FIRST TRUST First Trust Exchange-Traded Fund IV -------------------------------------------------------------------------------- First Trust High Income Strategic Focus ETF (HISF) (formerly First Trust Strategic Income ETF (FDIV)) Annual Report For the Year Ended October 31, 2022 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) ANNUAL REPORT OCTOBER 31, 2022 Shareholder Letter........................................................... 1 Fund Performance Overview.................................................... 2 Portfolio Commentary......................................................... 4 Understanding Your Fund Expenses............................................. 6 Portfolio of Investments..................................................... 7 Statement of Assets and Liabilities.......................................... 8 Statement of Operations...................................................... 9 Statements of Changes in Net Assets.......................................... 10 Financial Highlights......................................................... 11 Notes to Financial Statements................................................ 12 Report of Independent Registered Public Accounting Firm...................... 21 Additional Information....................................................... 22 Board of Trustees and Officers............................................... 29 Privacy Policy............................................................... 31 CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund IV (the "Trust") described in this report (First Trust High Income Strategic Focus ETF; hereinafter referred to as the "Fund") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. PERFORMANCE AND RISK DISCLOSURE There is no assurance that the Fund will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund's shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in the Fund. See "Risk Considerations" in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. The Advisor may also periodically provide additional information on Fund performance on the Fund's webpage at www.ftportfolios.com. HOW TO READ THIS REPORT This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund's performance and investment approach. By reading the portfolio commentary from the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund's performance. The statistical information that follows may help you understand the Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings. -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) ANNUAL LETTER FROM THE CHAIRMAN AND CEO OCTOBER 31, 2022 Dear Shareholders: First Trust is pleased to provide you with the annual report for the First Trust High Income Strategic Focus ETF (the "Fund"), which contains detailed information about the Fund for the twelve months ended October 31, 2022. As I'm writing this letter in mid-November, it strikes me that things appear to be a little more chaotic in the current climate than normal. One of the things that may have contributed to the chaotic nature of the news flow of late was the November mid-term election. For the most part, except for a few seats in Congress, the election is behind us. We learned there would be no "red wave" (Republicans gaining a strong majority in Congress) but likely gridlock ahead. Gridlock has been good for stock market investors in the past few decades, particularly when there's been a Democratic president and the Republicans have control of at least one house of Congress, according to Brian Wesbury, Chief Economist at First Trust. The Federal Reserve (the "Fed") has kept its promise to aggressively hike interest rates to combat robust inflation. As of November 13, 2022, the Fed has increased the Federal Funds target rate (upper bound) six times, from 0.25% to 4.00%. The Fed's actions have some investors and pundits looking for evidence linking the interest rate hikes to a downturn in the economy. In short, the hope is that a pullback in economic activity might deter the Fed from executing further interest rate hikes. Fed Chairman Jerome Powell, however, recently said that the terminal rate (the ultimate rate the Fed is targeting) will likely need to be higher than previously estimated in order to curb stubbornly high inflation. The Consumer Price Index ("CPI") is a commonly used measure of inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October 31, 2022, according to the U.S. Bureau of Labor Statistics. That is down from its recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was higher than 7.0% was over 40 years ago. While monetary policy is an ongoing process subject to change, the Fed does appear to be steadfast in its mission to bring the rate of inflation back to its preferred level of 2.0%, and that will take some time, in my opinion. Stay tuned! Equity and fixed income markets have contended with numerous headwinds this year, such as the war between Russia and Ukraine. Since setting its all-time high of 4,796.56 on January 3, 2022, the S&P 500(R) Index has been in a bear market (a price decline of 20% or more from the most recent high) for the better part of 310 days. Suffice it to say, we are all looking forward to the end of this bear market. With respect to corrections and bear markets, the silver lining is that the S&P 500(R) Index has never failed to fully recover the losses sustained in any previous downturn. Where might we see demand for stocks moving forward? One such source could be stock buybacks. As of the last week of October 2022, U.S. companies had announced stock buybacks totaling $1 trillion so far this year, according to Birinyi Associates. The fixed income market has not been immune to selling pressure either. Year-to-date through November 10, 2022, yields on the 10-Year Treasury Note increased by 258 basis points. As you may be aware, bond yields and bond prices are inversely related, particularly with respect to investment-grade bonds. As yields rise, prices fall and vice versa. As noted above, the Fed has more work to do, so bond investors should not be surprised to see interest rates and bond yields trend at least a bit higher in the months ahead. Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 1 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) The First Trust High Income Strategic Focus ETF's (the "Fund"), formerly First Trust Strategic Income ETF, primary investment objective is to seek risk-adjusted income. The Fund's secondary investment objective is capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing in a portfolio of U.S.-listed exchange-traded funds ("Underlying ETFs") that are designed to follow the High Income Model (the "High Income Model") developed by the Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"). The Fund, through its investments in the Underlying ETFs comprising the High Income Model, seeks to provide investors with a diversified income stream by holding a blend of fixed income assets that are actively managed to seek levels of high income and total return. The High Income Model is principally composed of ETFs for which First Trust serves as investment advisor. Therefore, a significant portion of the ETFs in which the Fund invests are advised by First Trust. However, the Fund may also invest in ETFs other than First Trust ETFs. Shares of the Fund are listed on The Nasdaq Stock Market LLC under the ticker symbol "HISF." Prior to February 28, 2022, the Fund was a multi-manager, multi-strategy actively managed exchange-traded fund. The following served as investment sub-advisors to the Fund: First Trust Global Portfolios Limited ("FTGP"); Energy Income Partners, LLC ("EIP"); Stonebridge Advisors LLC ("Stonebridge"); and Richard Bernstein Advisors LLC ("RBA") (each, a "Sub-Advisor" and together, the "Sub-Advisors"). The Advisor's Investment Committee determined the Fund's strategic allocation among various general investment categories and allocated the Fund's assets to portfolio management teams comprised of personnel of the Advisor and/or a Sub-Advisor (each, a "Management Team"), which employed their respective investment strategies. The Fund sought to achieve its objectives by having each Management Team focus on those securities within its respective investment category. The Fund added or removed investment categories or Management Teams at the discretion of the Advisor. The Fund's investment categories were: (i) high-yield corporate bonds, commonly referred to as "junk" bonds, and first lien senior secured floating rate bank loans; (ii) mortgage-related investments; (iii) preferred securities; (iv) international sovereign bonds, including securities issued by emerging market countries; (v) equity securities of Energy Infrastructure Companies(1), certain of which are master limited partnerships ("MLPs"); and (vi) dividend paying U.S. exchange-traded equity securities (including common stock) of companies (that may be domiciled in or outside of the United States) and depositary receipts. The Management Teams utilized a related option overlay strategy and/or derivative instruments in implementing their respective investment strategies for the Fund. Additionally, the Management Teams sought exposure to these asset classes directly or through investments in ETFs. ------------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (8/13/14) Ended (8/13/14) 10/31/22 10/31/22 to 10/31/22 10/31/22 to 10/31/22 FUND PERFORMANCE NAV -10.38% 1.12% 2.34% 5.73% 20.96% Market Price -10.49% 1.11% 2.34% 5.67% 20.97% INDEX PERFORMANCE Blended Index(2) -14.37% 0.25% 1.45% 1.27% 12.53% Bloomberg U.S. Aggregate Bond Index -15.68% -0.54% 0.63% -2.68% 5.34% Russell 3000(R) Index -16.52% 9.87% 10.33% 60.08% 124.20% Prior Blended Benchmark(3) -5.81% 3.36% 3.29% 17.96% 30.44% ------------------------------------------------------------------------------------------------------------------------------------ On February 28, 2022, the Fund changed its principal investment strategies. Therefore, the Fund's performance and historical returns shown above are not necessarily indicative of the performance that the Fund, under its current strategy, would have generated. ----------------------------- (1) Energy Infrastructure Companies are publicly-traded MLPs or limited liability companies that are taxed as partnerships; entities that control MLPs, entities that own general partner interests in an MLP, or MLP affiliates (such as I-shares or I-units); U.S. and Canadian energy yield corporations ("yieldcos"); pipeline companies; utilities; and other companies that are involved in operating or providing services in support of infrastructure assets such as pipeline, power transmission, terminalling and petroleum and natural gas storage in the petroleum, natural gas and power generation industries. (2) The Blended Index is comprised of the Bloomberg US Aggregate Bond Index (the "Agg") (70%) and the ICE BofA U.S. High Yield Constrained Index (30%). (3) The Prior Blended Index is equally weighted to include these six indices: the Alerian MLP Index, Dow Jones U.S. Select Dividend Index, ICE BofA Fixed Rate Preferred Securities Index, ICE BofA U.S. High Yield Index, Bloomberg EM USD Aggregate Index and Bloomberg U.S. MBS Index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the index performance shown. Indices are unmanaged and an investor cannot invest directly in an index. The Prior Blended Index returns are calculated by using the monthly return of the six indices during each period shown above. At the beginning of each month the six indices are rebalanced to a 16.66 percentage weighting for each to account for divergence from that percentage weighting that occurred during the course of each month. The monthly returns are then compounded for each period shown above, giving the performance of the Prior Blended Index for each period shown above. Page 2 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- Total returns for the period since inception are calculated from the inception date of the Fund. "Average Annual Total Returns" represent the average annual change in value of an investment over the period indicated. "Cumulative Total Returns" represent the total change in value of an investment over the period indicated. The Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Price") is determined by using the midpoint of the national best bid and offer price ("NBBO") as of the time that the Fund's NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund's NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund's NAV was calculated. Since shares of the Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future performance. ----------------------------------------------------------- % OF FUND ALLOCATION NET ASSETS ----------------------------------------------------------- Exchange-Traded Funds 99.9% Net Other Assets and Liabilities 0.1 ------ Total 100.0% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT AUGUST 13, 2014 - OCTOBER 31, 2022 First Trust High Income Blended Bloomberg U.S. Russell 3000(R) Prior Blended Strategic Focus ETF Index Aggregate Bond Index Index Index 8/13/14 $10,000 $10,000 $10,000 $10,000 $10,000 10/31/14 10,177 10,053 10,080 10,371 10,129 4/30/15 10,330 10,246 10,288 10,863 10,191 10/31/15 9,989 10,133 10,280 10,837 9,735 4/30/16 10,436 10,406 10,571 10,844 10,006 10/31/16 10,856 10,755 10,731 11,297 10,446 4/30/17 11,275 10,878 10,659 12,859 10,981 10/31/17 11,442 11,112 10,827 14,006 11,058 4/30/18 11,340 10,959 10,625 14,537 11,029 10/31/18 11,303 10,982 10,605 14,929 11,093 4/30/19 12,100 11,591 11,187 16,379 11,766 10/31/19 12,502 12,146 11,826 16,942 11,977 4/30/20 11,156 12,279 12,401 16,208 10,915 10/31/20 11,604 12,785 12,558 18,662 11,270 4/30/21 13,166 12,952 12,367 24,462 13,434 10/31/21 13,499 13,141 12,498 26,854 13,849 4/30/22 12,775 11,987 11,314 23,699 13,341 10/31/22 12,096 11,253 10,534 22,420 13,044 Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS Information showing the number of days the market price of the Fund's shares was greater (at a premium) and less (at a discount) than the Fund's net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx. Page 3 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) ANNUAL REPORT OCTOBER 31, 2022 (UNAUDITED) INVESTMENT ADVISOR First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment advisor to the First Trust High Income Strategic Focus ETF (the "Fund" or "HISF"). Prior to February 28, 2022, the following served as investment sub-advisors (each, a "Sub-Advisor") to the Fund: First Trust Global Portfolios Limited ("FTGP"); Energy Income Partners, LLC ("EIP"); Stonebridge Advisors LLC ("Stonebridge"); and Richard Bernstein Advisors LLC ("RBA"). The Advisor's Investment Committee determined the Fund's strategic allocation among various general investment categories and allocated the Fund's assets to portfolio management teams comprised of personnel of the Advisor and/or Sub-Advisor, which employed their respective investment strategies. As of March 1, 2022, First Trust is responsible for the selection and ongoing monitoring of the investments in the Fund's portfolio and certain other services necessary for the management of the portfolio. PORTFOLIO MANAGEMENT TEAM DANIEL J. LINDQUIST, CHAIRMAN OF THE INVESTMENT COMMITTEE AND MANAGING DIRECTOR OF FIRST TRUST; DAVID G. MCGAREL, CHIEF INVESTMENT OFFICER, CHIEF OPERATING OFFICER AND MANAGING DIRECTOR OF FIRST TRUST; CHRIS A. PETERSON, CFA, SENIOR VICE PRESIDENT OF FIRST TRUST; WILLIAM HOUSEY, CFA, MANAGING DIRECTOR OF FIXED INCOME OF FIRST TRUST; AND STEVE COLLINS, CFA, SENIOR VICE PRESIDENT OF FIRST TRUST. The portfolio managers are primarily and jointly responsible for the day-to-day management of the Fund. Daniel J. Lindquist, David G. McGarel and William Housey have served as part of the portfolio management team of the Fund since 2014. Chris A. Peterson has served as part of the portfolio management team of the Fund since 2016. Steve Collins has served as part of the portfolio management team of the Fund since 2021. COMMENTARY MARKET RECAP For the 12-month period ended October 31, 2022, persistently high inflation, the Federal Reserve's (the "Fed") pivot from monetary accommodation and the Russian invasion of Ukraine in February 2022 resulted in a shift in the markets' focus from economic growth to concern that recession risk may be meaningfully pulled forward. Interest rates were higher across the board and the U.S. Treasury yield curve inverted between the 2-Year and 10-Year tenors during the period. On October 29, 2021, the 2-Year U.S. Treasury yield was 0.49% and by October 31, 2022, it had increased to 4.48% while the 10-Year U.S. Treasury yield increased from 1.55% to 4.05%. Over the period, the Fed increased the Federal Funds target range from 0% - 0.25% to 2.75% - 3.25%. Higher rates were a headwind for broad based fixed income assets as the Bloomberg US Aggregate Bond Index returned -15.68% and high yield bonds, reflected in the ICE BofA US High Yield Constrained Index, declined 11.45% as high yield spreads increased from 317 basis points ("bps") to 465 bps, during the period. In the period following the change in the Fund's investment strategy, from February 28, 2022 through October 31, 2022, the 10-Year yield rose from 1.83% to 4.05% while high yield corporate bond spreads increased from 378 bps to 465 bps. The Bloomberg US Aggregate Bond Index and ICE BofA US High Yield Constrained Index declined 12.88% and 8.89%, respectively, over this shorter period. In the fourth quarter of 2021, the Fed moved on from its belief that inflation would be transitory, conceding that while it initially may have been limited to areas related to the reopening of the economy and supply chain, it had broadened and accelerated. They announced an accelerated pace of asset purchase tapering and a more hawkish path for increasing its policy rate at the December 2022 Federal Open Market Committee ("FOMC") meeting. In February 2022, the Russian invasion of Ukraine sent a shockwave through global risk markets, which included a spike in oil and commodity prices, further exacerbating inflationary pressure. In response, the Fed increased the Federal Funds target rate by a quarter percentage point at the March 2022 FOMC meeting and indicated additional rate hikes would be forthcoming throughout the year. Through the second quarter of 2022, the curve continued to flatten and ultimately 2-Year and 10-Year Treasuries inverted. By mid-summer 2022, inflation remained at the highest levels in decades inducing the Fed to hike the Federal Funds target rate 75 bps at the June 2022 FOMC meeting. Amidst a backdrop of slowing growth and very high inflation with a significant Fed response, risk assets tumbled in the second quarter of 2022 as high yield bond spreads widened 245 bps and the S&P 500(R) Index declined 16.10%. Page 4 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) ANNUAL REPORT OCTOBER 31, 2022 (UNAUDITED) Market sentiment rebounded sharply as the third quarter of 2022 began as resilient corporate earnings and labor market optimism fueled a rally in risk assets that proved to be short-lived. Fed Chairman Jerome Powell made the Fed's position on inflation abundantly clear in August 2022 at the FOMC in Jackson Hole, stating the "overarching focus" is to bring inflation back down to the 2.0% level which "will also bring some pain to households and businesses." Equities resumed downward and high yield bond spreads weakened through September 2022. The Fed increased the Federal Funds target rate by 75 bps in July 2022 and again in September 2002 at the respective FOMC meetings. PERFORMANCE ANALYSIS The Fund returned -10.38% based on net asset value ("NAV") and -10.49% based on market price for the 12-month period ended October 31, 2022. As noted above, the Fund converted to a fund-of-funds strategy that follows the First Trust High Income Model on February 28, 2022. Prior to the transition, the benchmark was equally weighted including these six indices: the Alerian MLP Index, Dow Jones U.S. Select Dividend Index, ICE BofA Fixed Rate Preferred Securities Index, ICE BofA U.S. High Yield Index, Bloomberg EM USD Aggregate Index and Bloomberg U.S. MBS Index (the "Prior Benchmark"). After the transition, the new benchmark consists of 70% of the Bloomberg US Aggregate Bond Index, which is a broad-based benchmark that measures the investment grade, U.S. Dollar denominated, fixed-rate taxable bond market, and 30% of the ICE BofA US High Yield Constrained Index which tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market but caps issuer exposure at 2% (the "New Benchmark"). Over the same 12-month period, the Prior Benchmark returned -5.81% and the New Benchmark returned -14.37%. Because of the change in investment strategy, the Fund's performance and historical returns shown in this report are not necessarily indicative of the performance that the Fund would have generated during the same 12-month period based upon its current strategy. The performance discussion below will focus on the Fund's performance 8-month period since the transition, February 28, 2022 through October 31, 2022. During that period, the Fund returned -9.27% based on a NAV basis and -9.14% based on market price for the 8-month period from February 28, 2022 through October 31, 2022, while the New Benchmark returned -11.65%. The negative total return for the Fund for the 8-month period reflected the impact higher interest rates had on fixed income assets while the relative outperformance was largely driven by the Fund's duration which was below the New Benchmark's duration. Exposure to higher quality, short duration corporate and mortgage-backed securities contributed to outperformance as the First Trust Enhanced Short Maturity ETF returned -0.57% from June 30, 2022 through October 31, 2022 when it was added to the strategy. The First Trust Low Duration Opportunities ETF returned -4.13% and the iShares 0-5 Year Investment Grade Corporate Bond ETF returned -4.66%, all better than the benchmark returns from February 28, 2022. The short duration positioning, and higher credit quality allowed these funds to hold up better than the New Benchmark as interest rates rose and credit spreads widened. Exposure to emerging market debt was a drag on performance during the period as U.S. dollar strength weighed on the sector. The U.S. Dollar Index rose from 96.71 on February 28, 2022 to 112.17 on September 30, 2022 when the Fund exited the position in the emerging market debt fund, the First Trust Emerging Markets Local Currency Bond ETF, which was down 17.00% over this period. The Fund's position in the First Trust TCW Opportunistic Fixed Income ETF ("FIXD"), with a duration longer than the New Benchmark, was the largest detractor from relative performance and was down 15.38% over the period. FIXD's duration ranged between 6.3 and 6.7 years over the period. MARKET AND FUND OUTLOOK Due to persistently high inflation, the Fed has continued to reiterate its commitment to lowering inflation to its 2% target. The Federal Funds target rate was increased by 75 basis points in each of the last four FOMC meetings, moving the upper bound to 4.00% as of November 2022. We expect the Fed to continue to raise interest rates into next year, stabilizing the Federal Funds terminal rate around 5.0% - 5.5% before pausing further interest rate increases and observing the implications of such a dramatic move in interest rates over such a short period of time. Importantly, given that the Fed's dual mandate centers on inflation and employment, both of which are typically lagging indicators with respect to overall economic activity, we believe the risk of a policy error by the Fed that results in recession has increased dramatically in 2023. Therefore, as the Fed continues to raise the Federal Funds target rate, we continue to favor duration profiles short of the New Benchmark, however, due to what we view as more balanced risks in the market and rising recession risk, we believe duration extension is warranted. Furthermore, given the potential for a shorter business cycle and increasing recession risk in 2023, we believe it is prudent to increase credit quality. Page 5 FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) UNDERSTANDING YOUR FUND EXPENSES OCTOBER 31, 2022 (UNAUDITED) As a shareholder of First Trust High Income Strategic Focus ETF (the "Fund"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended October 31, 2022. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. -------------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH MAY 1, 2022 OCTOBER 31, 2022 PERIOD (a) PERIOD (a) (b) -------------------------------------------------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) Actual $1,000.00 $ 946.90 0.20% $0.98 Hypothetical (5% return before expenses) $1,000.00 $1,024.20 0.20% $1.02 (a) Annualized expense ratio and expenses paid during the six-month period do not include fees and expenses of the underlying funds in which the Fund invests. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (May 1, 2022 through October 31, 2022), multiplied by 184/365 (to reflect the six-month period). Page 6 FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) PORTFOLIO OF INVESTMENTS OCTOBER 31, 2022 SHARES DESCRIPTION VALUE ------------ -------------------------------- -------------- EXCHANGE-TRADED FUNDS -- 99.9% CAPITAL MARKETS -- 99.9% 66,364 First Trust Enhanced Short Maturity ETF (a) $ 3,934,721 114,166 First Trust Institutional Preferred Securities and Income ETF (a) 1,975,072 207,229 First Trust Low Duration Opportunities ETF (a) 9,708,679 205,074 First Trust Tactical High Yield ETF (a) 8,077,865 246,715 First Trust TCW Opportunistic Fixed Income ETF (a) 10,532,263 103,457 iShares 0-5 Year Investment Grade Corporate Bond ETF 4,893,516 -------------- TOTAL INVESTMENTS -- 99.9% 39,122,116 (Cost $43,255,502) NET OTHER ASSETS AND LIABILITIES -- 0.1% 39,724 -------------- NET ASSETS -- 100.0% $ 39,161,840 ============== (a) Investment in an affiliated fund. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of October 31, 2022 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE 10/31/2022 PRICES INPUTS INPUTS --------------- --------------- --------------- --------------- Exchange-Traded Funds*.......................... $ 39,122,116 $ 39,122,116 $ -- $ -- =============== =============== =============== =============== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 7 FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2022 ASSETS: Investments, at value - Affiliated..................................... $ 34,228,600 Investments, at value - Unaffiliated................................... 4,893,516 ---------------- Total investments, at value............................................ 39,122,116 Cash................................................................... 12,287 Receivables: Dividends........................................................... 30,851 Reclaims............................................................ 3,705 ---------------- Total Assets........................................................ 39,168,959 ---------------- LIABILITIES: Investment advisory fees payable....................................... 7,119 ---------------- Total Liabilities................................................... 7,119 ---------------- NET ASSETS............................................................. $ 39,161,840 ================ NET ASSETS CONSIST OF: Paid-in capital........................................................ $ 51,320,777 Par value.............................................................. 9,000 Accumulated distributable earnings (loss).............................. (12,167,937) ---------------- NET ASSETS............................................................. $ 39,161,840 ================ NET ASSET VALUE, per share............................................. $ 43.51 ================ Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share).......................................... 900,002 ================ Investments, at cost - Affiliated...................................... $ 38,090,579 ================ Investments, at cost - Unaffiliated.................................... $ 5,164,923 ================ Total investments, at cost............................................. $ 43,255,502 ================ Page 8 See Notes to Financial Statements FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2022 INVESTMENT INCOME: Dividends - Affiliated................................................. $ 1,406,804 Dividends - Unaffiliated............................................... 448,500 Interest............................................................... 1,445 Foreign withholding tax................................................ (6,053) ---------------- Total investment income............................................. 1,850,696 ---------------- EXPENSES: Investment advisory fees............................................... 271,585 ---------------- Total expenses...................................................... 271,585 Less fees waived by the investment advisor.......................... (92,981) ---------------- Net expenses........................................................ 178,604 ---------------- NET INVESTMENT INCOME (LOSS)........................................... 1,672,092 ---------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments - Affiliated............................................ (3,401,013) Investments - Unaffiliated.......................................... (1,296,214) In-kind redemptions - Affiliated.................................... (235,480) In-kind redemptions - Unaffiliated.................................. 2,384,346 Futures contracts................................................... (12,821) Foreign currency transactions....................................... (526) ---------------- Net realized gain (loss)............................................... (2,561,708) ---------------- Net change in unrealized appreciation (depreciation) on: Investments - Affiliated............................................ (3,159,502) Investments - Unaffiliated.......................................... (2,647,356) Futures contracts................................................... (741) Foreign currency translation........................................ 737 ---------------- Net change in unrealized appreciation (depreciation)................... (5,806,862) ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (8,368,570) ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS..................................................... $ (6,696,478) ================ See Notes to Financial Statements Page 9 FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) STATEMENTS OF CHANGES IN NET ASSETS YEAR YEAR ENDED ENDED 10/31/2022 10/31/2021 ---------------- ---------------- OPERATIONS: Net investment income (loss)........................................... $ 1,672,092 $ 2,011,416 Net realized gain (loss)............................................... (2,561,708) 6,369,796 Net increase from payment by the advisor............................... -- 1,758 Net change in unrealized appreciation (depreciation)................... (5,806,862) 2,091,269 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations........ (6,696,478) 10,474,239 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment operations.................................................. (2,147,053) (2,628,954) ---------------- ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................................. 63,936,474 72,475,535 Cost of shares redeemed................................................ (86,408,488) (70,562,092) ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions......................................... (22,472,014) 1,913,443 ---------------- ---------------- Total increase (decrease) in net assets................................ (31,315,545) 9,758,728 NET ASSETS: Beginning of period.................................................... 70,477,385 60,718,657 ---------------- ---------------- End of period.......................................................... $ 39,161,840 $ 70,477,385 ================ ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................................ 1,400,002 1,350,002 Shares sold............................................................ 1,300,000 1,500,000 Shares redeemed........................................................ (1,800,000) (1,450,000) ---------------- ---------------- Shares outstanding, end of period...................................... 900,002 1,400,002 ================ ================ Page 10 See Notes to Financial Statements FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED OCTOBER 31, -------------------------------------------------------------------------------------- 2022 2021 2020 2019 2018 -------------- -------------- -------------- -------------- -------------- Net asset value, beginning of period $ 50.34 $ 44.98 $ 50.62 $ 47.72 $ 50.68 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.99 1.47 1.46 1.63 1.69 Net realized and unrealized gain (loss) (6.12) 5.80 (a) (5.07) 3.34 (2.26) ---------- ---------- ---------- ---------- ---------- Total from investment operations (5.13) 7.27 (3.61) 4.97 (0.57) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (1.70) (1.91) (1.97) (2.07) (2.10) Return of capital -- -- (0.06) -- (0.29) ---------- ---------- ---------- ---------- ---------- Total distributions (1.70) (1.91) (2.03) (2.07) (2.39) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 43.51 $ 50.34 $ 44.98 $ 50.62 $ 47.72 ========== ========== ========== ========== ========== TOTAL RETURN (b) (10.38)% 16.33% (a) (7.19)% 10.60% (1.21)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 39,162 $ 70,477 $ 60,719 $ 91,120 $ 83,504 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets (c) 0.46% 0.85% 0.85% 0.85% 0.86% (d) Ratio of net expenses to average net assets (c) 0.30% 0.42% 0.46% 0.50% 0.50% (d) Ratio of net investment income (loss) to average net assets 2.83% 2.94% 3.08% 3.21% 3.40% Portfolio turnover rate (e) 149% 101% 118% 91% 113% (a) The Fund received a reimbursement from the Advisor in the amount of $1,758 in connection with a trade error, which represents less than $0.01 per share. Since the Advisor reimbursed the Fund, there was no effect on the Fund's total return. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived by the Advisor. (c) The Fund indirectly bears its proportionate share of fees and expenses incurred by the underlying funds in which the Fund invests. This ratio does not include these indirect fees and expenses. (d) Includes excise tax. If this excise tax expense was not included, the total and net expense ratios would have been 0.85% and 0.49%, respectively. (e) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. See Notes to Financial Statements Page 11 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 1. ORGANIZATION First Trust Exchange-Traded Fund IV (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on September 15, 2010, and is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently consists of twelve funds that are offering shares. This report covers the First Trust High Income Strategic Focus ETF (formerly known as First Trust Strategic Income ETF) (the "Fund"), which trades under the ticker "HISF" (formerly "FDIV") on The Nasdaq Stock Market LLC ("Nasdaq"). Effective February 28, 2022, the Fund's name and ticker changed to its current name and ticker. The Fund's CUSIP did not change. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value ("NAV"), only in large blocks of shares known as "Creation Units." The Fund is an actively managed exchange-traded fund ("ETF"). The Fund's primary investment objective is to seek risk-adjusted income. The Fund's secondary investment objective is capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing in a portfolio of U.S.-listed exchange-traded funds ("Underlying ETFs") that is designed to follow the High Income Model (the "High Income Model") developed by the Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"). The Fund, through its investments in the Underlying ETFs comprising the High Income Model, seeks to provide investors with a diversified income stream by holding a blend of fixed income assets that are actively managed to seek levels of high income and total return. The High Income Model is principally composed of ETFs for which First Trust serves as investment advisor. Therefore, a significant portion of the ETFs in which the Fund invests are advised by First Trust. However, the Fund may also invest in ETFs other than First Trust ETFs. Prior to February 28, 2022, the Fund was a multi-manager, multi-strategy actively managed exchange-traded fund. The following served as investment sub-advisors to the Fund: First Trust Global Portfolios Limited ("FTGP"); Energy Income Partners, LLC ("EIP"); Stonebridge Advisors LLC ("Stonebridge"); and Richard Bernstein Advisors LLC ("RBA") (each, a "Sub-Advisor" and together, the "Sub-Advisors"). The Advisor's Investment Committee determined the Fund's strategic allocation among various general investment categories and allocated the Fund's assets to portfolio management teams comprised of personnel of the Advisor and/or a Sub-Advisor (each, a "Management Team"), which employed their respective investment strategies. The Fund sought to achieve its objectives by having each Management Team focus on those securities within its respective investment category. The Fund added or removed investment categories or Management Teams at the discretion of the Advisor. The Fund's investment categories were: (i) high-yield corporate bonds, commonly referred to as "junk" bonds, and first lien senior secured floating rate bank loans; (ii) mortgage-related investments; (iii) preferred securities; (iv) international sovereign bonds, including securities issued by emerging market countries; (v) equity securities of Energy Infrastructure Companies(1), certain of which are master limited partnerships ("MLPs"); and (vi) dividend paying U.S. exchange-traded equity securities (including common stock) of companies (that may be domiciled in or outside of the United States) and depositary receipts. The Management Teams utilized a related option overlay strategy and/or derivative instruments in implementing their respective investment strategies for the Fund. Additionally, the Management Teams sought exposure to these asset classes directly or through investments in ETFs. 2. SIGNIFICANT ACCOUNTING POLICIES The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, "Financial Services-Investment Companies." The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. PORTFOLIO VALUATION The Fund's NAV is determined daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal markets ----------------------------- (1) Energy Infrastructure Companies are publicly-traded MLPs or limited liability companies that are taxed as partnerships; entities that control MLPs, entities that own general partner interests in an MLP, or MLP affiliates (such as I-shares or I-units); U.S. and Canadian energy yield corporations ("yieldcos"); pipeline companies; utilities; and other companies that are involved in operating or providing services in support of infrastructure assets such as pipeline, power transmission, terminalling and petroleum and natural gas storage in the petroleum, natural gas and power generation industries. Page 12 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 for those securities. The Fund's NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding. The Fund's investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Advisor's Pricing Committee in accordance with valuation procedures approved by the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. All securities and other assets of the Fund initially expressed in foreign currencies will be converted to U.S. dollars using exchange rates in effect at the time of valuation. The Fund's investments are valued as follows: Corporate bonds, corporate notes, U.S. government securities, mortgage-backed securities, asset-backed securities and other debt securities are fair valued on the basis of valuations provided by a third-party pricing service approved by the Advisor's Pricing Committee, which may use the following valuation inputs when available: 1) benchmark yields; 2) reported trades; 3) broker/dealer quotes; 4) issuer spreads; 5) benchmark securities; 6) bids and offers; and 7) reference data including market research publications. Exchange-traded funds, common stocks, preferred stocks, MLPs and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities. Securities traded in an over-the-counter market are valued at the mean of their most recent bid and asked price, if available, and otherwise at their last trade price. Exchange-traded futures contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded futures contracts are valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor's Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following: 1) the credit conditions in the relevant market and changes thereto; 2) the liquidity conditions in the relevant market and changes thereto; 3) the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates); 4) issuer-specific conditions (such as significant credit deterioration); and 5) any other market-based data the Advisor's Pricing Committee considers relevant. In this regard, the Advisor's Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor's Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security's fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner Page 13 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities. Fair valuation of a debt security will be based on the consideration of all available information, including, but not limited to, the following: 1) the most recent price provided by a pricing service; 2) the fundamental business data relating to the issuer; 3) an evaluation of the forces which influence the market in which these securities are purchased and sold; 4) the type, size and cost of a security; 5) the financial statements of the issuer/borrower, or the condition of the country of issue; 6) the credit quality and cash flow of the issuer/borrower, or country of issue, based on the Pricing Committee's, sub-advisor's or portfolio manager's analysis, as applicable, or external analysis; 7) the information as to any transactions in or offers for the security; 8) the price and extent of public trading in similar securities of the issuer/borrower, or comparable companies; 9) the coupon payments; 10) the quality, value and salability of collateral, if any, securing the security; 11) the business prospects of the issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer's management (for corporate debt only); 12) the economic, political and social prospects/developments of the country of issue and the assessment of the country's government leaders/officials (for sovereign debt only); 13) the prospects for the issuer's industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry (for corporate debt only); and 14) other relevant factors. Fair valuation of an equity security will be based on the consideration of all available information, including, but not limited to, the following: 1) the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price; 2) the type of security; 3) the size of the holding; 4) the initial cost of the security; 5) transactions in comparable securities; 6) price quotes from dealers and/or third-party pricing services; 7) relationships among various securities; 8) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 9) an analysis of the issuer's financial statements; 10) the existence of merger proposals or tender offers that might affect the value of the security; and 11) other relevant factors. The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). Page 14 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the investment. The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund's investments as of October 31, 2022, is included with the Fund's Portfolio of Investments. In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing requirements to determine fair value in good faith for purposes of the 1940 Act. The rule permits fund boards to designate a fund's investment adviser to perform fair value determinations, subject to board oversight and certain other conditions. The rule also defines when market quotations are "readily available" for purposes of the 1940 Act and requires a fund to fair value a portfolio investment when a market quotation is not readily available. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 was September 8, 2022. Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the Trust's Board of Trustees designated the Advisor as its valuation designee to perform fair value determinations and approved new Advisor Valuation Procedures for the Trust. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method. Distributions received from the Fund's investments in MLPs generally are comprised of return of capital and investment income. The Fund records estimated return of capital and investment income based on historical information available from each MLP. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded. Distributions received from the Fund's investments in real estate investment trusts ("REITs") may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs' fiscal year end. The Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by the Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude. C. FUTURES CONTRACTS Prior to February 28, 2022, the Fund purchased or sold (i.e., is long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in "Net realized gain (loss) on futures contracts" on the Statement of Operations. Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of "Net change in unrealized appreciation (depreciation) on futures contracts" on the Statement of Operations. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are included in "Variation margin" receivable or payable on the Statement of Assets and Liabilities. If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments. D. FOREIGN CURRENCY The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and Page 15 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 losses on assets and liabilities, other than investments in securities, which result from changes in foreign currency exchange rates have been included in "Net change in unrealized appreciation (depreciation) on foreign currency translation" on the Statement of Operations. Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price and are included in "Net change in unrealized appreciation (depreciation) on investments - Unaffiliated" on the Statement of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received is included in "Net realized gain (loss) on foreign currency transactions" on the Statement of Operations. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in "Net realized gain (loss) on investments - Unaffiliated" on the Statement of Operations. E. AFFILIATED TRANSACTIONS The Fund invests in securities of affiliated funds. Dividend income, realized gains and losses, and change in appreciation (depreciation) from affiliated funds are presented on the Statement of Operations. The Fund's investment performance and risks are directly related to the investment performance and risks of the affiliated funds. Amounts related to these investments at October 31, 2022 and for the fiscal year then ended are as follows: CHANGE IN SHARES VALUE UNREALIZED REALIZED VALUE AT AT APPRECIATION GAIN AT DIVIDEND SECURITY NAME 10/31/2022 10/31/2021 PURCHASES SALES (DEPRECIATION) (LOSS) 10/31/2022 INCOME -------------------------------------------------------------------------------------------------------------------------------- First Trust Emerging Markets Local Currency Bond ETF -- $ 6,342,663 $ 3,719,524 $ (9,125,203) $ 794,885 $(1,731,869) $ -- $ 88,825 First Trust Enhanced Short Maturity ETF 66,364 -- 5,825,533 (1,884,030) (6,249) (533) 3,934,721 33,745 First Trust Institutional Preferred Securities and Income ETF 114,166 2,140,432 2,885,089 (2,598,430) (368,744) (83,275) 1,975,072 116,463 First Trust Low Duration Opportunities ETF 207,229 4,096,540 14,161,875 (8,003,004) (511,490) (35,242) 9,708,679 89,841 First Trust Preferred Securities and Income ETF -- 6,433,669 5,989,982 (11,952,349) (145,646) (325,656) -- 94,643 First Trust Senior Loan Fund -- 13,753,384 12,620,819 (25,745,134) 42,774 (671,843) -- 268,028 First Trust Tactical High Yield ETF 205,074 -- 19,380,127 (9,743,294) (1,152,999) (405,969) 8,077,865 504,163 First Trust TCW Opportunistic Fixed Income ETF 246,715 -- 33,982,220 (21,255,818) (1,812,033) (382,106) 10,532,263 211,096 ------------------------------------------------------------------------------------------------ Total Investments in Affiliates $ 32,766,688 $ 98,565,169 $ (90,307,262) $ (3,159,502) $(3,636,493) $ 34,228,600 $1,406,804 ================================================================================================ F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income, if any, are declared and paid monthly by the Fund, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on significantly modified portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future. Page 16 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 The tax character of distributions paid during the fiscal years ended October 31, 2022 and 2021 was as follows: Distributions paid from: 2022 2021 Ordinary income................................. $ 2,147,053 $ 2,628,954 Capital gains................................... -- -- Return of capital............................... -- -- As of October 31, 2022, the components of distributable earnings on a tax basis for the Fund were as follows: Undistributed ordinary income................... $ -- Accumulated capital and other gain (loss)....... (8,004,465) Net unrealized appreciation (depreciation)...... (4,163,472) G. INCOME TAXES The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund's taxable income exceeds the distributions from such taxable income for the calendar year. The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2019, 2020, 2021, and 2022 remain open to federal and state audit. As of October 31, 2022, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund's financial statements for uncertain tax positions. The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2022, the Fund had non-expiring capital loss carryforwards available for federal income tax purposes of $8,004,465. Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2022, the Fund had no net late year ordinary or capital losses. In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2022, the adjustments for the Fund were as follows: Accumulated Accumulated Net Realized Net Investment Gain (Loss) Paid-In Income (Loss) on Investments Capital -------------- -------------- --------------- $ 932,150 $ (1,228,523) $ 296,373 As of October 31, 2022, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows: Gross Gross Net Unrealized Unrealized Unrealized Appreciation Tax Cost Appreciation (Depreciation) (Depreciation) -------------- -------------- --------------- --------------- $ 43,285,569 $ 3,607 $ (4,167,060) $ (4,163,453) Page 17 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 H. EXPENSES Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3). 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund's portfolio, managing the Fund's business affairs and providing certain administrative services necessary for the management of the Fund. Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund's assets and is responsible for the Fund's expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The Fund has agreed to pay First Trust an annual unitary management fee equal to 0.20% of its average daily net assets. In addition, the Fund incurs acquired fund fees and expenses. The total of the unitary management fee and acquired fund fees and expenses represents the Fund's total annual operating expenses. Pursuant to contractual agreement, First Trust has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses but including acquired fund fees and expenses) exceed 0.87% of its average daily net assets (the "Expense Cap") at least through March 1, 2023. Expenses reimbursed and fees waived under such agreement are not subject to recovery by the First Trust. Prior to February 28, 2022, the Fund and First Trust retained the Sub-Advisors to provide recommendations to the Advisor regarding the selection and ongoing monitoring of the securities in the Fund's investment portfolio. First Trust executed all transactions on behalf of the Fund, with the exception of the securities that were selected by FTGP. EIP, an affiliate of First Trust, provided recommendations regarding the selection of MLP securities for the Fund's investment portfolio and provided ongoing monitoring of the MLP securities, MLP affiliate and energy infrastructure securities in the Fund's investment portfolio selected by EIP. EIP exercised discretion only with respect to assets of the Fund allocated to EIP by the Advisor. FTGP, an affiliate of First Trust, selected international sovereign debt securities for the Fund's investment portfolio and provided ongoing monitoring of the international sovereign debt securities in the Fund's investment portfolio selected by FTGP. RBA provided recommendations regarding longer term investment strategies that combine top-down, macroeconomic analysis and quantitatively-driven portfolio construction. RBA exercised discretion only with respect to assets allocated to RBA by the Advisor. Stonebridge, an affiliate of First Trust, provided recommendations regarding the selection and ongoing monitoring of the preferred and hybrid securities in the Fund's investment portfolio. Pursuant to the former Investment Management Agreement between the Trust and Advisor, First Trust supervised the Sub-Advisors and their management of the investment of the Fund's assets and paid EIP, FTGP, RBA and Stonebridge for their services as the Fund's sub-advisors. EIP and FTGP each received a sub-advisory fee from First Trust equal to 40% of any remaining monthly investment management fee paid to First Trust for the average daily net assets allocated to the Sub-Advisor after the average Fund expenses accrued during the most recent twelve months were subtracted from the investment management fee in a given month. RBA and Stonebridge each received annual sub-advisory fees equal to 0.20% of the average daily net assets on the assets of the Fund allocated to the Sub-Advisor by First Trust. First Trust was also responsible for the Fund's expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, pro rata share of fees and expenses attributable to investments in other investment companies ("acquired fund fees and expenses") with the exception of those attributable to affiliated Funds, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The Fund paid First Trust an annual unitary management fee equal to 0.85% of its average daily net assets. The total of the unitary management fee, acquired fund fees and expenses, and other excluded expenses represents the Fund's total annual operating expenses. Pursuant to a contractual agreement between the Trust, on behalf of the Fund, and First Trust, the management fees paid to First Trust were reduced by the proportional amount of the acquired fund fees and expenses of the shares of investment companies held by the Fund so that the Fund would not bear the indirect costs of holding them, provided that the investment companies were advised by First Trust. During the fiscal year ended October 31, 2022, the Advisor waived fees of $92,981. Page 18 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 During the fiscal year ended October 31, 2021, the Fund received a reimbursement from the Advisor of $1,758 in connection with a trade error. The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Fund's securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund. Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs will rotate every three years. The officers and "Interested" Trustee receive no compensation from the Trust for acting in such capacities. 4. PURCHASES AND SALES OF SECURITIES The cost of purchases of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and in-kind transactions for the fiscal year ended October 31, 2022, were $0 and $92,930,049, respectively. The proceeds from sales and paydowns of U.S. Government securities and non-U.S. Government securities, excluding short-term investments and in-kind transactions for the fiscal year ended October 31, 2022, were $378,337 and $87,983,685, respectively. For the fiscal year ended October 31, 2022, the cost of in-kind purchases and proceeds from in-kind sales were $56,488,927 and $82,757,797, respectively. 5. DERIVATIVE TRANSACTIONS The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2022, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments. STATEMENTS OF OPERATIONS LOCATION INTEREST RATE RISK -------------------------------------------------------------------------------- Net realized gain (loss) on futures contracts $ (12,821) Net change in unrealized appreciation (depreciation) on futures contracts (741) During the fiscal year ended October 31, 2022, the notional value of futures contracts opened and closed were $2,042,970 and $2,575,792, respectively. The Fund does not have the right to offset financial assets and financial liabilities related to futures contracts on the Statement of Assets and Liabilities. 6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as "Authorized Participants" have contractual arrangements with the Fund or one of the Fund's service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as "Creation Units." Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation ("NSCC") the "basket" of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund's shares. An Authorized Participant that wishes to effectuate a creation of the Fund's shares deposits with the Fund the "basket" of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund's shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund's shares or sell them in the secondary market. The redemption process is the reverse of the purchase Page 19 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 process: the Authorized Participant redeems a Creation Unit of the Fund's shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund's shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund's shares at or close to the NAV per share of the Fund. The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket. The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed. 7. DISTRIBUTION PLAN The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before March 31, 2024. 8. INDEMNIFICATION The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 9. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there was the following subsequent event: At a meeting on October 24, 2022, the Board of Trustees approved a breakpoint pricing arrangement for each of the series of the Trust, including the Fund. Pursuant to this arrangement, which is effective as of November 1, 2022, the management fee the Fund pays to First Trust, as investment manager, will be discounted as the Fund's net assets reach certain predefined levels. Page 20 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED FUND IV: OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS We have audited the accompanying statement of assets and liabilities of First Trust High Income Strategic Focus ETF (formerly First Trust Strategic Income ETF) (the "Fund"), a series of the First Trust Exchange-Traded Fund IV, including the portfolio of investments, as of October 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America. BASIS FOR OPINION These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Chicago, Illinois December 21, 2022 We have served as the auditor of one or more First Trust investment companies since 2001. Page 21 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund's website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission's ("SEC") website at www.sec.gov. PORTFOLIO HOLDINGS The Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC's website at www.sec.gov. The Fund's complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The Fund's Forms N-PORT and Forms N-CSR are available on the SEC's website listed above. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS At a special meeting of shareholders held on February 22, 2022, shareholders of the Fund voted to approve certain changes to the Fund's principal investment strategies. Those changes resulted in the conversion of the Fund from its previous multi-manager, multi-strategy actively managed investment strategy, to its current fund-of-funds actively managed investment strategy that follows First Trust's First Trust High Income Model. The new investment strategy resulted in a reduction of the Fund's management fee from 0.85% of average daily net assets to 0.20% of average daily net assets; however, the Fund now incurs acquired fund fees and expenses and its total fees and expenses are subject to a cap of 0.87% of average daily net assets. Concurrently with the implementation of those changes, the Fund's name changed from First Trust Strategic Income ETF to First Trust High Income Strategic Focus ETF. The number of shares voted in favor of the proposal was 370,690, the number voted against was 7,630, and the number of abstentions was 94,434. FEDERAL TAX INFORMATION For the taxable year ended October 31, 2022, the following percentages of income paid by the Fund qualify for the dividends received deduction available to corporations and are hereby designated as qualified dividend income: Dividends Received Deduction Qualified Dividend Income ---------------------------- ------------------------- 11.86% 12.55% A portion of the Fund's 2022 ordinary dividends (including short-term capital gains) paid to its shareholders during the fiscal year ended October 31, 2022, may be eligible for the Qualified Business Income Deduction (QBI) under Internal Revenue Code Section 199A for the aggregate dividends the Fund received from the underlying Real Estate Investment Trusts (REITs) it invests in. RISK CONSIDERATIONS RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND. CONCENTRATION RISK. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund's investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund's corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified. Page 22 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer's ability to make such payments. CYBER SECURITY RISK. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund's third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches. DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor's investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund's share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless. DERIVATIVES RISK. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund's portfolio managers use derivatives to enhance the fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund. EQUITY SECURITIES RISK. To the extent a fund invests in equity securities, the value of the fund's shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors' perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market. ETF RISK. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF's shares, or decisions by an ETF's authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF's shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads. FIXED INCOME SECURITIES RISK. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund's fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund's fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, Page 23 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or "junk" bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities. INDEX OR MODEL CONSTITUENT RISK. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund's net asset value could be negatively impacted and the fund's market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund's shares. INDEX PROVIDER RISK. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund's costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders. INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund's investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests. LIBOR RISK. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate ("LIBOR") as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom's Financial Conduct Authority, which regulates LIBOR has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021. There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate ("SOFR") will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund. MANAGEMENT RISK. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund's investment portfolio, the fund's portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective. MARKET RISK. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed "reasonably" normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund's portfolio securities or other instruments and could result in disruptions in the trading markets. Any of Page 24 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) such circumstances could have a materially negative impact on the value of a fund's shares and result in increased market volatility. During any such events, a fund's shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund's shares may widen. NON-U.S. SECURITIES RISK. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries. OPERATIONAL RISK. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund's service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund's ability to meet its investment objective. Although the funds and the funds' investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks. PASSIVE INVESTMENT RISK. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets. PREFERRED SECURITIES RISK. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company's capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock. VALUATION RISK. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE ADVISORY AGREEMENT BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT AGREEMENT The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the "Agreement") with First Trust Advisors L.P. (the "Advisor") on behalf of the First Trust High Income Strategic Focus ETF (the "Fund"). The Board approved the continuation of the Agreement for a one-year period ending June 30, 2023 at a meeting held on June 12-13, 2022. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment. To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the "1940 Act"), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting Page 25 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) on such agreements. At meetings held on April 18, 2022 and June 12-13, 2022, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate payable by the Fund as compared to fees charged to a peer group of funds (the "Expense Group") and a broad peer universe of funds (the "Expense Universe"), each assembled by Broadridge Financial Solutions, Inc. ("Broadridge"), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds ("ETFs") managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund's Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund's performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the "Performance Universe"), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. ("FTP"); and information on the Advisor's compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 18, 2022, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 12-13, 2022 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund's perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund's unitary fee. In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor's Investment Committee is responsible for the day-to-day management of the Fund's investments. The Board considered the background and experience of the members of the Investment Committee and noted the Board's prior meetings with members of the Investment Committee. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor's and the Fund's compliance with the 1940 Act, as well as the Fund's compliance with its investment objectives, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board's consideration of the Advisor's services, the Advisor, in its written materials and at the April 18, 2022 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with the Fund's investment objectives, policies and restrictions. The Board considered the unitary fee rate payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund's expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, acquired fund fees and expenses, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board noted that because the Fund invests in underlying ETFs, including ETFs in the First Trust Fund Complex, the Fund incurs acquired fund fees and expenses, which are not payable out of the unitary fee, and that such acquired fund fees and expenses will change over time as assets are reallocated among the underlying ETFs. The Board considered that the Advisor agreed to cap the Fund's combined unitary fee and acquired fund fees and expenses at 0.87% of its average daily net assets at least through March 1, 2023. The Board noted that expenses reimbursed and fees waived are subject to recovery by the Advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment would be made by the Fund if it results in the Fund exceeding (i) the applicable expense limitation in place for the most recent fiscal year for which such expense limitation was in place, (ii) the applicable expense limitation in place at the time the fees were waived, or (iii) the current expense limitation. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Page 26 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the unitary fee rate for the Fund, after taking into account fee waivers, was below the median total (net) expense ratio (excluding acquired fund fees and expenses) of the peer funds in the Expense Group. The Board also noted that the Fund's total (net) expense ratio (including acquired fund fees and expenses) was below the median total (net) expense ratio (including acquired fund fees and expenses) of the peer funds in the Expense Group. With respect to the Expense Group, the Board, at the April 18, 2022 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models may affect the pricing of services among ETF sponsors. The Board also noted that the Expense Group contained both actively-managed ETFs and open-end mutual funds. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. The Board noted that, in connection with a change in the Fund's investment strategy from a multi-manager, multi-strategy investment strategy to a fund-of-funds investment strategy that follows the Advisor's High Income model, which shareholders approved effective February 28, 2022, the Fund's unitary fee rate was reduced from 0.85% to 0.20% of the Fund's average daily net assets. In considering the unitary fee rate overall, the Board also considered the Advisor's statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor's demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex. The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund's performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund's performance. The Board received and reviewed information comparing the Fund's performance for periods ended December 31, 2021 to the performance of the funds in the Performance Universe and to that of a blended benchmark index. Based on the information provided, the Board noted that the Fund outperformed the Performance Universe median and underperformed the blended benchmark index for the one-, three- and five-year periods ended December 31, 2021. The Board noted the change in the Fund's investment strategy approved by shareholders effective February 28, 2022. On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement. The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund and noted the Advisor's statement that it believes that its expenses relating to providing advisory services to the Fund will likely increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board noted that any reduction in fixed costs associated with the management of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for the Fund. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2021 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor's profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft-dollars in connection with the Fund. In addition, the Board considered that the Advisor, as the investment advisor to certain of the underlying ETFs in which the Fund invests, will recognize additional revenue from such underlying ETFs if investment by the Fund causes the assets of the underlying ETFs to grow. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable. Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board's analysis. Page 27 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) BOARD CONSIDERATIONS REGARDING APPROVAL OF AMENDMENT TO THE INVESTMENT MANAGEMENT AGREEMENT The Board of Trustees of First Trust Exchange-Traded Fund IV (the "Trust"), including the Independent Trustees, unanimously approved the amendment (the "Amendment") of the Investment Management Agreement (the "Agreement") with First Trust Advisors L.P. (the "Advisor") on behalf of the First Trust High Income Strategic Focus ETF (the "Fund"). The Board approved the Amendment at a meeting held on October 24, 2022. As part of the review process, the Board reviewed information and had preliminary discussions with the Advisor regarding the proposed Amendment at meetings held on April 18, 2022, June 12-13, 2022 and September 18-19, 2022. Following those preliminary discussions, the Board requested and received information from the Advisor regarding the proposed Amendment, and that information was considered at an executive session of the Independent Trustees and their counsel held prior to the October 24, 2022 meeting, as well as at the October meeting. In reviewing the Amendment, the Board considered that the purpose of the Amendment is to modify the unitary fee rate for the Fund under the Agreement by introducing a breakpoint schedule pursuant to which the unitary fee rate paid by the Fund to the Advisor will be reduced as assets of the Fund meet certain thresholds. The Board noted the Advisor's representations that the quality and quantity of the services provided to the Fund by the Advisor under the Agreement will not be reduced or modified as a result of the Amendment, and that the obligations of the Advisor under the Agreement will remain the same in all respects. The Board noted that it, including the Independent Trustees, last approved the continuation of the Agreement for a one-year period ending June 30, 2023 at a meeting held on June 12-13, 2022. The Board noted that in connection with such approval it had determined, based upon the information provided, that the terms of the Agreement were fair and reasonable and that the continuation of the Agreement was in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment. Based on all of the information considered, the Board, including the Independent Trustees, unanimously determined that the terms of the Amendment are fair and reasonable and that the Amendment is in the best interests of the Fund. Page 28 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) The following tables identify the Trustees and Officers of the Trust. Unless otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite 400, Wheaton, IL 60187. The Trust's statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891. NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 223 None (1951) Group; Physician and Officer, o Since Inception Wheaton Orthopedics (1990 to 2021) Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 223 Director, National Futures (1957) Services, Inc. (Futures Commission Association and ADMIS o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly, Director of ADM Investor Services, Inc., ADM Investor Services International, ADMIS Hong Kong Ltd., and Futures Industry Association Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 223 Director and Board Chair (1964) Aurora Health and President, Advocate of Advocate Home Health o Since 2021 Aurora Continuing Health Division Services, Advocate Home (Integrated Healthcare System) Care Products and Advocate Hospice; Director and Board Chair of Aurora At Home (since 2018); Director of Advocate Physician Partners Accountable Care Organization; Director and Board Chair of RML Long Term Acute Care Hospitals; and Director of Senior Helpers (since 2021) Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 223 Formerly, Director of Trust (1956) (Financial and Management Consulting) Company of Illinois o Since Inception Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 223 None (1954) Managing Director and Chief Operating o Since Inception Officer (2015 to 2018), Pelita Harapan Educational Foundation (Educational Products and Services) ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 223 None Chairman of the Board Advisors L.P. and First Trust o Since Inception Portfolios L.P., (1955) Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) ----------------------------- (1) Mr. Bowen is deemed an "interested person" of the Trust due to his position as Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust. Page 29 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) POSITION AND TERM OF OFFICE NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS(2) ------------------------------------------------------------------------------------------------------------------------------------ James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First (1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.; o Since 2016 Chief Financial Officer, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and (1972) Officer and Chief Accounting First Trust Portfolios L.P. Officer o Since 2016 W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First (1960) Officer Trust Portfolios L.P.; Secretary and General Counsel, o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First (1970) Trust Portfolios L.P. o Since Inception Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and (1966) Assistant Secretary First Trust Portfolios L.P. o Since Inception Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and (1966) First Trust Portfolios L.P. o Since Inception Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and (1970) First Trust Portfolios L.P. o Since Inception ----------------------------- (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 30 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST HIGH INCOME STRATEGIC FOCUS ETF (HISF) OCTOBER 31, 2022 (UNAUDITED) PRIVACY POLICY First Trust values our relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information. SOURCES OF INFORMATION We collect nonpublic personal information about you from the following sources: o Information we receive from you and your broker-dealer, investment professional or financial representative through interviews, applications, agreements or other forms; o Information about your transactions with us, our affiliates or others; o Information we receive from your inquiries by mail, e-mail or telephone; and o Information we collect on our website through the use of "cookies." For example, we may identify the pages on our website that your browser requests or visits. INFORMATION COLLECTED The type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status, family relationships and other personal information. DISCLOSURE OF INFORMATION We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses may also include the disclosure of such information to unaffiliated companies for the following reasons: o In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. o We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). In addition, in order to alert you to our other financial products and services, we may share your personal information within First Trust. USE OF WEBSITE ANALYTICS We currently use third party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust's website and marketing our products and services to you. These tools employ cookies, which are small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and web navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust's website better and more useful to our users. The information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to contact you in order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. POLICY UPDATES AND INQUIRIES As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). March 2022 Page 31 This page intentionally left blank. FIRST TRUST First Trust Exchange-Traded Fund IV INVESTMENT ADVISOR First Trust Advisors L.P. 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ADMINISTRATOR, CUSTODIAN, FUND ACCOUNTANT & TRANSFER AGENT The Bank of New York Mellon 240 Greenwich Street New York, NY 10286 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 111 S. Wacker Drive Chicago, IL 60606 LEGAL COUNSEL Chapman and Cutler LLP 320 South Canal Street Chicago, IL 60606 {BLANK BACK COVER}