First Trust Merger Arbitrage ETF (MARB)

Semi-Annual Report

January 31, 2022

Shareholder Letter	1
Fund Performance Overview	2
Portfolio Management	4
Understanding Your Fund Expenses	5
Portfolio of Investments	6
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
Additional Information	18

Caution Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or First Trust Capital Management L.P. (“First Trust Capital Management” or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (First Trust Merger Arbitrage ETF; hereinafter referred to as the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Performance and Risk Disclosure

There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund.

Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.

The Advisor may also periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.

How to Read This Report

This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.

The statistical information that follows may help you understand the Fund’s performance compared to that of relevant market benchmarks.

It is important to keep in mind that the opinions expressed by personnel of the Advisor and/or Sub-Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.

First Trust Merger Arbitrage ETF (MARB)

Semi-Annual Letter from the Chairman and CEO

January 31, 2022

Dear Shareholders,

First Trust is pleased to provide you with the semi-annual report for the First Trust Merger Arbitrage ETF (the “Fund”), which contains detailed information about the Fund for the six-month period ended January 31, 2022.

It is times like these that really test the resolve of investors. Since the start of November 2021, we have seen the major U.S. stock indices decline markedly from their all-time highs. Many pundits and experts are calling for additional near-term selling pressure due to robust inflation and the prospects for multiple interest rate hikes from the Federal Reserve (the “Fed”), with anticipation that rate increases could begin as early as March 2022. For the record, Brian Wesbury, Chief Economist at First Trust, has been steadfast in his belief that the Fed is already behind the curve with respect to inflation and interest rates, which means the Fed may have a little chasing to do at some point to deliver on its mandate of price stability. In January 2022, the Consumer Price Index stood at 7.5% on a trailing 12-month basis, the highest it has been since 1982, according to the U.S. Bureau of Labor Statistics (“BLS”). The spike in inflation over the past year is primarily rooted in a massive increase in the U.S. money supply, in my opinion. It was brought to bear to mitigate the economic fallout from the coronavirus (“COVID-19”) pandemic. The disruption of the global supply chain and the overall lack of goods available for consumption are also contributing to the spike in inflation, and both happen to be collateral damage from the pandemic. Remember, the definition of inflation is “too many dollars chasing too few goods.” This is the climate we are in today.

It has been roughly two years since the onset of the COVID-19 pandemic and we are still battling this stubborn virus. There is, however, some good news to report. Despite the recommendation from the Centers for Disease Control and Prevention that masks continue to be worn indoors, as of mid-February 2022, many states had terminated their divisive mask mandates, and more could do so soon. Providing that the number of cases continues to shrink in the U.S., and we do not encounter any other significant variants like Omicron, we could attempt another run at fully reopening the U.S. economy (such an attempt was made in 2021 prior to the onset of the Omicron variant). Reopening the economy could prove to be a positive, and much needed, influence on getting more people back to work. This is especially relevant for those parents staying at home due to a shortage of daycare services or for those with children still e-learning. The U.S. finished 2021 with 10.9 million job openings, well above the 10-year average of 6.0 million, according to the BLS.

Lastly, we believe that politics, both domestic and foreign, could influence the markets in 2022. The most pressing issue currently is the conflict between Russia and Ukraine. The prevailing concern is that a Russian invasion could boost uncertainty and increase volatility in the markets, particularly the energy market. A war could conceivably push the price of oil higher, putting additional strain on inflation. On the domestic front, as it stands, the Biden Administration’s Build Back Better Act does not have the support of enough Democrats in the Senate to pass. It included substantial tax hikes primarily targeting the wealthy to pay for the nearly $2 trillion price tag. At best, the hope is to split it up into smaller bills to see if pieces of it can pass. That leads us to the second domestic political issue: the midterm elections in November 2022. If the Republicans can win back control of the House and the Senate, I would expect gridlock to persist throughout the last two years of President Joe Biden’s term. The good news is that gridlock is a normal byproduct of our system of checks and balances. The markets have experienced it, and investors have navigated it, plenty of times. The bottom line is that we need to reopen the economy and get people back to work. Stay the course!

Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.

Sincerely,

James A. Bowen

Chairman of the Board of Trustees

Chief Executive Officer of First Trust Advisors L.P.

Page 1

First Trust Merger Arbitrage ETF (MARB)

The First Trust Merger Arbitrage ETF’s (the “Fund”) investment objective is to seek to provide investors with capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition. The Fund’s portfolio may include equity securities issued by U.S. and non-U.S. companies, including American Depositary Receipts, and derivatives, including total return swaps. The Fund may invest in securities issued by small, mid and large capitalization issuers. The Fund lists and principally trades its shares on NYSE Arca, Inc. under the ticker symbol “MARB.”

Performance
			Average Annual Total Returns	Cumulative Total Returns
	6 Months Ended 1/31/22	1 Year Ended 1/31/22	Inception (2/4/20) to 1/31/22	Inception (2/4/20) to 1/31/22
Fund Performance
NAV	1.07%	1.07%	-0.63%	-1.25%
Market Price	1.07%	0.97%	-0.66%	-1.30%
Index Performance
Hedge Fund Research Merger Arbitrage Index	0.65%	0.90%	3.63%	7.35%
S&P 500® Index	3.44%	23.29%	19.02%	41.40%

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. Since shares of the Fund did not trade in the secondary market until after its inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively.

An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future performance.

Page 2

First Trust Merger Arbitrage ETF (MARB)

Portfolio Sector Allocation	% of Total Investments - Long Positions
Financials	34.0%
Information Technology	32.9
Industrials	14.8
Real Estate	9.6
Consumer Staples	4.4
Health Care	3.1
Materials	1.2
Total	100.0%

    

Portfolio Sector Allocation	% of Total Investments Sold Short
Financials	70.2%
Information Technology	20.1
Real Estate	8.6
Health Care	1.1
Total	100.0%

Top Ten Investments - Long Positions	% of Net Assets
Xilinx, Inc.	8.8%
IHS Markit Ltd.	7.7
Flagstar Bancorp, Inc.	6.8
Nuance Communications, Inc.	6.3
Investors Bancorp, Inc.	5.8
Sterling Bancorp	5.7
CyrusOne, Inc.	4.2
MGM Growth Properties LLC, Class A	4.1
People’s United Financial, Inc.	3.9
Sanderson Farms, Inc.	3.8
Total	57.1%

    

Top Ten Investments Sold Short	% of Net Assets
Advanced Micro Devices, Inc.	-9.0%
S&P Global, Inc.	-7.8
New York Community Bancorp, Inc.	-7.1
Webster Financial Corp.	-5.7
Citizens Financial Group, Inc.	-5.4
VICI Properties, Inc.	-4.1
M&T Bank Corp.	-4.0
First Interstate BancSystem, Inc., Class A	-1.6
Raymond James Financial, Inc.	-1.6
Entegris, Inc.	-0.6
Total	-46.9%

Page 3

Portfolio Management

First Trust Merger Arbitrage ETF (MARB)

Semi-Annual Report

January 31, 2022 (Unaudited)

Advisor

First Trust Advisors L.P. (“First Trust”) serves as the investment advisor to the First Trust Merger Arbitrage ETF (the “Fund” or “MARB”). First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.

Sub-Advisor

First Trust Capital Management L.P.

First Trust Capital Management L.P. (“First Trust Capital Management” or the “Sub-Advisor”) serves as the Fund’s investment sub-advisor. First Trust Capital Management is an SEC registered investment advisor, founded in 2013 and headquartered in Chicago, Illinois, that specializes in structuring and managing alternative investment, multi-manager, and multi-strategy mutual funds. First Trust Capital Management prides itself on its ability to combine rigorous research and risk management processes with disciplined portfolio construction and management.

Portfolio Management Team

Michael Peck, CFA – President and Co-Chief Investment Officer, First Trust Capital Management

Brian Murphy – Co-Chief Investment Officer and Portfolio Manager, First Trust Capital Management

Michael Grayson – Portfolio Manager, First Trust Capital Management

The portfolio managers are primarily and jointly responsible for the day to day management of the Fund. Each portfolio manager has served in such capacity for the Fund since 2020.

Page 4

First Trust Merger Arbitrage ETF (MARB)

Understanding Your Fund Expenses

January 31, 2022 (Unaudited)

As a shareholder of the First Trust Merger Arbitrage 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 January 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.

	Beginning Account Value August 1, 2021	Ending Account Value January 31, 2022	Annualized Expense Ratio Based on the Six-Month Period	Expenses Paid During the Six-Month Period (a)
First Trust Merger Arbitrage ETF (MARB)
Actual	$1,000.00	$1,010.70	2.29%	$11.61
Hypothetical (5% return before expenses)	$1,000.00	$1,013.66	2.29%	$11.62

    

(a)	Expenses are equal to the annualized expense ratios as indicated in the table multiplied by the average account value over the period (August 1, 2021 through January 31, 2022), multiplied by 184/365 (to reflect the six-month period).

Page 5

First Trust Merger Arbitrage ETF (MARB)

Portfolio of Investments

January 31, 2022 (Unaudited)

First Trust Merger Arbitrage ETF (MARB)

Portfolio of Investments (Continued)

January 31, 2022 (Unaudited)

Shares		Description		Value
REAL ESTATE INVESTMENT TRUSTS SOLD SHORT – (4.1)%
		Equity Real Estate Investment Trusts – (4.1)%
(5,626)		VICI Properties, Inc.		$(161,016)
		(Proceeds $168,920)
		Total Investments Sold Short – (47.5)%		(1,876,641)
		(Proceeds $1,746,222)
		Net Other Assets and Liabilities – 61.0%		2,409,408
		Net Assets – 100.0%		$3,952,884

    

(a)	This security or a portion of this security is segregated as collateral for investments sold short.
(b)	Non-income producing security.

Valuation Inputs

A summary of the inputs used to value the Fund’s investments as of January 31, 2022 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):

ASSETS TABLE
	Total Value at 1/31/2022	Level 1 Quoted Prices	Level 2 Significant Observable Inputs	Level 3 Significant Unobservable Inputs
Common Stocks*	$ 3,093,787	$ 3,093,787	$ —	$ —
Real Estate Investment Trusts*	326,330	326,330	—	—
Total Investments	$ 3,420,117	$ 3,420,117	$—	$—
LIABILITIES TABLE
	Total Value at 1/31/2022	Level 1 Quoted Prices	Level 2 Significant Observable Inputs	Level 3 Significant Unobservable Inputs
Common Stocks Sold Short*	$ (1,715,625)	$ (1,715,625)	$ —	$ —
Real Estate Investment Trusts Sold Short*	(161,016)	(161,016)	—	—
Total Investments	$ (1,876,641)	$ (1,876,641)	$—	$—

    

*	See Portfolio of Investments for industry breakout.

See Notes to Financial Statements

Page 7

First Trust Merger Arbitrage ETF (MARB)

Statement of Assets and Liabilities

January 31, 2022 (Unaudited)

ASSETS:
Investments, at value  (Cost $3,306,733)	$ 3,420,117
Cash	192,581
Restricted Cash	2,222,253
Dividends receivable	2,943
Total Assets	5,837,894
LIABILITIES:
Investments sold short, at value (proceeds $1,746,222)	1,876,641
Payables:
Investment advisory fees	4,572
Dividends on investments sold short	3,214
Margin interest expense	583
Total Liabilities	1,885,010
NET ASSETS	$3,952,884
NET ASSETS consist of:
Paid-in capital	$ 4,428,700
Par value	2,000
Accumulated distributable earnings (loss)	(477,816)
NET ASSETS	$3,952,884
NET ASSET VALUE, per share	$19.76
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)	200,002

Page 8

See Notes to Financial Statements

First Trust Merger Arbitrage ETF (MARB)

Statement of Operations

For the Six Months Ended January 31, 2022 (Unaudited)

INVESTMENT INCOME:
Dividends		$ 30,689
Interest		20
Other		247
Total investment income		30,956
EXPENSES:
Investment advisory fees		49,764
Dividend expense on investments sold short		36,730
Margin interest expense		4,864
Total expenses		91,358
NET INVESTMENT INCOME (LOSS)		(60,402)
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments		(61,198)
In-kind redemptions		(47,435)
Investments sold short		59,765
Net realized gain (loss)		(48,868)
Net change in unrealized appreciation (depreciation) on:
Investments		119,380
Investments sold short		64,297
Net change in unrealized appreciation (depreciation)		183,677
NET REALIZED AND UNREALIZED GAIN (LOSS)		134,809
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$ 74,407

See Notes to Financial Statements

Page 9

First Trust Merger Arbitrage ETF (MARB)

Statements of Changes in Net Assets

	Six Months Ended 1/31/2022 (Unaudited)		Year Ended 7/31/2021
OPERATIONS:
Net investment income (loss)	$ (60,402)		$ (143,975)
Net realized gain (loss)	(48,868)		414,482
Net change in unrealized appreciation (depreciation)	183,677		(174,442)
Net increase (decrease) in net assets resulting from operations	74,407		96,065
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold	—		21,654,151
Cost of shares redeemed	(6,873,954)		(23,646,537)
Net increase (decrease) in net assets resulting from shareholder transactions	(6,873,954)		(1,992,386)
Total increase (decrease) in net assets	(6,799,547)		(1,896,321)
NET ASSETS:
Beginning of period	10,752,431		12,648,752
End of period	$3,952,884		$10,752,431
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period	550,002		650,002
Shares sold	—		1,100,000
Shares redeemed	(350,000)		(1,200,000)
Shares outstanding, end of period	200,002		550,002

Page 10

See Notes to Financial Statements

First Trust Merger Arbitrage ETF (MARB)

Financial Highlights

For a share outstanding throughout each period

	Six Months Ended 1/31/2022 (Unaudited)		Year Ended 7/31/2021		Period Ended 7/31/2020 (a)
Net asset value, beginning of period	$ 19.55		$ 19.46		$ 20.01
Income from investment operations:
Net investment income (loss)	(0.45)		(0.26)		(0.07)
Net realized and unrealized gain (loss)	0.66		0.35		(0.48)
Total from investment operations	0.21		0.09		(0.55)
Net asset value, end of period	$19.76		$19.55		$19.46
Total return (b)	1.07%		0.46%		(2.75)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000’s)	$ 3,953		$ 10,752		$ 12,649
Ratio of total expenses to average net assets	2.29% (c)		2.23%		2.30% (c)
Ratio of total expenses to average net assets excluding dividend expense and margin interest expense	1.25% (c)		1.25%		1.25% (c)
Ratio of net investment income (loss) to average net assets	(1.52)% (c)		(1.15)%		(1.71)% (c)
Portfolio turnover rate (d)	256%		280%		137%

    

(a)	Inception date is February 4, 2020, which is consistent with the commencement of investment operations and is the date the initial creation units were established.
(b)	Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year.
(c)	Annualized.
(d)	Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.

Page 11

Notes to Financial Statements

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

1. Organization

First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).

The Trust currently consists of seventeen funds that are offering shares. This report covers the First Trust Merger Arbitrage ETF (the “Fund”), a non-diversified series of the Trust, which trades under the ticker “MARB” on NYSE Arca, Inc. The Fund represents a separate series of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”

The Fund is an actively managed exchange-traded fund. The investment objective of the Fund is to seek to provide investors with capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition. The Fund’s portfolio may include equity securities issued by U.S. and non-U.S. companies, including American Depositary Receipts, and derivatives, including total return swaps. The Fund may invest in securities issued by small, mid and large capitalization issuers.

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. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.

The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures adopted by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:

Common stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities.

Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price.

Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust’s Board of Trustees or its delegate, the Advisor’s Pricing Committee, at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value

Page 12

Notes to Financial Statements (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:

1)	the type of security;
2)	the size of the holding;
3)	the initial cost of the security;
4)	transactions in comparable securities;
5)	price quotes from dealers and/or third-party pricing services;
6)	relationships among various securities;
7)	information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
8)	an analysis of the issuer’s financial statements; and
9)	the existence of merger proposals or tender offers that might affect the value of the security.

The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:

•	Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•	Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:

o	Quoted prices for similar investments in active markets.
o	Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o	Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•	Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.

The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of January 31, 2022, is included with the Fund’s Portfolio of Investments.

B. Securities Transactions and Investment Income

Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded daily on the accrual basis.

Distributions received from the Fund’s investments in real estate investment trusts (“REITs”) may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the 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. Short Sales

Short sales are utilized for investment and risk management purposes and are transactions in which securities or other instruments (such as options, forwards, futures or other derivative contracts) are sold by the Fund, but are not currently owned in the Fund’s portfolio. When the Fund engages in a short sale, the Fund must borrow the security sold short and deliver the security to the counterparty. Short selling allows the Fund to profit from a decline in a market price to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. The Fund will pay a fee or premium to borrow the securities sold short and is obligated to repay the lenders of the securities. Any dividends or interest that accrues on the securities during the period of the loan are due to the lenders. A gain, limited to the price at which the security was sold short, or a loss, unlimited in size, will be recognized upon the termination of the short sale; which is affected by the Fund purchasing the security sold short and delivering the security to the lender.

Page 13

Notes to Financial Statements (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

Any such gain or loss may be offset, completely or in part, by the change in the value of the long portion of the Fund’s portfolio. The Fund is subject to the risk that it may be unable to reacquire a security to terminate a short position except at a price substantially in excess of the last quoted price. Also, there is the risk that the counterparty to a short sale may fail to honor its contractual terms, causing a loss to the Fund.

The Fund has established an account with BNP Paribas Prime Brokerage International, Ltd. for the purpose of borrowing securities that the Fund intends to sell short. The Fund is charged interest on debit margin balances at a rate equal to 1-Month LIBOR plus 75 basis points. With regard to securities held short, the Fund is credited a rebate equal to the market value of its short positions at a rate equal to the Overnight Bank Funding Rate less 35 basis points. This rebate rate applies to easy to borrow securities. Securities that are hard to borrow may earn a rebate that is less than the foregoing or may be subject to a premium charge on a security by security basis. The different rebate rate is determined at the time of a short sale request. For the six months ended January 31, 2022, the Fund had margin interest expense of $4,864, as shown on the Statement of Operations. Restricted cash in the amount of $2,222,253, as shown on the Statement of Assets and Liabilities, is associated with collateral at the broker as of January 31, 2022.

D. Dividends and Distributions to Shareholders

Dividends from net investment income, if any, are declared and paid quarterly by the Fund, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually.

Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on 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.

During the fiscal year ended July 31, 2021, no distributions were paid by the Fund.

As of July 31, 2021, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$—
Accumulated capital and other gain (loss)	(349,814)
Net unrealized appreciation (depreciation)	(202,409)

E. Income Taxes

The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.

The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable periods ended 2020 and 2021 remain open to federal and state audit. As of January 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 July 31, 2021, for federal income tax purposes, the Fund had $302,118 of capital loss carryforward available, to the extent provided by regulations, to offset future capital gains.

Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended July 31, 2021, the Fund incurred and elected to defer net ordinary losses of $47,696.

Page 14

Notes to Financial Statements (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

As of January 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:

Tax Cost		Gross Unrealized Appreciation		Gross Unrealized (Depreciation)		Net Unrealized Appreciation (Depreciation)
$1,560,511		$244,877		$(261,912)		$(17,035)

F. Expenses

Expenses, other than the investment advisory fee, dividend and interest expenses on investments sold short and other excluded expenses, are paid by the Advisor (See Note 3).

3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements

First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for supervising the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.

Pursuant to an investment management agreement between First Trust and the Trust, on behalf of the Fund (the “Investment Management Agreement”), First Trust oversees First Trust Capital Management L.P.’s (“First Trust Capital Management” or the “Sub-Advisor”) management of the Fund’s assets. First Trust is paid an annual unitary management fee by the Fund equal to 1.25% of the Fund’s average daily net assets and is responsible for the expenses of the Fund 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, expenses associated with short sales transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. First Trust also provides fund reporting services to the Fund for a flat annual fee in the amount of $9,250, which is covered under the annual unitary management fee.

First Trust Capital Management receives sub-advisory fees equal to the annual rate of 0.625% of the average daily net assets of the Fund less the amount of Fund expenses owed by the Sub-Advisor. The Sub-Advisor’s fees are paid by the Advisor out of the Advisor’s management fee.

Vivaldi Holdings LLC (“Vivaldi Holdings”), the parent company of the Fund’s investment sub-advisor, Vivaldi Asset Management, LLC (“VAM”), and First Trust Capital Partners, LLC (“FTCP”), an affiliate of First Trust, created a joint venture, First Trust Capital Solutions L.P. (“FTCS”). In connection with the creation of this joint venture, substantially all of VAM’s equity was transferred to FTCS, and it was converted to a Delaware limited partnership and changed its name to First Trust Capital Management L.P. (“FTCM”) (the “Transaction”). In addition, Vivaldi Holdings has converted to a Delaware limited partnership and changed its name to VFT Holdings LP. The Transaction closed in December 2021 (the “Closing”). The Closing operated as an “assignment” (as defined in the 1940 Act) of the Fund’s investment sub-advisory agreement among the Trust, on behalf of the Fund, First Trust and VAM (the “Sub-Advisory Agreement”), which resulted in the automatic termination of the Sub-Advisory Agreement in accordance with its terms. The Board previously approved a new investment sub-advisory agreement (the “New Sub-Advisory Agreement”) among the Trust, on behalf of the Fund, First Trust and FTCM. The shareholders of MARB have subsequently voted to approve the New Sub-Advisory Agreement (See Note 8).

The Trust has multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH is responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH is responsible for maintaining shareholder records for the Fund.

Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a defined-outcome fund or an index fund.

Page 15

Notes to Financial Statements (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.

4. Purchases and Sales of Securities

For the six months ended January 31, 2022, the cost of purchases and proceeds from sales of investments, excluding short term investments, investments sold short and in-kind transactions were $5,170,497 and $5,262,931, respectively. The cost of purchases to cover short sales and the proceeds of short sales were $2,716,401 and $2,327,124, respectively.

For the six months ended January 31, 2022, the cost of in-kind purchases and proceeds from in-kind sales were $0 and $2,283,913, respectively.

5. Creations, Redemptions and Transaction Fees

The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as “Creation Units.” Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation (“NSCC”) the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.

The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.

The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.

6. Distribution Plan

The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or to provide investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.

No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before November 30, 2022.

Page 16

Notes to Financial Statements (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

7. Indemnification

The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

8. Subsequent Events

Management has evaluated the impact of all subsequent events to the Fund through the date the financial statements were issued and has determined that there were the following subsequent events:

On February 22, 2022, at a special shareholder meeting for the Fund, the shareholders of MARB voted to approve a New Sub-Advisory Agreement among the Fund, First Trust and FTCM.

Effective March 18, 2022, Jeff O’Brien and Daniel Lancz are no longer portfolio managers of the Fund.

Page 17

Additional Information

First Trust Merger Arbitrage ETF (MARB)

January 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 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.

Risk Considerations

Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.

Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.

Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.

Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.

Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, 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

Page 18

Additional Information (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.

Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.

ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.

Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.

Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.

Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.

Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.

LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR 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.

Page 19

Additional Information (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.

Market Risk. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. 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 outbreak of the respiratory disease designated as COVID-19 in December 2019 has caused significant volatility and declines in global financial markets, which have caused losses for investors. While the development of vaccines has slowed the spread of the virus and allowed for the resumption of “reasonably” normal business activity in the United States, many countries continue to impose lockdown measures in an attempt to slow the spread. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease.

Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.

Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.

Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.

NOT FDIC INSURED

NOT BANK GUARANTEED

MAY LOSE VALUE

Sub-Advisory Agreements

Board Considerations Regarding Approval of Investment Sub-Advisory Agreements

The Board of Trustees of First Trust Exchange-Traded Fund III (the “Trust”), including the Independent Trustees, unanimously approved (1) an Interim Investment Sub-Advisory Agreement (the “Interim Agreement”) among the Trust, on behalf of First Trust Merger Arbitrage ETF (the “Fund”), First Trust Advisors L.P. (the “Advisor”) and Vivaldi Asset Management, LLC (the “Sub-Advisor”); and (2) a new Investment Sub-Advisory Agreement (the “New Agreement”) among the Trust, on behalf of the Fund, the Advisor and the Sub-Advisor. The Interim Agreement and the New Agreement are collectively referred to as the “Agreements.” The Board approved the Agreements at a meeting held on September 12–13, 2021. The Board determined that the approval of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services expected to be provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.

The Sub-Advisor currently serves as investment sub-advisor to the Fund pursuant to an Investment Sub-Advisory Agreement (the “Current Agreement”) among the Trust, on behalf of the Fund, the Advisor and the Sub-Advisor. Prior to the September 2021 meeting, the Board was informed that Vivaldi Holdings LLC (“Vivaldi Holdings”), the Sub-Advisor’s parent company, and First Trust Capital Partners, LLC (“FTCP”), an affiliate of the Advisor, intended to create a joint venture, First Trust Capital Solutions L.P. (“FTCS”), which would be owned 50% by Vivaldi Holdings and its affiliates and 50% by FTCP, and that the equity of the Sub-Advisor would be contributed to FTCS and the Sub-Advisor would thereby become wholly owned by FTCS (the “Transaction”). The Board was

Page 20

Additional Information (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

informed that the consummation of the Transaction, which was expected to occur in the fourth quarter of 2021, may operate as an “assignment” of the Current Agreement under the Investment Company Act of 1940, as amended (the “1940 Act”), and as a result the Current Agreement would terminate pursuant to its terms and the requirements of the 1940 Act. The Agreements were proposed to the Board in connection with the Transaction to provide for the continuous management of the Fund by the Sub-Advisor following the consummation of the Transaction. The Board noted that the New Agreement would be submitted to shareholders of the Fund for their approval and that the Interim Agreement would become effective only if shareholders of the Fund did not approve the New Agreement prior to the consummation of the Transaction and would remain in effect until the earlier of 150 days from the consummation of the Transaction or shareholder approval of the New Agreement.

On July 15, 2021, counsel to the Independent Trustees provided the Advisor and the Sub-Advisor with requests for information regarding the Transaction and its expected impact on the Sub-Advisor. Following receipt of materials provided by the Advisor and the Sub-Advisor in response to the requests, counsel to the Independent Trustees requested certain clarifications and supplements to the materials provided. At an executive session held on September 9, 2021, as well as at the meeting held on September 12–13, 2021, the Board, including the Independent Trustees, discussed the Transaction and reviewed the materials provided by the Advisor and the Sub-Advisor that, among other things, outlined the structure and details of the Transaction and the Transaction’s expected impact on the Sub-Advisor’s management of the Fund under the Agreements.

To reach its determination in approving the Agreements for the Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. In addition, at the September 2021 Board meeting, representatives of the Advisor discussed the Transaction with the Board. In connection with its deliberations regarding the Agreements, the Board noted that, based on the information provided by the Advisor and the Sub-Advisor, any differences in the terms and conditions of each Agreement, including the effective and termination dates and any provisions of the Interim Agreement required by Rule 15a-4 under the 1940 Act, and the terms and conditions of the Current Agreement were immaterial to the Sub-Advisor’s management of the Fund. The Board considered that the information provided by the Advisor and the Sub-Advisor in response to the Independent Trustees’ request for information included statements that the Transaction will not have any effect with respect to senior management at the Sub-Advisor nor any key personnel who work on matters relating to the Fund; that the services provided to the Fund by the Sub-Advisor and the Fund’s portfolio management team will remain unchanged (with the exception of one member of the portfolio management team who will transition to another role at the Sub-Advisor pursuant to a plan unrelated to the Transaction); that the sub-advisory fee rate for the Fund will not change; and that the Transaction will not result in any diminution in the nature, quality and extent of the services provided to the Fund by the Sub-Advisor. The Board also considered the Sub-Advisor’s statements about the potential benefits of its partnership with First Trust, including access to First Trust’s distribution network and to First Trust’s depth, knowledge, expertise and experience in the asset management space. The Board concluded that these potential benefits to the Sub-Advisor from the Transaction were not unreasonable.

The Board also considered that it had last approved the Current Agreement for the Fund during the annual contract renewal process that concluded at the Board’s June 6–7, 2021 meeting. Given the Sub-Advisor’s representations that the services provided to the Fund by the Sub-Advisor will remain unchanged and that, except as discussed in the response to the Independent Trustees’ July 15, 2021 request to the Sub-Advisor relating to the Transaction, the Board could continue to rely on the materials provided by the Sub-Advisor in connection with the June 2021 renewal of the Current Agreement, as well as the Advisor’s representation that any differences in the terms of the Current Agreement and the New Agreement were immaterial to the Sub-Advisor’s management of the Fund, the Board determined that its prior considerations in approving the renewal of the Current Agreement remained relevant. The Board noted that, in reviewing and renewing the Current Agreement:

•	The Board considered the nature, extent and quality of the services provided by the Sub-Advisor and that the Sub-Advisor actively manages the Fund’s investments. In considering the Sub-Advisor’s management of the Fund, the Board noted the background and experience of the Sub-Advisor’s portfolio management team, including the Board’s prior meetings with members of the portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Fund by the Sub-Advisor were satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with the Fund’s investment objective, policies and restrictions.
•	The Board noted that the sub-advisory fee for the Fund is paid by the Advisor from the unitary fee payable under the Fund’s investment advisory agreement. The Board received and reviewed information showing the sub-advisory fee rate for the Fund as compared to fees charged to other clients of the Sub-Advisor.
•	The Board considered performance information for the Fund. The Board noted the process that it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting

Page 21

Additional Information (Continued)

First Trust Merger Arbitrage ETF (MARB)

January 31, 2022 (Unaudited)

from the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. Because the Fund commenced operations on February 4, 2020 and therefore had a limited performance history, comparative performance information for the Fund was not considered.

•

The Board considered the Sub-Advisor’s statement that it believes that the sub-advisory fee is appropriate based on expected economies of scale. The Board noted the Sub-Advisor’s statements that the majority of its expenses are fixed and are shared and allocated across various funds advised or sub-advised by the Sub-Advisor and that it has added additional personnel over the past year. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board noted that the Advisor pays the Sub-Advisor for the Fund from its unitary fee and its understanding that the Fund’s sub-advisory fee rate was the product of an arm’s length negotiation. The Board considered the potential fall-out benefits to the Sub-Advisor from being associated with the Advisor and the Fund, and noted the Sub-Advisor’s statement that, although it benefits from the name recognition associated with its role as sub-advisor to the Fund, it has not received and does not anticipate receiving any reduction in fees incurred for research or other services as a result of its management of the Fund. The Board also noted the Sub-Advisor’s statement that the Sub-Advisor does not intend to use soft dollars in connection with the Fund. The Board concluded that the character and amount of potential fall-out benefits to the Sub-Advisor were not unreasonable.

Based on all of the information considered and the conclusions reached, including the information considered and conclusions reached in connection with the June 2021 renewal of the Current Agreement, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements were fair and reasonable and that the approval of the Agreements is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.

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First Trust Exchange-Traded Fund III

INVESTMENT ADVISOR

First Trust Advisors L.P.

120 East Liberty Drive, Suite 400

Wheaton, IL 60187

INVESTMENT SUB-ADVISOR

First Trust Capital Management L.P.

225 West Wacker Drive, Suite 2100

Chicago, IL 60606

ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT

Brown Brothers Harriman & Co.

50 Post Office Square

Boston, MA 02110

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP

111 S. Wacker Drive

Chicago, IL 60606

LEGAL COUNSEL

Chapman and Cutler LLP

320 South Canal Street

Chicago, IL 60606