,666,000 Nielsen Finance LLC / Nielsen Finance Co. (a)................... 5.88% 10/01/30 2,794,101
---------------
11,413,468
---------------
See Notes to Financial Statements Page 15
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
RESTAURANTS -- 0.9%
$ 661,000 Brinker International, Inc. (a)................................. 5.00% 10/01/24 $ 700,660
8,483,000 IRB Holding Corp. (a)........................................... 7.00% 06/15/25 8,970,772
11,749,000 IRB Holding Corp. (a) (b)....................................... 6.75% 02/15/26 12,028,039
---------------
21,699,471
---------------
SECURITY & ALARM SERVICES -- 0.1%
1,200,000 Brink's (The) Co. (a)........................................... 5.50% 07/15/25 1,259,220
2,061,000 Brink's (The) Co. (a)........................................... 4.63% 10/15/27 2,129,116
---------------
3,388,336
---------------
SEMICONDUCTORS -- 0.2%
1,000,000 Microchip Technology, Inc....................................... 4.25% 09/01/25 1,040,378
1,550,000 Qorvo, Inc...................................................... 4.38% 10/15/29 1,666,250
1,000,000 Qorvo, Inc. (a)................................................. 3.38% 04/01/31 1,035,110
---------------
3,741,738
---------------
SPECIALIZED CONSUMER SERVICES -- 0.2%
4,000,000 Aramark Services, Inc. (a)...................................... 6.38% 05/01/25 4,214,560
481,000 Aramark Services, Inc. (a)...................................... 5.00% 02/01/28 492,424
100,000 Carriage Services, Inc. (a)..................................... 4.25% 05/15/29 100,300
---------------
4,807,284
---------------
SPECIALIZED FINANCE -- 0.2%
3,552,000 Park Intermediate Holdings LLC / PK Domestic Property LLC /
PK Finance Co-Issuer (a)..................................... 4.88% 05/15/29 3,600,893
---------------
SPECIALTY CHEMICALS -- 0.2%
3,726,000 Avantor Funding, Inc. (a)....................................... 4.63% 07/15/28 3,870,196
500,000 Axalta Coating Systems LLC (a).................................. 3.38% 02/15/29 477,405
250,000 HB Fuller Co.................................................... 4.25% 10/15/28 253,750
---------------
4,601,351
---------------
SPECIALTY STORES -- 0.0%
350,000 PetSmart, Inc. / PetSmart Finance Corp. (a)..................... 4.75% 02/15/28 360,062
350,000 PetSmart, Inc. / PetSmart Finance Corp. (a)..................... 7.75% 02/15/29 378,690
---------------
738,752
---------------
STEEL -- 0.0%
350,000 United States Steel Corp........................................ 6.88% 03/01/29 374,938
---------------
SYSTEMS SOFTWARE -- 1.7%
8,407,000 Boxer Parent Co., Inc. (a)...................................... 9.13% 03/01/26 8,797,884
2,500,000 Crowdstrike Holdings, Inc....................................... 3.00% 02/15/29 2,471,875
250,000 PTC, Inc. (a)................................................... 3.63% 02/15/25 254,381
3,075,000 PTC, Inc. (a)................................................... 4.00% 02/15/28 3,121,125
24,100,000 SS&C Technologies, Inc. (a) (b)................................. 5.50% 09/30/27 25,395,375
---------------
40,040,640
---------------
TECHNOLOGY DISTRIBUTORS -- 0.1%
1,000,000 CDW LLC / CDW Finance Corp...................................... 4.25% 04/01/28 1,036,250
750,000 CDW LLC / CDW Finance Corp...................................... 3.25% 02/15/29 761,445
---------------
1,797,695
---------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 1.1%
22,225,000 Dell International LLC / EMC Corp. (a) (b)...................... 7.13% 06/15/24 22,622,828
1,000,000 Dell International LLC / EMC Corp............................... 6.10% 07/15/27 1,215,302
Page 16 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
CORPORATE BONDS (CONTINUED)
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS (CONTINUED)
$ 1,000,000 Dell International LLC / EMC Corp............................... 6.20% 07/15/30 $ 1,277,874
667,000 Xerox Holdings Corp. (a)........................................ 5.00% 08/15/25 693,680
---------------
25,809,684
---------------
TIRES & RUBBER -- 0.3%
2,845,000 Goodyear Tire & Rubber (The) Co. (a)............................ 5.00% 07/15/29 3,005,031
2,845,000 Goodyear Tire & Rubber (The) Co. (a)............................ 5.25% 07/15/31 3,031,405
---------------
6,036,436
---------------
TRADING COMPANIES & DISTRIBUTORS -- 0.2%
750,000 Ashtead Capital, Inc. (a)....................................... 4.00% 05/01/28 791,665
4,275,000 SRS Distribution, Inc. (a)...................................... 6.13% 07/01/29 4,403,250
257,000 United Rentals North America, Inc............................... 5.50% 05/15/27 269,688
---------------
5,464,603
---------------
TRUCKING -- 0.1%
2,350,000 XPO Logistics, Inc. (a)......................................... 6.25% 05/01/25 2,478,545
---------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
1,219,000 SBA Communications Corp. (b).................................... 4.88% 09/01/24 1,235,761
500,000 SBA Communications Corp......................................... 3.88% 02/15/27 516,265
---------------
1,752,026
---------------
TOTAL CORPORATE BONDS........................................................................ 1,466,310,898
(Cost $1,447,516,739) ---------------
FOREIGN CORPORATE BONDS -- 10.2%
APPLICATION SOFTWARE -- 0.3%
1,738,000 ION Trading Technologies S.A.R.L. (a)........................... 5.75% 05/15/28 1,783,622
2,958,000 Open Text Corp. (a)............................................. 5.88% 06/01/26 3,057,833
2,336,000 Open Text Corp. (a)............................................. 3.88% 02/15/28 2,356,440
---------------
7,197,895
---------------
AUTO PARTS & EQUIPMENT -- 0.1%
2,000,000 Clarios Global L.P. / Clarios US Finance Co. (a)................ 8.50% 05/15/27 2,127,040
---------------
BUILDING PRODUCTS -- 1.1%
15,634,000 Cemex SAB de C.V. (a) (b)....................................... 7.38% 06/05/27 17,305,009
4,700,000 Cemex SAB de C.V. (a)........................................... 5.45% 11/19/29 5,096,915
2,000,000 Cemex SAB de C.V. (a)........................................... 5.20% 09/17/30 2,168,080
1,000,000 Masonite International Corp. (a)................................ 5.38% 02/01/28 1,051,250
---------------
25,621,254
---------------
CABLE & SATELLITE -- 0.1%
250,000 Virgin Media Finance PLC (a).................................... 5.00% 07/15/30 248,897
2,000,000 Virgin Media Secured Finance PLC (a)............................ 5.50% 05/15/29 2,112,820
---------------
2,361,717
---------------
CASINOS & GAMING -- 0.2%
3,000,000 International Game Technology PLC (a)........................... 4.13% 04/15/26 3,086,250
500,000 International Game Technology PLC (a)........................... 5.25% 01/15/29 526,250
---------------
3,612,500
---------------
DATA PROCESSING & OUTSOURCED SERVICES -- 0.2%
4,412,000 Paysafe Finance PLC / Paysafe Holdings US Corp. (a)............. 4.00% 06/15/29 4,185,885
---------------
See Notes to Financial Statements Page 17
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
FOREIGN CORPORATE BONDS (CONTINUED)
DIVERSIFIED SUPPORT SERVICES -- 0.0%
$ 950,000 Ritchie Bros Auctioneers, Inc. (a).............................. 5.38% 01/15/25 $ 968,739
---------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.0%
500,000 Sensata Technologies B.V. (a)................................... 4.00% 04/15/29 508,455
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.6%
1,743,000 Allied Universal Holdco LLC / Allied Universal Finance Corp. /
Atlas Luxco 4 S.A.R.L. (a)................................... 4.63% 06/01/28 1,731,095
1,162,000 Allied Universal Holdco LLC / Allied Universal Finance Corp. /
Atlas Luxco 4 S.A.R.L. (a)................................... 4.63% 06/01/28 1,152,937
1,027,000 GFL Environmental, Inc. (a)..................................... 3.75% 08/01/25 1,058,015
500,000 GFL Environmental, Inc. (a)..................................... 5.13% 12/15/26 523,125
7,215,000 GFL Environmental, Inc. (a)..................................... 4.00% 08/01/28 7,043,644
1,426,000 GFL Environmental, Inc. (a)..................................... 4.75% 06/15/29 1,440,260
1,000,000 GFL Environmental, Inc. (a)..................................... 4.38% 08/15/29 991,670
---------------
13,940,746
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 0.5%
500,000 Altice France S.A. (a).......................................... 5.13% 07/15/29 487,590
10,839,000 Altice France S.A. (a).......................................... 5.50% 10/15/29 10,638,153
---------------
11,125,743
---------------
LIFE SCIENCES TOOLS & SERVICES -- 0.1%
2,139,000 Grifols Escrow Issuer S.A. (a).................................. 4.75% 10/15/28 2,173,759
---------------
METAL & GLASS CONTAINERS -- 0.0%
200,000 Ardagh Packaging Finance PLC / Ardagh Holdings USA,
Inc. (a)..................................................... 4.13% 08/15/26 204,256
500,000 Intertape Polymer Group, Inc. (a)............................... 4.38% 06/15/29 501,920
---------------
706,176
---------------
PHARMACEUTICALS -- 6.3%
49,183,000 Bausch Health Cos., Inc. (a) (b)................................ 6.13% 04/15/25 50,155,348
4,349,000 Bausch Health Cos., Inc. (a).................................... 5.00% 01/30/28 4,022,825
1,815,000 Bausch Health Cos., Inc. (a).................................... 4.88% 06/01/28 1,864,912
1,384,000 Bausch Health Cos., Inc. (a).................................... 5.00% 02/15/29 1,272,360
3,818,000 Bausch Health Cos., Inc. (a).................................... 6.25% 02/15/29 3,704,548
3,000,000 Bausch Health Cos., Inc. (a).................................... 7.25% 05/30/29 3,045,900
5,000,000 Bausch Health Cos., Inc. (a).................................... 5.25% 01/30/30 4,515,600
1,730,000 Bausch Health Cos., Inc. (a).................................... 5.25% 02/15/31 1,558,107
169,000 Cheplapharm Arzneimittel GmbH (a)............................... 5.50% 01/15/28 174,387
16,083,000 Endo Dac / Endo Finance LLC / Endo Finco, Inc. (a) (b).......... 9.50% 07/31/27 15,987,869
16,658,000 Endo Dac / Endo Finance LLC / Endo Finco, Inc. (a) (b).......... 6.00% 06/30/28 11,649,023
10,000,000 Endo Luxembourg Finance Co. I S.A.R.L. / Endo U.S.,
Inc. (a) (b)................................................. 6.13% 04/01/29 9,850,800
286,000 Jazz Securities DAC (a)......................................... 4.38% 01/15/29 294,222
1,000,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (a) (d) (e).............................................. 5.63% 10/15/23 451,250
1,750,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (a) (d) (e).............................................. 5.50% 04/15/25 789,688
22,400,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (a) (e).................................................. 10.00% 04/15/25 20,048,000
15,776,000 Mallinckrodt International Finance S.A. / Mallinckrodt CB
LLC (a) (e).................................................. 10.00% 04/15/25 16,742,280
---------------
146,127,119
---------------
Page 18 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
FOREIGN CORPORATE BONDS (CONTINUED)
REAL ESTATE SERVICES -- 0.2%
$ 5,346,000 Taylor Morrison Communities, Inc. / Taylor Morrison Holdings II,
Inc. (a)..................................................... 5.88% 04/15/23 $ 5,599,935
---------------
RESEARCH & CONSULTING SERVICES -- 0.2%
3,774,000 Camelot Finance S.A. (a)........................................ 4.50% 11/01/26 3,916,959
---------------
RESTAURANTS -- 0.2%
5,214,000 1011778 BC ULC / New Red Finance, Inc. (a)...................... 4.00% 10/15/30 5,057,528
---------------
SPECIALTY CHEMICALS -- 0.1%
1,000,000 Axalta Coating Systems LLC / Axalta Coating Systems Dutch
Holding B B.V. (a)........................................... 4.75% 06/15/27 1,030,000
---------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................................... 236,261,450
(Cost $238,471,563) ---------------
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
SENIOR FLOATING-RATE LOAN INTERESTS -- 37.5%
AEROSPACE & DEFENSE -- 0.3%
536,060 Atlantic Aviation FBO, Inc. (KKR Apple Bidco, LLC), Term
Loan (Second Lien), 1 Mo. LIBOR + 5.75%, 0.50% Floor......... 6.25% 09/23/29 543,206
7,023,529 Peraton Corp., Term Loan B, 1 Mo. LIBOR + 3.75%, 0.75%
Floor........................................................ 4.50% 02/01/28 7,031,185
---------------
7,574,391
---------------
APPLICATION SOFTWARE -- 10.9%
3,252,082 Epicor Software Corp., First Term Loan C, 1 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 4.00% 07/30/27 3,247,756
3,000,000 Epicor Software Corp., Term Loan (Second Lien), 1 Mo. LIBOR
+ 7.75%, 1.00% Floor......................................... 8.75% 07/30/28 3,075,750
2,657,387 Flexera Software LLC, 2020 Term Loan B, 3 Mo. LIBOR +
3.75%, 0.75% Floor........................................... 4.50% 01/26/28 2,658,822
21,557,619 Gainwell Acquisition Corp. (fka Milano), Term Loan B, 3 Mo.
LIBOR + 4.00%, 0.75% Floor................................... 4.75% 10/01/27 21,594,267
24,317,264 Greeneden U.S. Holdings II LLC (Genesys Telecommunications
Lboratories, Inc.), Initial Dollar Term Loan, 1 Mo. LIBOR +
4.00%, 0.75% Floor........................................... 4.75% 12/01/27 24,366,628
14,236,506 Hyland Software, Inc., 2021 Incremental Term Facility, 1 Mo.
LIBOR + 6.25%, 0.75% Floor................................... 7.00% 07/10/25 14,361,075
23,275,579 Hyland Software, Inc., 2018 Refinancing Term Loan, 1 Mo.
LIBOR + 3.50%, 0.75% Floor................................... 4.25% 07/01/24 23,282,795
4,323,145 Inmar, Inc., Initial Term Loan, 3 Mo. LIBOR + 4.00%, 1.00%
Floor........................................................ 5.00% 05/01/24 4,306,933
25,600,916 Internet Brands, Inc. (WebMD/MH Sub I LLC, 2020 June New
Term Loan, 1 Mo. LIBOR + 3.75%, 1.00% Floor.................. 4.75% 09/15/24 25,643,669
17,966,354 Internet Brands, Inc. (WebMD/MH Sub I LLC), Initial Term
Loan, 1 Mo. LIBOR + 3.50%, 0.00% Floor....................... 3.59% 09/13/24 17,893,770
17,021,355 Internet Brands, Inc. (WebMD/MH Sub I LLC), Term Loan
(Second Lien), 1 Mo. LIBOR + 6.25%, 0.00% Floor.............. 6.34% 02/15/29 17,239,399
1,059,264 ION Trading Technologies, Term Loan B, 1 Mo. LIBOR + 4.75%,
0.00% Floor.................................................. 4.84% 04/01/28 1,061,256
23,969,428 LogMeIn, Inc. (Logan), Term Loan B, 1 Mo. LIBOR + 4.75%,
0.00% Floor.................................................. 4.83% 08/31/27 23,930,118
5,989,643 McAfee LLC, Term Loan B, 1 Mo. LIBOR + 3.75%, 0.00%
Floor........................................................ 3.84% 09/30/24 5,993,416
See Notes to Financial Statements Page 19
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
APPLICATION SOFTWARE (CONTINUED)
$ 5,491,885 Micro Focus International (MA Financeco LLC), Term Loan B4,
3 Mo. LIBOR + 4.25%, 1.00% Floor............................. 5.25% 06/05/25 $ 5,531,372
3,685,828 RealPage, Inc., Term Loan (Second Lien), 1 Mo. LIBOR +
6.50%, 0.75% Floor........................................... 7.25% 04/22/29 3,759,544
9,602,901 RealPage, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.50%
Floor........................................................ 3.75% 04/24/28 9,579,854
40,890,517 SolarWinds Holdings, Inc., Initial Term Loan, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.84% 02/05/24 40,313,143
4,081,528 Solera Holdings, Inc. (Polaris Newco), Term Loan B, 6 Mo.
LIBOR + 4.00%, 0.50% Floor................................... 4.50% 06/04/28 4,089,364
---------------
251,928,931
---------------
CASINOS & GAMING -- 2.0%
2,157,470 Caesars Resort Collection LLC, New Term Loan B, 1 Mo. LIBOR
+ 3.50%, 0.00% Floor......................................... 3.59% 07/20/25 2,158,721
8,743,283 Caesars Resort Collection LLC, Term Loan B, 1 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.84% 12/22/24 8,698,692
34,919,637 Golden Nugget, Inc., Term Loan B, 3 Mo. LIBOR + 2.50%,
0.75% Floor.................................................. 3.25% 10/04/23 34,726,182
---------------
45,583,595
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.3%
7,537,909 Verifone Systems, Inc., Initial Term Loan, 3 Mo. LIBOR + 4.00%,
0.00% Floor.................................................. 4.13% 08/20/25 7,377,728
---------------
ENVIRONMENTAL & FACILITIES SERVICES -- 0.8%
18,643,476 Packers Holdings LLC (PSSI), Term Loan B, 6 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 4.00% 03/15/28 18,562,004
---------------
HEALTH CARE DISTRIBUTORS -- 0.2%
4,717,579 Radiology Partners, Inc., Term Loan B, 1 Mo. LIBOR + 4.25%,
0.00% Floor.................................................. 4.33% 07/09/25 4,709,701
---------------
HEALTH CARE SERVICES -- 8.2%
5,000,551 AccentCare (Pluto Acquisition I, Inc.), New Term Loan B, 3 Mo.
LIBOR + 4.00%, 0.00% Floor................................... 4.12% 06/20/26 4,996,401
5,826,873 ADMI Corp. (Aspen Dental), 2020 Incremental Term Loan B2,
1 Mo. LIBOR + 3.13%, 0.50% Floor............................. 3.63% 12/23/27 5,781,365
5,970,808 ADMI Corp. (Aspen Dental), 2021 Incremental Term Loan B3,
1 Mo. LIBOR + 3.50%, 0.50% Floor............................. 4.00% 12/23/27 5,964,420
2,099,614 Air Methods Corp. Term Loan B, 3 Mo. LIBOR + 3.50%, 1.00%
Floor........................................................ 4.50% 04/21/24 1,999,882
43,701,840 athenahealth, Inc. (VVC Holding Corp.), Term Loan B-1, 3 Mo.
LIBOR + 4.25%, 0.00% Floor................................... 4.38% 02/11/26 43,811,095
20,555,530 CHG Healthcare Services, Inc., Term Loan B, 3 Mo. LIBOR +
3.50%, 0.50% Floor........................................... 4.00% 09/30/28 20,555,530
5,974,897 Civitas Solutions (National Mentor Holdings, Inc.), Term Loan B,
1 Mo. LIBOR + 3.75%, 0.75% Floor............................. 4.50% 03/31/28 5,935,045
8,205,452 Civitas Solutions (National Mentor Holdings, Inc.), Term Loan B,
3 Mo. LIBOR + 3.75%, 0.75% Floor............................. 4.50% 03/31/28 8,150,722
444,423 Civitas Solutions (National Mentor Holdings, Inc.), Term Loan C,
1 Mo. LIBOR + 3.75%, 0.75% Floor............................. 4.50% 03/31/28 441,458
3,570,010 DuPage Medical Group (Midwest Physician Admin. Services LLC),
Initial Term Loan, 3 Mo. LIBOR + 3.25%, 0.75% Floor.......... 4.00% 03/15/28 3,552,160
12,596,794 Envision Healthcare Corp., Initial Term Loan, 1 Mo. LIBOR +
3.75%, 0.00% Floor........................................... 3.84% 10/10/25 10,397,645
Page 20 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE SERVICES (CONTINUED)
$ 1,434,212 Help at Home (HAH Group Holding Co. LLC), Delayed Draw
Term Loan, 3 Mo. LIBOR + 5.00%, 1.00% Floor.................. 6.00% 10/29/27 $ 1,434,212
11,334,962 Help at Home (HAH Group Holding Co. LLC), Initial Term
Loan B, 3 Mo. LIBOR + 5.00%, 1.00% Floor..................... 6.00% 10/29/27 11,334,962
16,470,369 Packaging Coordinators, Inc. (PCI Pharma), Term Loan B, 3 Mo.
LIBOR + 3.50%, 0.75% Floor................................... 4.25% 11/30/27 16,487,498
1,874,796 SCP Health (Onex TSG Intermediate Corp.), Initial Term Loan,
3 Mo. LIBOR + 4.75%, 0.75% Floor............................. 5.50% 02/28/28 1,871,871
9,045,035 Surgery Centers Holdings, Inc., 2021 Term Loan B, 1 Mo. LIBOR
+ 3.75%, 0.75% Floor......................................... 4.50% 08/31/26 9,061,406
20,622,289 Team Health, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 1.00%
Floor........................................................ 3.75% 02/06/24 19,642,730
14,740,520 U.S. Renal Care, Inc., Term Loan B, 1 Mo. LIBOR + 5.00%,
0.00% Floor.................................................. 5.13% 06/28/26 14,633,651
3,336,255 US Radiology Specialists, Inc., Closing Date Term Loan, 3 Mo.
LIBOR + 5.50%, 0.75% Floor................................... 6.25% 12/31/27 3,344,596
---------------
189,396,649
---------------
HEALTH CARE TECHNOLOGY -- 1.7%
4,604,238 Ciox Health (Healthport/CT Technologies Intermediate Holdings,
Inc.), Term Loan 2021 Reprice, 1 Mo. LIBOR + 4.25%, 0.75%
Floor........................................................ 5.00% 12/16/25 4,613,262
892,594 eResearch Technology, Inc. (ERT), Incremental Term Loan B,
1 Mo. LIBOR + 4.50%, 1.00% Floor............................. 5.50% 02/04/27 896,191
2,157,459 Mediware (Wellsky/Project Ruby Ultimate Parent Corp.), Term
Loan B, 1 Mo. LIBOR + 3.25%, 0.75% Floor..................... 4.00% 03/10/28 2,154,158
2,272,746 Navicure, Inc., (Waystar Technologies, Inc), Term Loan B, 1 Mo.
LIBOR + 4.00%, 0.00% Floor................................... 4.09% 10/23/26 2,274,178
1,346,710 Press Ganey (Azalea TopCo, Inc.), 2021 Term Loan, 1 Mo.
LIBOR + 3.75%, 0.75% Floor................................... 4.50% 07/25/26 1,348,393
28,323,797 Verscend Technologies, Inc. (Cotiviti), New Term Loan B-1,
1 Mo. LIBOR + 4.00%, 0.00% Floor............................. 4.09% 08/27/25 28,359,202
---------------
39,645,384
---------------
INDUSTRIAL MACHINERY -- 0.2%
5,246,242 TK Elevator Newco GMBH (Vertical U.S. Newco Inc.), New
Term Loan B1 (USD), 6 Mo. LIBOR + 3.50%, 0.50% Floor......... 4.00% 07/31/27 5,252,800
---------------
INSURANCE BROKERS -- 2.4%
8,769,983 Alliant Holdings I LLC, 2019 New Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 3.34% 05/10/25 8,691,229
18,316,591 Alliant Holdings I LLC, Initial Term Loan, 1 Mo. LIBOR +
3.25%, 0.00% Floor........................................... 3.34% 05/09/25 18,150,643
50,608 HUB International Ltd., Initial Term Loan B, 2 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.85% 04/25/25 50,021
19,534,520 HUB International Ltd., Initial Term Loan B, 3 Mo. LIBOR +
2.75%, 0.00% Floor........................................... 2.87% 04/25/25 19,308,115
9,265,916 HUB International Ltd., New Term Loan B-3, 3 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 4.00% 04/25/25 9,254,334
---------------
55,454,342
---------------
INTEGRATED TELECOMMUNICATION SERVICES -- 0.9%
8,468,450 Frontier Communications Corp., Term Loan B, 3 Mo. LIBOR +
3.75%, 0.75% Floor........................................... 4.50% 05/01/28 8,451,513
12,478,955 Numericable (Altice France S.A. or SFR), Term Loan B-13,
3 Mo. LIBOR + 4.00%, 0.00% Floor............................. 4.12% 08/14/26 12,411,319
---------------
20,862,832
---------------
See Notes to Financial Statements Page 21
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
MOVIES & ENTERTAINMENT -- 1.1%
$ 1,572,827 Cineworld Group PLC (Crown), New Priority Term Loan, 3 Mo.
LIBOR + 8.25%, 1.00% Floor................................... 9.25% 05/23/24 $ 1,686,857
2,773,071 Cineworld Group PLC (Crown), Priority Term Loan B-1, Fixed
Rate at 15.25% (h)........................................... 15.25% 05/23/24 3,344,324
19,504,352 Cineworld Group PLC (Crown), Term Loan B, 6 Mo. LIBOR +
2.50%, 1.00% Floor........................................... 3.50% 02/28/25 16,052,082
2,317,095 PUG LLC (Stubhub/Viagogo), Incremental Term Loan B-2, 1 Mo.
LIBOR + 4.25%, 0.50% Floor................................... 4.75% 02/13/27 2,317,095
1,424,404 PUG LLC (Stubhub/Viagogo), Term Loan B, 1 Mo. LIBOR +
3.50%, 0.00% Floor........................................... 3.59% 02/12/27 1,398,878
---------------
24,799,236
---------------
PHARMACEUTICALS -- 3.0%
3,053,454 Akorn, Inc., Exit Take Back Term Loan, 3 Mo. LIBOR + 7.50%,
1.00% Floor (i).............................................. 8.50% 09/30/25 3,071,775
5,572,000 Endo LLC, 2021 Term Loan B, 3 Mo. LIBOR + 5.00%, 0.75%
Floor........................................................ 5.75% 03/27/28 5,424,955
20,296,566 Mallinckrodt International Finance S.A., 2017 Term Loan B,
6 Mo. LIBOR + 5.25%, 0.75% Floor (e)......................... 6.00% 09/24/24 18,856,119
1,166,824 Mallinckrodt International Finance S.A., 2018 Incremental Term
Loan, 1 Mo. LIBOR + 5.50%, 0.75% Floor (e)................... 6.25% 02/24/25 1,083,933
25,201,530 Nestle Skin Health (Sunshine Lux VII S.A.R.L./Galderma), 2021
Term Loan B-3, 3 Mo. LIBOR + 3.75%, 0.75% Floor.............. 4.50% 10/02/26 25,242,608
13,130,416 Parexel International Corp. (Phoenix Newco), Term Loan (First
Lien), 1 Mo. LIBOR + 3.50%, 0.50% Floor...................... 4.00% 11/15/28 13,139,476
1,597,871 Perrigo Rx (Padagis LLC), Term Loan B, 3 Mo. LIBOR + 4.75%,
0.50% Floor.................................................. 5.25% 07/06/28 1,599,869
---------------
68,418,735
---------------
PUBLISHING -- 0.2%
3,425,247 Meredith Corp., Tranche B-3 Term Loan, 3 Mo. LIBOR + 4.25%,
1.00% Floor.................................................. 5.25% 01/31/25 3,493,032
---------------
RESEARCH & CONSULTING SERVICES -- 0.4%
3,160,645 Nielsen Consumer, Inc. (Indy U.S. Holdco LLC), Term Loan B-1,
1 Mo. LIBOR + 4.00%, 0.00% Floor............................. 4.08% 03/05/28 3,166,586
4,205,956 Nielsen Consumer, Inc. (Indy U.S. Holdco LLC), Term Loan B-1,
3 Mo. LIBOR + 4.00%, 0.00% Floor............................. 4.08% 03/05/28 4,213,864
1,976,127 Veritext Corp. (VT TopCo, Inc.), Non-Fungible Term Loan (First
Lien), 1 Mo. LIBOR + 3.75%, 0.75% Floor...................... 4.50% 08/10/25 1,973,657
---------------
9,354,107
---------------
RESTAURANTS -- 0.5%
5,938,461 IRB Holding Corp. (Arby's/Inspire Brands), Term Loan B, 3 Mo.
LIBOR + 2.75%, 1.00% Floor................................... 3.75% 02/05/25 5,921,121
1,902,068 Portillo's Holdings LLC, Term Loan B-3, 1 Mo. LIBOR + 5.50%,
1.00% Floor.................................................. 6.50% 08/30/24 1,902,068
2,309,108 Whatabrands LLC, Term Loan B, 1 Mo. LIBOR + 3.25%, 0.50%
Floor........................................................ 3.75% 07/31/28 2,306,660
---------------
10,129,849
---------------
SPECIALIZED CONSUMER SERVICES -- 1.8%
31,741,493 Asurion LLC, Term Loan B-3 (Second Lien), 1 Mo. LIBOR +
5.25%, 0.00% Floor........................................... 5.34% 01/31/28 31,611,035
Page 22 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED
VALUE DESCRIPTION RATE (f) MATURITY (g) VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SPECIALIZED CONSUMER SERVICES (CONTINUED)
$ 9,717,375 Asurion LLC, Term Loan B-4 (Second Lien), 1 Mo. LIBOR +
5.25%, 0.00% Floor........................................... 5.34% 01/20/29 $ 9,670,829
---------------
41,281,864
---------------
SPECIALIZED FINANCE -- 0.2%
5,174,227 WCG Purchaser Corp. (WIRB- Copernicus Group), Term Loan B,
2 Mo. LIBOR + 4.00%, 1.00% Floor............................. 5.00% 01/08/27 5,196,890
---------------
SPECIALTY STORES -- 1.0%
7,354,352 Bass Pro Group LLC (Great Outdoors Group LLC), Term Loan
B-1, 3 Mo. LIBOR + 4.25%, 0.75% Floor........................ 5.00% 03/15/28 7,371,193
13,414,537 Petco Animal Supplies, Inc., Initial Term Loan B, 3 Mo. LIBOR +
3.25%, 0.75% Floor........................................... 4.00% 03/03/28 13,405,013
2,165,386 Petsmart, Inc., Initial Term Loan B, 3 Mo. LIBOR + 3.75%,
0.75% Floor.................................................. 4.50% 02/12/28 2,166,166
---------------
22,942,372
---------------
SYSTEMS SOFTWARE -- 1.4%
11,983,188 Applied Systems, Inc., Term Loan (First Lien), 3 Mo. LIBOR +
3.25%, 0.50% Floor........................................... 3.75% 09/19/24 11,965,453
1,238,882 Applied Systems, Inc., Term Loan (Second Lien), 3 Mo. LIBOR
+ 5.50%, 0.75% Floor......................................... 6.25% 09/19/25 1,253,043
6,018,242 BMC Software Finance, Inc. (Boxer Parent), 2021 Replacement
Dollar Term Loan, 3 Mo. LIBOR + 3.75%, 0.00% Floor........... 3.88% 10/02/25 5,973,587
9,256,903 Misys Financial Software Ltd. (Almonde, Inc.) (Finastra), Term
Loan B, 6 Mo. LIBOR + 3.50%, 1.00% Floor..................... 4.50% 06/13/24 9,203,676
4,077,622 Sophos Group PLC (Surf), Term Loan B, 3 Mo. LIBOR + 3.50%,
0.00% Floor.................................................. 3.62% 03/05/27 4,049,364
---------------
32,445,123
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................................... 864,409,565
(Cost $860,318,332) ---------------
SHARES DESCRIPTION VALUE
---------------- --------------------------------------------------------------------------------------------- ---------------
COMMON STOCKS -- 0.1%
PHARMACEUTICALS -- 0.1%
259,956 Akorn, Inc. (j) (k).......................................................................... 2,810,904
(Cost $2,979,179) ---------------
WARRANTS -- 0.0%
MOVIES & ENTERTAINMENT -- 0.0%
828,940 Cineworld Group PLC, expiring 11/23/25 (j) (l)............................................... 493,484
(Cost $0) ---------------
RIGHTS -- 0.0%
ELECTRIC UTILITIES -- 0.0%
1,629 Vistra Energy Corp., no expiration date (j) (l).............................................. 2,264
(Cost $2,830) ---------------
MONEY MARKET FUNDS -- 0.2%
4,377,841 Morgan Stanley Institutional Liquidity Funds - Treasury
Portfolio - Institutional Class - 0.01% (m)............................................... 4,377,841
(Cost $4,377,841) ---------------
TOTAL INVESTMENTS -- 111.6%.................................................................. 2,574,666,406
(Cost $2,553,666,484) (n) ---------------
See Notes to Financial Statements Page 23
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------- ------------ ---------------
U.S. TREASURY BILLS SOLD SHORT-- (12.8)%
$ (20,000,000) U.S. Treasury Bill.............................................. (o) 11/16/21 $ (19,999,633)
(75,000,000) U.S. Treasury Bill.............................................. (o) 11/18/21 (74,998,312)
(80,000,000) U.S. Treasury Bill.............................................. (o) 12/02/21 (79,996,194)
(15,000,000) U.S. Treasury Bill.............................................. (o) 12/09/21 (14,999,074)
(45,000,000) U.S. Treasury Bill.............................................. (o) 12/16/21 (44,996,062)
(60,000,000) U.S. Treasury Bill.............................................. (o) 12/30/21 (59,992,379)
---------------
TOTAL U.S. TREASURY BILLS SOLD SHORT......................................................... (294,981,654)
(Proceeds $294,991,741) (n) ---------------
BORROWINGS -- (0.1)%......................................................................... (3,652,927)
NET OTHER ASSETS AND LIABILITIES -- 1.3%..................................................... 30,408,277
---------------
NET ASSETS -- 100.0%......................................................................... $ 2,306,440,102
===============
-----------------------------
(a) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended (the "1933 Act"), and may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be liquid by First Trust Advisors L.P.
("First Trust" or the "Advisor"). Although market instability can result
in periods of increased overall market illiquidity, liquidity for each
security is determined based on security-specific factors and assumptions,
which require subjective judgment. At October 31, 2021, securities noted
as such amounted to $1,490,709,861 or 64.6% of net assets.
(b) This security or a portion of this security is segregated as collateral
for investments sold short.
(c) The issuer will pay interest on the bonds in cash and in Payment-In-Kind
("PIK") interest. Interest paid in cash will accrue at the rate of 6.00%
per annum ("Cash Interest Rate") and PIK interest will accrue on the bond
at the rate of 2.50% per annum. For the fiscal year ended October 31,
2021, the Fund received a portion of the interest in cash and PIK interest
with a principal value of $2,230 for Peabody Energy Corp.
(d) This 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) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests generally pay interest at rates which are periodically
predetermined by reference to a base lending rate plus a premium. These
base lending rates are generally (i) the lending rate offered by one or
more major European banks, such as the LIBOR, (ii) the prime rate offered
by one or more United States banks or (iii) the certificate of deposit
rate. Certain Senior Loans are subject to a LIBOR floor that establishes a
minimum LIBOR rate. When a range of rates is disclosed, the Fund holds
more than one contract within the same tranche with identical LIBOR
period, spread and floor, but different LIBOR reset dates.
(g) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(h) The issuer will pay interest on the loans in cash and in PIK interest.
Interest paid in cash will accrue at the rate of 7.00% per annum ("Cash
Interest Rate") and PIK interest will accrue on the loan at the rate of
8.25% per annum. For the fiscal year ended October 31, 2021, the Fund
received a portion of the interest in cash and PIK interest with a
principal value of $368,697 for Cineworld Group PLC.
(i) The issuer may pay interest on the loans (1) entirely in cash or (2) in
the event that both the PIK Toggle Condition has been satisfied and the
issuer elects to exercise the PIK interest, 2.50% payable in cash and
7.00% payable as PIK interest. For the fiscal year ended October 31, 2021,
this security paid all of its interest in cash.
(j) Non-income producing security.
(k) Security received in a transaction exempt from registration under the 1933
Act. The security may be resold pursuant to an exemption from registration
under the 1933 Act, typically to qualified institutional buyers. Pursuant
to procedures adopted by the Trust's Board of Trustees, this security has
been determined to be illiquid by the Advisor. Although market instability
can result in periods of increased overall market illiquidity, liquidity
for the security is determined based on security-specific factors and
assumptions, which require subjective judgment. At October 31, 2021,
securities noted as such amounted to $2,810,904 or 0.1% of net assets.
(l) Pursuant to procedures adopted by the Trust's Board of Trustees, this
security has been determined to be illiquid by the Advisor.
(m) Rate shown reflects yield as of October 31, 2021.
(n) Aggregate cost for federal income tax purposes was $2,266,562,753. As of
October 31, 2021, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$58,298,292 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$45,176,293. The net unrealized appreciation was $13,121,999. The amounts
presented are inclusive of investments sold short.
(o) Zero coupon security.
LIBOR - London Interbank Offered Rate
Page 24 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2021
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2021 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2021 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Corporate Bonds*.................................. $ 1,466,310,898 $ -- $ 1,466,310,898 $ --
Foreign Corporate Bonds*.......................... 236,261,450 -- 236,261,450 --
Senior Floating-Rate Loan Interests*.............. 864,409,565 -- 864,409,565 --
Common Stocks*.................................... 2,810,904 -- 2,810,904 --
Warrants*......................................... 493,484 -- 493,484 --
Rights*........................................... 2,264 -- 2,264 --
Money Market Funds................................ 4,377,841 4,377,841 -- --
--------------- --------------- --------------- ---------------
Total Investments................................. $ 2,574,666,406 $ 4,377,841 $ 2,570,288,565 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2021 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
U.S. Treasury Bills Sold Short.................... $ (294,981,654) $ -- $ (294,981,654) $ --
=============== =============== =============== ===============
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 25
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2021
ASSETS:
Investments, at value..................................................... $ 2,574,666,406
Cash...................................................................... 124,544
Receivables:
Investment securities sold............................................. 40,633,012
Interest............................................................... 27,094,066
Dividends.............................................................. 74
---------------
Total Assets........................................................ 2,642,518,102
---------------
LIABILITIES:
Investments sold short, at value (proceeds $294,991,741).................. 294,981,654
Borrowings................................................................ 3,652,927
Payables:
Investment securities purchased........................................ 35,443,223
Investment advisory fees............................................... 1,869,089
Margin interest expense................................................ 128,210
Unrealized depreciation on unfunded loan commitments...................... 2,897
---------------
Total Liabilities................................................... 336,078,000
---------------
NET ASSETS................................................................ $ 2,306,440,102
===============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $ 2,330,467,491
Par value................................................................. 483,000
Accumulated distributable earnings (loss)................................. (24,510,389)
---------------
NET ASSETS................................................................ $ 2,306,440,102
===============
NET ASSET VALUE, per share................................................ $ 47.75
===============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................. 48,300,002
===============
Investments, at cost...................................................... $ 2,553,666,484
===============
Page 26 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2021
INVESTMENT INCOME:
Interest.................................................................. $ 140,176,763
Dividends................................................................. 753
---------------
Total investment income................................................ 140,177,516
---------------
EXPENSES:
Investment advisory fees.................................................. 21,591,848
Margin interest expense................................................... 2,353,333
---------------
Total expenses......................................................... 23,945,181
---------------
NET INVESTMENT INCOME (LOSS).............................................. 116,232,335
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................ 16,763,142
Investments sold short................................................. (3,375)
---------------
Net realized gain (loss).................................................. 16,759,767
---------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ 18,453,431
Investments sold short................................................. 49,279
Unfunded loan commitments.............................................. (1,083)
---------------
Net change in unrealized appreciation (depreciation)...................... 18,501,627
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... 35,261,394
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 151,493,729
===============
See Notes to Financial Statements Page 27
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
10/31/2021 10/31/2020
--------------- ---------------
OPERATIONS:
Net investment income (loss).............................................. $ 116,232,335 $ 82,468,841
Net realized gain (loss).................................................. 16,759,767 (26,246,928)
Net change in unrealized appreciation (depreciation)...................... 18,501,627 546,279
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........... 151,493,729 56,768,192
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................................... (123,580,505) (84,896,005)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................................. 406,718,627 971,116,727
Cost of shares redeemed................................................... (102,317,490) (400,951,154)
--------------- ---------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................................... 304,401,137 570,165,573
--------------- ---------------
Total increase (decrease) in net assets................................... 332,314,361 542,037,760
NET ASSETS:
Beginning of period....................................................... 1,974,125,741 1,432,087,981
--------------- ---------------
End of period............................................................. $ 2,306,440,102 $ 1,974,125,741
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................... 42,000,002 29,800,002
Shares sold............................................................... 8,400,000 21,100,000
Shares redeemed........................................................... (2,100,000) (8,900,000)
--------------- ---------------
Shares outstanding, end of period......................................... 48,300,002 42,000,002
=============== ===============
Page 28 See Notes to Financial Statements
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations........... $ 151,493,729
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash used in operating activities:
Purchases of investments............................................ (2,224,502,744)
Borrowed investments sold short..................................... 2,224,870,813
Cost to cover short positions....................................... (2,274,813,444)
Sales, maturities and paydowns of investments....................... 1,937,978,713
Net amortization/accretion of premiums/discounts on investments..... (673,758)
Net realized gain/loss on investments............................... (16,763,142)
Net realized gain/loss on investments sold short.................... 3,375
Net change in unrealized appreciation/depreciation on investments
and unfunded loan commitments.................................... (18,452,348)
Net change in unrealized appreciation/depreciation on investments
sold short....................................................... (49,279)
CHANGES IN ASSETS AND LIABILITIES
Increase in interest receivable..................................... (3,003,189)
Decrease in dividends receivable.................................... 11
Increase in margin interest expense payable......................... 15,587
Increase in investment advisory fees payable........................ 227,071
---------------
CASH USED IN OPERATING ACTIVITIES......................................... $ (223,668,605)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares sold........................................... 406,753,879
Cost of shares redeemed............................................. (125,819,136)
Distributions to shareholders from investment operations............ (123,580,505)
Net proceeds from borrowings........................................ 3,652,927
---------------
CASH PROVIDED BY FINANCING ACTIVITIES..................................... 161,007,165
---------------
Decrease in cash and restricted cash...................................... (62,661,440)
Cash and restricted cash at beginning of period........................... 62,785,984
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD................................. $ 124,544
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................................. $ 2,337,746
===============
CASH AND RESTRICTED CASH RECONCILIATION:
Cash................................................................ $ 124,544
Restricted Cash..................................................... --
---------------
CASH AND RESTRICTED CASH AT END OF PERIOD:................................ $ 124,544
===============
See Notes to Financial Statements Page 29
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2021 2020 2019 2018 2017
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 47.00 $ 48.06 $ 47.02 $ 48.95 $ 48.31
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 2.47 2.33 2.49 2.52 2.56
Net realized and unrealized gain (loss) 0.91 (1.00) 1.13 (1.76) 0.66
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.38 1.33 3.62 0.76 3.22
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (2.63) (2.39) (2.56) (2.69) (2.58)
Return of capital -- -- (0.02) (0.00) (a) --
---------- ---------- ---------- ---------- ----------
Total distributions (2.63) (2.39) (2.58) (2.69) (2.58)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 47.75 $ 47.00 $ 48.06 $ 47.02 $ 48.95
========== ========== ========== ========== ==========
TOTAL RETURN (b) 7.25% 2.92% 7.90% 1.60% 6.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,306,440 $1,974,126 $1,432,088 $1,253,035 $1,250,565
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.05% 1.01% 1.23% 1.16% 1.10%
Ratio of net expenses to average net assets
excluding interest expense 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income (loss) to average
net assets 5.11% 5.02% 5.22% 5.26% 5.25%
Portfolio turnover rate (c) 50% 68% 50% 52% 75%
(a) Amount represents less than $0.01 per share.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 30 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021
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 ten funds that are offering shares. This report
covers the First Trust Tactical High Yield ETF (the "Fund"), a diversified
series of the Trust which trades under the ticker "HYLS" on The Nasdaq Stock
Market LLC ("Nasdaq"). The Fund represents a separate series of beneficial
interest in the Trust. Unlike conventional mutual funds, the Fund issues and
redeems shares on a continuous basis, at net asset value ("NAV"), only in large
blocks of shares known as "Creation Units."
The primary investment objective of the Fund is to provide current income. The
Fund's secondary investment objective is to provide capital appreciation. Under
normal market conditions, the Fund invests at least 80% of its net assets
(including investment borrowings) in high yield debt securities that are rated
below investment grade at the time of purchase or unrated securities deemed by
the Fund's advisor to be of comparable quality. Below investment grade
securities are those that, at the time of purchase, are rated lower than "BBB-"
by Standard & Poor's Ratings Group, a division of the McGraw Hill Companies,
Inc., or lower than "Baa3" by Moody's Investors Service, Inc., or comparably
rated by another nationally recognized statistical rating organization. High
yield debt securities that are rated below investment grade are commonly
referred to as "junk" debt. Such securities may include U.S. and non-U.S.
corporate debt obligations, bank loans and convertible bonds. For purposes of
determining whether a security is below investment grade, the lowest available
rating will be considered.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification Topic 946, "Financial Services-Investment
Companies." The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of the financial
statements. The preparation of the financial statements in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Advisor's Pricing Committee of the
Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the
"Advisor"), in accordance with valuation procedures adopted by the Trust's Board
of Trustees, and in accordance with provisions of the 1940 Act. Investments
valued by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. The Fund's investments are valued as
follows:
Corporate bonds, corporate notes, U.S. government securities and other
debt securities are fair valued on the basis of valuations provided by
dealers who make markets in such securities or by a third-party pricing
service approved by the Trust's Board of Trustees, which may use the
following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Page 31
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021
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.
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;
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 32
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021
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;
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, 2021, 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 United Kingdom's Financial Conduct Authority, which regulates the London
Interbank Offered Rates ("LIBOR"), announced on March 5, 2021 that all non-USD
LIBOR reference rates and the 1-week and 2-month USD LIBOR reference rates will
cease to be provided or no longer be representative immediately after December
31, 2021 and the remaining USD LIBOR settings will cease to be provided or no
longer be representative immediately after June 30, 2023. The International
Swaps and Derivatives Association, Inc. ("ISDA") confirmed that the March 5,
2021 announcement constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018.
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Page 33
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021
Fund maintains liquid assets with current value at least equal to the amount of
its when-issued, delayed-delivery or forward purchase commitments. The Fund had
no when-issued, delayed-delivery, or forward purchase commitments (other than
unfunded loan commitments discussed below) as of October 31, 2021.
C. SHORT SALES
Short sales are utilized for investment and risk management purposes and are
transactions in which securities or other instruments (such as options,
forwards, futures or other derivative contracts) are sold that are not currently
owned in the Fund's portfolio. When the Fund engages in a short sale, the Fund
must borrow the security sold short and deliver the security to the
counterparty. Short selling allows the Fund to profit from a decline in a market
price to the extent such decline exceeds the transaction costs and the costs of
borrowing the securities. The Fund is charged a fee or premium to borrow the
securities sold short and is obligated to repay the lenders of the securities.
Any dividends or interest that accrues on the securities during the period of
the loan are due to the lenders. A gain, limited to the price at which the
security was sold short, or a loss, unlimited in size, will be recognized upon
the termination of the short sale; which is effected by the Fund purchasing the
security sold short and delivering the security to the lender. Any such gain or
loss may be offset, completely or in part, by the change in the value of the
long portion of the Fund's portfolio. The Fund is subject to the risk it may be
unable to reacquire a security to terminate a short position except at a price
substantially in excess of the last quoted price. Also, there is the risk that
the counterparty to a short sale may fail to honor its contractual terms,
causing a loss to the Fund.
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, 2021, the Fund had $3,652,927
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. 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, 2021, the Fund
had a debit margin balance of $298,631,802 with an interest rate of 0.82%. For
the fiscal year ended October 31, 2021, the Fund had margin interest expense of
$2,353,333, as shown on the Statement of Operations. For the fiscal year ended
October 31, 2021, the average margin balance and interest rates were
$297,921,805 and 0.82%, respectively.
D. RESTRICTED CASH
Restricted cash includes cash on deposit with other banks or brokers that is
legally restricted as to the withdrawal and primarily serves as collateral for
investments sold short. The Fund presents restricted cash activity within
"Increase in cash and restricted cash" and as part of "Cash and restricted cash
at beginning of period" and "Cash and restricted cash at end of period" in the
Statement of Cash Flows, along with a reconciliation of those balances in the
Statement of Assets and Liabilities.
E. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. Unfunded loan commitments are marked-to-market daily, and
any unrealized appreciation (depreciation) is included in the Statement of
Assets and Liabilities and Statement of Operations. In connection with these
commitments, the Fund earns a commitment fee typically set as a percentage of
the commitment amount. The commitment fees are included in "Interest" on the
Statement of Operations. As of October 31, 2021, the Fund had the following
unfunded loan commitments:
UNREALIZED
PRINCIPAL COMMITMENT APPRECIATION
BORROWER VALUE AMOUNT VALUE (DEPRECIATION)
-------------------------------------------------------------------------------------------------------------------------
Civitas Solutions (National Mentor Holdings, Inc.), Term Loan $ 973,801 $ 971,500 $ 967,306 $ (4,194)
Veritext Corp. (VT TopCo, Inc.), Term Loan 345,822 344,093 345,390 1,297
------------ ------------ --------------
$ 1,315,593 $ 1,312,696 $ (2,897)
============ ============ ==============
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.
Page 34
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021
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, 2021 and 2020 was as follows:
Distributions paid from: 2021 2020
Ordinary income................................. $ 123,580,505 $ 84,896,005
Capital gains................................... -- --
Return of capital............................... -- --
As of October 31, 2021, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income................... $ 127,336
Accumulated capital and other gain (loss)....... (37,756,827)
Net unrealized appreciation (depreciation)...... 13,119,102
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 2018,
2019, 2020, and 2021 remain open to federal and state audit. As of October 31,
2021, 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, 2021, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $37,756,827.
During the taxable year ended October 31, 2021, the Fund utilized non-expiring
capital loss carryforwards in the following amount:
Capital Loss Utilized
---------------------
First Trust Tactical High Yield ETF $15,017,248
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, 2021, 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,
2021, the adjustments for the Fund were as follows:
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT GAIN (LOSS)
INCOME (LOSS) ON INVESTMENTS PAID-IN CAPITAL
-------------- -------------- ---------------
$ (1,471,230) $ 1,471,230 $ --
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.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, brokerage
commissions and other expenses connected with the execution of portfolio
transactions, expenses associated with short sale transactions, distribution and
service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary
expenses. The Fund has agreed to pay First Trust an annual unitary management
fee equal to 0.95% of its average daily net assets.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
defined-outcome fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee Chairs
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended October 31, 2021, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, investments sold
short and in-kind transactions, were $1,521,522,655 and $1,284,943,403,
respectively. The cost of purchases to cover short sales and the proceeds of
short sales were $1,389,994,561 and $1,304,870,813, respectively.
For the fiscal year ended October 31, 2021, there were no in-kind transactions.
5. BORROWINGS
The Trust, on behalf of the Fund, along with the First Trust Series Fund and
First Trust Variable Insurance Trust, entered into a $200 million Credit
Agreement ("Line of Credit") with BNYM, to be a liquidity backstop during
periods of high redemption volume. A commitment fee of 0.25% of the daily amount
of the excess of the commitment amount over the outstanding principal balance of
the loans will be charged by BNYM, which First Trust allocates amongst the funds
that have access to the Line of Credit. Prior to January 29, 2021, the
commitment fee was 0.15%. 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, 2021.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
The Fund generally issues and redeems its shares in primary market transactions
through a creation and redemption mechanism and does not sell or redeem
individual shares. Instead, financial entities known as "Authorized
Participants" have contractual arrangements with the Fund's service providers to
purchase and redeem Fund shares directly with the Fund in large blocks of shares
known as "Creation Units." Prior to the start of trading on every business day,
the Fund publishes through the National Securities Clearing Corporation ("NSCC")
the "basket" of securities, cash or other assets that it will accept in exchange
for a Creation Unit of the Fund's shares. An Authorized Participant that wishes
to effectuate a creation of the Fund's shares deposits with the Fund the
"basket" of securities, cash or other assets identified by the Fund that day,
and then receives the Creation Unit of the Fund's shares in return for those
assets. After purchasing a Creation Unit, the Authorized Participant may
continue to hold the Fund's shares or sell them in the secondary market. The
redemption process is the reverse of the purchase process: the Authorized
Participant redeems a Creation Unit of the Fund's shares for a basket of
securities, cash or other assets. The combination of the creation and redemption
process with secondary market trading in the Fund's shares and underlying
securities provides arbitrage opportunities that are designed to help keep the
market price of the Fund's shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These
fees may vary based upon various fact-based circumstances, including, but not
limited to, the composition of the securities included in the Creation Unit or
the countries in which the transactions are settled. The price for each Creation
Unit will equal the daily NAV per share of the Fund times the number of shares
in a Creation Unit, plus the fees described above and, if applicable, any
operational processing and brokerage costs, transfer fees, stamp taxes and part
or all of the spread between the expected bid and offer side of the market
related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units.
These fees may vary based upon various fact-based circumstances, including, but
not limited to, the composition of the securities included in the Creation Unit
or the countries in which the transactions are settled. The price received for
each Creation Unit will equal the daily NAV per share of the Fund times the
number of shares in a Creation Unit, minus the fees described above and, if
applicable, any operational processing and brokerage costs, transfer fees, stamp
taxes and part or all of the spread between the expected bid and offer side of
the market related to the securities comprising the redemption basket. Investors
who use the services of a broker or other such intermediary in addition to an
Authorized Participant to effect a redemption of a Creation Unit may also be
assessed an amount to cover the cost of such services. The redemption fee
charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits
redemption fees to no more than 2% of the value of the shares redeemed.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before March 31, 2023.
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 18, 2021, First Trust Limited Duration Investment Grade Corporate
ETF, an additional series of the Trust, began trading under the symbol "FSIG" on
NYSE Arca, Inc.
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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, 2021, the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, the financial highlights for each of the five years in the
period then ended, and the related notes. In our opinion, the financial
statements and financial highlights present fairly, in all material respects,
the financial position of the Fund as of October 31, 2021, 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, 2021, 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, 2021
We have served as the auditor of one or more First Trust investment companies
since 2001.
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (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, 2021 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, 2021, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a significant
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
more broadly diversified.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the value
of the underlying ETF up to the cap for the investor's investment period.
Additionally, the fund will not participate in gains of the underlying ETF above
the cap and a shareholder may lose their entire investment. If the fund seeks
enhanced returns, there are certain time periods when the value of the fund may
fall faster than the value of the underlying ETF, and it is very unlikely that,
Page 39
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (UNAUDITED)
on any given day during which the underlying ETF share price increases in value,
the fund's share price will increase at the same rate as the enhanced returns
sought by the fund, which is designed for an entire target outcome period.
Trading flexible exchange options involves risks different from, or possibly
greater than, the risks associated with investing directly in securities, such
as less liquidity and correlation and valuation risks. A fund may experience
substantial downside from specific flexible exchange option positions and
certain positions may expire worthless.
DERIVATIVES RISK. To the extent a fund uses derivative instruments such as
futures contracts, options contracts and swaps, the fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a fund's portfolio managers use derivatives to
enhance the fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
fund.
EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the
value of the fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in a portfolio of securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities, although lack of liquidity in an ETF
could result in it being more volatile and ETFs have management fees that
increase their costs. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income
securities, the fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
INDEX OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or
more indices or ETF models. As a result, such a fund may be included in one or
more index-tracking exchange-traded funds or mutual funds. Being a component
security of such a vehicle could greatly affect the trading activity involving a
fund, the size of the fund and the market volatility of the fund. Inclusion in
an index could increase demand for the fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a fund's net asset value could be negatively impacted and the fund's
market price may be significantly below its net asset value during certain
periods. In addition, index rebalances may potentially result in increased
trading activity in a fund's shares.
INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject
to Index Provider Risk. There is no assurance that the Index Provider will
compile the Index accurately, or that the Index will be determined, maintained,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. To correct any such error, the Index Provider may carry out an
unscheduled rebalance or other modification of the Index constituents or
weightings, which may increase the fund's costs. The Index Provider does not
provide any representation or warranty in relation to the quality, accuracy or
completeness of data in the Index, and it does not guarantee that the Index will
be calculated in accordance with its stated methodology. Losses or costs
associated with any Index Provider errors generally will be borne by the fund
and its shareholders.
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
LIBOR RISK. To the extent a fund invests in floating or variable rate
obligations that use the London Interbank Offered Rate ("LIBOR") as a reference
interest rate, it is subject to LIBOR Risk. The United Kingdom's Financial
Conduct Authority, which regulates LIBOR, will cease making LIBOR available as a
reference rate over a phase-out period that will begin immediately after
Page 40
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (UNAUDITED)
December 31, 2021. The unavailability or replacement of LIBOR may affect the
value, liquidity or return on certain fund investments and may result in costs
incurred in connection with closing out positions and entering into new trades.
Any potential effects of the transition away from LIBOR on the fund or on
certain instruments in which the fund invests can be difficult to ascertain, and
they may vary depending on a variety of factors, and they could result in losses
to the fund.
MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to
management risk. In managing an actively-managed fund's investment portfolio,
the fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a fund will
meet its investment objective.
MARKET RISK. Securities held by a fund, as well as shares of a fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations. In addition, local, regional or
global events such as war, acts of terrorism, spread of infectious diseases or
other public health issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may affect certain
geographic regions, countries, sectors and industries more significantly than
others. The outbreak of the respiratory disease designated as COVID-19 in
December 2019 has caused significant volatility and declines in global financial
markets, which have caused losses for investors. While the development of
vaccines has slowed the spread of the virus and allowed for the resumption of
"reasonably" normal business activity in the United States, many countries
continue to impose lockdown measures in an attempt to slow the spread.
Additionally, there is no guarantee that vaccines will be effective against
emerging variants of the disease.
NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities;
capital controls; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; the imposition of sanctions by foreign
governments; different legal or accounting standards; and less government
supervision and regulation of exchanges in foreign countries. Investments in
non-U.S. securities may involve higher costs than investments in U.S.
securities, including higher transaction and custody costs, as well as
additional taxes imposed by non-U.S. governments. These risks may be heightened
for securities of companies located, or with significant operations, in emerging
market countries.
OPERATIONAL RISK. Each fund is subject to risks arising from various operational
factors, including, but not limited to, human error, processing and
communication errors, errors of a fund's service providers, counterparties or
other third-parties, failed or inadequate processes and technology or systems
failures. Each fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service
providers may affect a fund's ability to meet its investment objective. Although
the funds and the funds' investment advisor seek to reduce these operational
risks through controls and procedures, there is no way to completely protect
against such risks.
PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A fund generally will not attempt to take
defensive positions in declining markets.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Agreement") with First Trust Advisors L.P.
(the "Advisor") on behalf of the First Trust Tactical High Yield ETF (the
"Fund"). The Board approved the continuation of the Agreement for a one-year
period ending June 30, 2022 at a meeting held on June 6-7, 2021. The Board
determined that the continuation of the Agreement is in the best interests of
the Fund in light of the nature, extent and quality of the services provided and
such other matters as the Board considered to be relevant in the exercise of its
business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law, in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 26, 2021 and June 6-7, 2021, 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
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (UNAUDITED)
the relevant personnel responsible for these services and their experience); the
unitary fee rate payable by the Fund as compared to fees charged to a peer group
of funds (the "Expense Group") and a broad peer universe of funds (the "Expense
Universe"), each assembled by Broadridge Financial Solutions, Inc.
("Broadridge"), an independent source, and as compared to fees charged to other
clients of the Advisor, including other exchange-traded funds ("ETFs") managed
by the Advisor; the expense ratio of the Fund as compared to expense ratios of
the funds in the Fund's Expense Group and Expense Universe; performance
information for the Fund, including comparisons of the Fund's performance to
that of one or more relevant benchmark indexes and to that of a performance
group of funds and a broad performance universe of funds (the "Performance
Universe"), each assembled by Broadridge; the nature of expenses incurred in
providing services to the Fund and the potential for the Advisor to realize
economies of scale, if any; profitability and other financial data for the
Advisor; any fall-out benefits to the Advisor and its affiliate, First Trust
Portfolios L.P. ("FTP"); and information on the Advisor's compliance program.
The Board reviewed initial materials with the Advisor at the meeting held on
April 26, 2021, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor. Following the
April meeting, counsel to the Independent Trustees, on behalf of the Independent
Trustees, requested certain clarifications and supplements to the materials
provided, and the information provided in response to those requests was
considered at an executive session of the Independent Trustees and their counsel
held prior to the June 6-7, 2021 meeting, as well as at the June meeting. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor continues to be a reasonable business arrangement from
the Fund's perspective. The Board determined that, given the totality of the
information provided with respect to the Agreement, the Board had received
sufficient information to renew the Agreement. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor manages the Fund and knowing the Fund's unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality
of the services provided by the Advisor under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and the Fund and reviewed all of the services
provided by the Advisor to the Fund, as well as the background and experience of
the persons responsible for such services. The Board noted that the Fund is an
actively managed ETF and noted that the Advisor's Leveraged Finance Investment
Team is responsible for the day-to-day management of the Fund's investments. The
Board considered the background and experience of the members of the Leveraged
Finance Investment Team. 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 26, 2021 meeting, described to the Board the scope of its
ongoing investment in additional personnel and infrastructure to maintain and
improve the quality of services provided to the Fund and the other funds in the
First Trust Fund Complex. In addition to the written materials provided by the
Advisor, at the April 26, 2021 meeting, the Board also received a presentation
from representatives of the Advisor's Leveraged Finance Investment Team
discussing the services that the Team provides to the Fund, including the Team's
day-to-day management of the Fund's investments. In light of the information
presented and the considerations made, the Board concluded that the nature,
extent and quality of the services provided to the Trust and the Fund by the
Advisor under the Agreement have been and are expected to remain satisfactory
and that the Advisor has managed the Fund consistent with its investment
objective, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any.
The Board received and reviewed information showing the advisory or unitary fee
rates and expense ratios of the peer funds in the Expense Group, as well as
advisory and unitary fee rates charged by the Advisor to other fund (including
ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee,
the Board determined that expense ratios were the most relevant comparative data
point. Based on the information provided, the Board noted that the unitary fee
rate for the Fund was above the median total (net) expense ratio of the peer
funds in the Expense Group. With respect to the Expense Group, the Board, at the
April 26, 2021 meeting, discussed with the Advisor limitations in creating peer
groups for actively-managed ETFs and different business models that may affect
the pricing of services among ETF sponsors. The Board took these limitations and
differences into account in considering the peer data. With respect to fees
charged to other non-ETF clients, the Board considered differences between the
Fund and other non-ETF clients that limited their comparability. In considering
the unitary fee rate overall, the Board also considered the Advisor's statement
that it seeks to meet investor needs through innovative and value-added
investment solutions and the Advisor's demonstrated long-term commitment to the
Fund and the other funds in the First Trust Fund Complex.
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (UNAUDITED)
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, 2020
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 performed at the Performance Universe median for the one-year period ended
December 31, 2020, outperformed the Performance Universe median for the
three-year period ended December 31, 2020 and underperformed the Performance
Universe median for the five-year period ended December 31, 2020. The Board also
noted that the Fund underperformed the benchmark index for the one-, three- and
five-year periods ended December 31, 2020. The Board noted the Leveraged Finance
Investment Team's discussion of the Fund's performance at the April 26, 2021
meeting.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund continues to be reasonable and appropriate in light of
the nature, extent and quality of the services provided by the Advisor to the
Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase during 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, 2020 and the estimated
profitability level for the Fund calculated by the Advisor based on such data,
as well as complex-wide and product-line profitability data, for the same
period. The Board noted the inherent limitations in the profitability analysis
and concluded that, based on the information provided, the Advisor's
profitability level for the Fund was not unreasonable. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out benefit to the Advisor and FTP their exposure to
investors and brokers who, absent their exposure to the Fund, may have had no
dealings with the Advisor or FTP, and noted that the Advisor does not utilize
soft dollars in connection with the Fund. The Board concluded that the character
and amount of potential fall-out benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of
certain funds it manages, including First Trust Tactical High Yield ETF (the
"Fund"), in certain member states in the European Economic Area in accordance
with the cooperation arrangements in Article 42 of the Alternative Investment
Fund Managers Directive (the "Directive"). First Trust is required under the
Directive to make disclosures in respect of remuneration. The following
disclosures are made in line with First Trust's interpretation of currently
available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2020, the amount of remuneration paid (or to
be paid) by First Trust in respect of the Fund is $6,189,550. This figure is
comprised of $743,052 paid (or to be paid) in fixed compensation and $5,446,498
paid (or to be paid) in variable compensation. There were a total of 31
beneficiaries of the remuneration described above. Those amounts include
$475,737 paid (or to be paid) to senior management of First Trust and $5,713,813
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
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (UNAUDITED)
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
BOARD OF TRUSTEES
Effective November 1, 2021, Denise M. Keefe was appointed as a Trustee of the
Trust. Ms. Keefe is Executive Vice President of Advocate Aurora Health and
President of Advocate Aurora Continuing Health Division (together, "Advocate"),
one of the largest integrated healthcare systems in the U.S. serving Illinois
and Wisconsin. Ms. Keefe has been employed by Advocate since 1993 and is
responsible for the Continuing Health Division's strategic direction, fiscal
management, business development, revenue enhancement, operational efficiencies,
and human resource management of 4,000 employees. Ms. Keefe also currently
serves on the boards of several organizations within the Advocate Aurora
Continuing Health Division and other health care organizations, including RML
Long Term Acute Care Hospitals (since 2014) and Senior Helpers (since 2021).
Prior thereto, Ms. Keefe was Corporate Vice President, Marketing and Business
Development for the Visiting Nurse Association of Chicago (1989 - 1992) and a
former Board Member of Sherman West Court Skilled Nursing Facility.
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BOARD OF TRUSTEES AND OFFICERS
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (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.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, TERM OF OFFICE AND FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND YEAR FIRST ELECTED PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
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INDEPENDENT TRUSTEES
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Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 215 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 215 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 215 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 215 None
(1954) Managing Director and Chief Operating
o Since Inception Officer (January 2015 to August 2018),
Pelita Harapan Educational Foundation
(Educational Products and Services)
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INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 215 None
Chairman of the Board Advisors L.P. and First Trust (1955)
o Since Inception Portfolios L.P.; Chairman of the Board
of Directors, BondWave LLC (Software
Development Company) and Stonebridge
Advisors LLC (Investment Advisor)
-----------------------------
(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)
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (UNAUDITED)
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)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer
(1966) Executive 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 Accounting President (April 2012 to July 2016), First Trust
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. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
-----------------------------
(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
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FIRST TRUST TACTICAL HIGH YIELD ETF (HYLS)
OCTOBER 31, 2021 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
professional or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2021
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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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